Bridge loans: buying before you have sold

A bridge loan gets you across a gap: buying before you have sold, closing fast before a slower loan is ready, or holding a building while it is leased up so it can qualify for long-term financing.

What one looks like

• Six to twenty-four months, interest-only
• Funds in days, not weeks
• Priced like hard money: roughly 9–13%, 1–3 points
• Secured on the property, sometimes with another property cross-collateralised

Typical ranges, not an offer.

The three situations that call for one

1. You are under contract with ten days left and your bank needs forty-five.
2. The building is 60% occupied and no long-term lender will touch it until it is 90%. Bridge, lease it up, then refinance.
3. You must buy the new place before the old one sells. The bridge is repaid from the sale.

What it costs

$500,000 at 11% interest-only is $500,000 × 11% ÷ 12 = $4,583 a month. Two points at closing is $10,000. Twelve months later you still owe the whole $500,000 — the payments never touched it.

Held for the full year: about $65,000 for the money. Whether that is expensive depends entirely on what it made possible.

The question that matters more than the rate

What is the exit, and is it real?

A bridge with no exit is a default with a twelve-month fuse. So price the exit now, not later:

• If the exit is a refinance, run that loan today. Will the property qualify then, at the rate you will actually get, at the occupancy you will actually have? If it only works at 95% occupancy and 6% rates, it does not work.
• If the exit is a sale, at what price, based on which sold comparables? And how long do properties like it actually sit on the market?

What lenders look at

The property and its value, your equity, your experience — and the exit. A borrower who can explain the exit in two sentences with evidence behind it gets a faster answer than one who says "I'll refinance".

The mistake

Quoting yourself the monthly payment and calling it affordable. An interest-only payment is the cheapest part of a bridge. The expensive part is the balance, all of it, on a specific day.

Before you take one

• Write the exit down, with a date
• Model the exit loan or the sale at conservative numbers
• Ask what an extension costs, and whether it is discretionary
• Make sure you can carry the payment for the full term, not your optimistic one

Tell us the situation and we will tell you whether a bridge is the right tool — including when the answer is that it is not.