Real estate deals rarely line up neatly. You find the right property before your other one has sold, or an auction requires funds in days when your bank needs weeks. A bridge loan is built for those gaps.
What is a bridge loan?
A bridge loan is short-term financing for residential or commercial real estate. It covers a temporary need for capital until you sell, refinance or line up permanent financing.
Bridge loans are asset-based, which means they are secured by real property. Because the property is the collateral, a private lender can usually approve and fund one much faster than a bank could.
Here are three situations where a bridge loan is worth considering.
1. Buying at auction
Auctions move quickly, and winning bidders are expected to pay on a short deadline. If your money is tied up or your bank can’t move in time, you lose the property, and sometimes your deposit along with it.
With a bridge loan arranged ahead of time, you can bid knowing the funds will be there. Auctions are a common way to buy foreclosures. If that’s your plan, read our guide to buying a foreclosure first.
2. Fixing and flipping a property
Investors who buy run-down properties often struggle to get conventional financing. Many banks won’t lend on a house that needs major work, and those that will can take too long.
A bridge loan gets around both problems. It can fund the purchase quickly, and you repay it when the renovated property sells. We also offer a dedicated fix and flip loan for projects like this.
3. Relocating before your current property sells
Sometimes you need to move a home or a business on short notice. If your equity is locked in a property that hasn’t sold yet, a bridge loan can fund the next purchase so your plans don’t have to wait on a buyer.
When the old property sells, you pay off the bridge loan. For more on this, see can a bridge loan work for your home purchase?
Things to keep in mind
Bridge loans cost more than long-term mortgages and run for a shorter period. They work best when you have a clear exit, meaning a sale or a refinance you can reasonably count on.
Talk to Sachem Lending
We make bridge loans to real estate investors and can often provide funding while you arrange conventional financing. Call us with questions, or fill out an application to get started.
