What Is a Bridge Loan? A Complete Guide for Real Estate Buyers

In competitive real estate markets, timing can make all the difference. Buyers often need to move quickly on new opportunities before selling an existing property — and that’s where bridge loans come in.

A bridge loan provides short-term financing to “bridge the gap” between the purchase of a new property and the sale or permanent financing of another. This guide explains how bridge loans work, when they’re used, and what to consider before applying.

What Is a Bridge Loan?

A bridge loan (also known as interim financing, swing loan, or gap financing) is a short-term loan that helps cover the time period between two major financial transactions — typically, the purchase of a new property and the sale of an existing one.

Bridge loans are commonly used by both real estate investors and homebuyers who need quick access to capital to secure a property before longer-term financing or sale proceeds become available.

How a Bridge Loan Works

Here’s a simplified overview of how it typically functions:

1. You apply for a bridge loan using the equity in your current property as collateral.

2. The lender provides funds—usually up to a certain percentage of your property’s value—to help you purchase or close on the new property.

3. Once your existing property sells or permanent financing is secured, the bridge loan is repaid, typically within 6–12 months.

Bridge loans are meant to be temporary solutions—they’re not designed for long-term holding or investment.

Common Uses for Bridge Loans

Bridge loans are flexible tools used in a variety of real estate situations, including:

• Buying before selling: You’ve found a new property but haven’t sold your current one yet.

• Fix-and-flip investments: Investors use bridge loans to quickly acquire and renovate properties before refinancing or selling.

• 1031 Exchange timing: In some cases, investors use bridge financing to purchase a replacement property before the relinquished property closes—helping them stay within the IRS’s 180-day exchange window (with careful structuring and guidance from a Qualified Intermediary).

• Commercial acquisitions: Developers and investors may use bridge loans to secure funding for projects while awaiting longer-term financing.

Pros and Cons of Bridge Loans

Pros Cons Fast access to capital Higher interest rates compared to conventional loans Helps secure property before selling another Short repayment period (typically under a year) Flexible repayment options May require strong credit and substantial equity Useful for time-sensitive opportunities Fees and closing costs can add up

Bridge loans can be powerful tools when used strategically—but they can also carry risks if the borrower’s sale or long-term financing falls through.

Bridge Loan vs. Traditional Financing

Unlike traditional mortgages or loans that take weeks (or even months) to process, bridge loans are built for speed. They often close faster, involve less documentation, and prioritize short-term flexibility over low interest rates.

However, because of their short-term nature and higher risk to lenders, bridge loans typically come with:

• Higher interest rates (often several percentage points above conventional loans)

• Origination fees and exit fees

• Short repayment terms, usually less than 12 months

How to Qualify for a Bridge Loan

While every lender has different criteria, common requirements include:

• Strong credit history

• Sufficient equity in the existing property (often at least 20–30%)

• Proof of exit strategy, such as a pending property sale or plan for permanent financing

Because of the complexity and higher cost, bridge loans are most suitable for borrowers with a clear, short-term plan for repayment.

A bridge loan is a short-term financing option that helps real estate buyers move quickly when opportunities arise. Whether you’re an investor leveraging equity between deals or a buyer closing on a new property before selling another, a bridge loan can offer valuable flexibility—provided you understand the costs, terms, and exit strategy.

As with any financial decision, it’s wise to consult with a lender, CPA, or financial advisor before proceeding.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Borrowers should consult with their financial advisor or lender to determine whether a bridge loan is suitable for their situation.