The types of bridge loans include closed-end bridge loans, open-end bridge loans, first-lien bridge loans, and second-lien bridge loans. Closed-end bridge loans provide a one-time lump sum while open-end loans function more like a line of credit with a predetermined limit of up to 80% of the property value. As per Lawrence Yun, Chief Economist at the National Association of Realtors, The market has evolved to offer specialized bridge loan products tailored to different borrower situations, with second-lien bridge loans becoming increasingly popular among borrowers who want to maintain favorable terms on their existing primary mortgage.

The pros of a bridge loan include quick access to funds, no immediate monthly payments, the ability to make contingency-free offers, and flexibility in real estate transactions, while the cons include higher interest rates ranging from 8.5-10.5%, substantial closing costs of 1.5-3% of the loan amount, short repayment periods, and potential for financial strain. Data from CoreLogic indicates that bridge loans carried an average interest rate of 9.2% in Q1 2025, approximately 3.5 percentage points higher than conventional mortgages during the same period. As reported by David Stevens, former FHA Commissioner and CEO of the Mortgage Bankers Association, While bridge loans solve critical timing problems in real estate transactions, their high carrying costs mean they should be utilized strategically and with a clear exit plan in place.

A bridge loan in real estate is a short-term financing solution designed specifically for property transactions that allows buyers to purchase new property before selling their existing home. These loans typically fund up to 80% of the combined value of both properties and can be structured as either first or second liens, with terms generally ranging from 6-18 months. As noted by Lawrence Yun, Chief Economist at the National Association of Realtors, In competitive real estate markets where 43% of homes received multiple offers in 2024, bridge loans have become essential tools for existing homeowners to remain competitive against all-cash buyers

A bridge loan takes approximately 2-3 weeks to process and fund from application to closing. This timeline includes property appraisal (3-5 days), underwriting review (5-7 days), document preparation (2-3 days), and final closing (1-2 days), making it significantly faster than conventional mortgage loans which average 47 days to close as of March 2025. In the view of Susan Wachter, Professor of Real Estate at the Wharton School of the University of Pennsylvania, The expedited processing of bridge loans represents one of their primary advantages in time-sensitive real estate transactions, though this speed often comes with premium pricing.

A bridge loan costs significantly more than conventional financing, with interest rates typically ranging from 8.5-12% and origination fees between 1.5-3% of the loan amount. Additional costs include appraisal fees ($500-$700 per property), administration fees ($1,500-$2,500), and potential prepayment penalties ranging from 1-2% if paid off within the first few months, bringing the total cost to approximately $15,000-$25,000 for a $300,000 bridge loan. As mentioned by Greg McBride, Chief Financial Analyst at Bankrate, The premium pricing structure of bridge loans reflects their higher risk profile and short-term nature, with the actual APR often exceeding 10% when all fees are considered.

Borrowers qualify for a bridge loan by demonstrating sufficient equity in their current property, maintaining a credit score above 680, showing a debt-to-income ratio below 43%, and verifying reliable income sources. Most lenders require at least 20% equity in the existing property and combined loan-to-value ratios not exceeding 80% across both properties, with cash reserves covering at least 6 months of payments. According to Bob Broeksmit, President and CEO of the Mortgage Bankers Association, Bridge loan qualification standards have tightened since 2023, with lenders now placing greater emphasis on exit strategy viability and increased equity requirements to mitigate risks associated with market volatility.

A short-term bridge loan is a temporary financing solution typically lasting 3-12 months that provides immediate funds while waiting for permanent financing or asset liquidation. These loans feature simplified documentation, rapid funding (often within 5-15 business days), and interest rates ranging from 8-15% depending on the borrower’s creditworthiness and property values. As observed by Mark Zandi, Chief Economist at Moody’s Analytics, Short-term bridge loans have seen a 27% increase in origination volume during 2024, primarily driven by the competitive housing market where quick capital access provides significant advantages to buyers in multiple-offer situations.

A bridge loan differs from a HELOC primarily in structure, purpose, and cost, with bridge loans offering lump-sum funding specifically for property transitions while HELOCs provide revolving credit lines for various purposes. Bridge loans typically charge 8-12% interest with 1-3% origination fees and 6-18 month terms, whereas HELOCs averaged 8.25% interest as of March 2025 with minimal closing costs and 10-30 year terms including a 10-year draw period. In the words of Danielle Hale, Chief Economist at Realtor.com, While HELOCs offer more favorable interest rates and flexible repayment terms, they require considerable advance planning, making bridge loans the preferred option for borrowers facing unexpected timing constraints between property transactions.