What is a Bridge Loan in Real Estate?

What is a Bridge Loan?

In real estate finance, a bridge loan is a short-term financing option used by property owners and investors to "bridge" the gap between the immediate need for funds and the securing of permanent financing or the sale of the property. It's often utilized when a buyer wants to purchase a new property before selling an existing one. The loan provides the liquidity needed to proceed with the purchase without having to wait for the existing property to sell.

Bridge loans are characterized by their short duration, typically ranging from a few months up to one year, higher interest rates compared to traditional mortgages, and the requirement to secure the loan with real estate assets. They can be particularly useful in competitive real estate markets, allowing buyers to make quick purchases or sellers to secure funds for property improvements before a sale. However, due to their costs and short repayment period, they are generally considered when there are clear strategies for repayment either through the sale of property or obtaining long-term financing.