Various Types of Bridge Loans Defined & Clarified

The term “bridge loan” can cause some confusion when you’re seeking private financing secured by real estate. The way you define a bridge loan may be totally different than how the lenders you encounter define the term. In this guide, we’ll define & clarify a few types of bridge loans with various loan scenarios, and we’ll provide suggestions for the proper terminology you should use when you’re requesting a loan from private lending companies, which are also known as “bridge lenders” or “hard money lenders.”


The challenge with the term “bridge loan” is it’s just too broad. In our industry, we have a similar dilemma with the terms “hard money loan” or “private money loan”. The confusion with the term “bridge loan” is more prevalent in the residential real estate space. In commercial real estate finance, it’s fairly easy to define. In fact, most of the private lending companies that focus on short-term financing only for commercial real estate are commonly known as bridge lenders. Whereas, in the residential investment sector of private mortgage lending, the terms “private lender” or “hard money lender” are more common. Regardless of whether the subject property is residential or commercial, there are several types of bridge loans, so you have to be specific when searching for lenders, and when you’re communicating your loan request to lenders.

Types of Bridge Loans

The most common bridge loan scenario is for an investment property purchase. No rehab or construction included, just a straight purchase. The investor has a cash down payment of twenty to fifty percent, the deal gets done fast, and they have a plan to refinance in less than 2 years. When referring to this type of deal, call it a Purchase Bridge Loan or an Acquisition Bridge Loan.

Commercial Real Estate Purchase with Renovation

If the plan is to renovate the property immediately after the purchase, and the loan needs to include funds for the renovation budget, the terminology you use is going to vary depending on whether the property is residential or commercial. In larger commercial real estate deals over one million dollars, lenders typically use the term “value-add” to describe loans that include a renovation budget. So you want to call this loan a “Value-Add Bridge Loan”. It’s very important to specify the value-add part, because a lot of commercial bridge lenders do not provide funds for a renovation.

Residential Investment Purchase with Renovation

If you’re seeking financing for a residential investment property deal that includes renovation, don’t even call it a bridge loan. Depending on the exit strategy, you can call it “Fix and Flip” or “Fix and Rent” or just simply “Purchase & Rehab” loan.

Similar situation for ground-up construction financing. Don’t call it a “bridge loan.” Just call it what it is and include the asset class to be more specific. For example, Multifamily ground-up construction loan, or SFR ground-up construction loan.

Adding even more confusion to this topic, many private lenders in the residential space now use the term “bridge loan” to categorize all of their short-term loan programs. So a purchase bridge, fix and flip, ground-up construction, are all categorized as bridge loans. The lenders doing this are ones that also offer long-term rental loans, and the terminology comes from the institutional secondary market which puts private mortgages into 2 different buckets – bridge loans and term loans. Another phrase used in the institutional capital markets is Residential Transition Loan, but you won’t really see lenders using this phrase when advertising to the public.

Property Exchange Bridge Loans

Another bridge loan scenario that’s totally different from the others I’ve mentioned thus far is commonly known as “buy before sell”. It’s essentially an exchange. You want to purchase a new property by using equity in a property that you plan to sell, but you have to buy before you sell. In commercial and investment property deals, this is sometimes called a reverse 1031 exchange. So if this is the type of deal you’re seeking financing for, use the term “1031 exchange bridge loan” when talking to lenders.

Owner-Occupied Home Exchange

If you’re seeking a bridge loan for an owner-occupied home, you want to call it a “primary residence bridge loan”. It’s very important that you mention the primary residence part, because the majority of private mortgage lenders will not lend on owner-occupied homes, and you don’t want to waste their time or yours. These are consumer-purpose mortgages which are highly regulated and not possible for private lenders to consider, except in California. The state law in California has an exception that allows private lenders to provide bridge loans to homeowners that are moving within the state. At this time, we don’t know any private lenders that offer primary residence bridge loans in any other state.

Refinance Bridge Loans

A bridge loan does not have to be for the purchase of a property. There are lots of refinance scenarios that need short-term financing. It could be a situation where the existing 1st mortgage is maturing, or the investor wants to cash out equity to use for another investment. The terminology for these scenarios is very simple. Just call it a “refinance bridge loan” or “equity cash out bridge loan”.

If you have to keep your 1st mortgage in place and want a 2nd mortgage cash out, call it a “2nd mortgage bridge loan.” There are quite a few lenders in California that consider 2nd mortgages, but the funds have to be used for a business or investment purpose. For most other states throughout the country, 2nd mortgages are extremely rare in private lending.

How to Find Bridge Loan Lenders

If you use our platform to find a lender, you’ll find that we currently use these broad terms to categorize lenders, and it’s not ideal. We do have plans to restructure and add categories for various bridge loan scenarios, but in the meantime, you’ll still find it to be a valuable resource when seeking a bridge loan.

If you’re seeking bridge loan here on PrivateLenderLink.com, you have 2 options:

Option 1: Browse Lenders
Search on our site for direct bridge loan lenders. All lenders have a very detailed profile with information about their lending guidelines, rates, fees and much more. Make contact with each out directly. Send an email, call, or visit their websites. First select a loan type, then enter the state or metro area where the property is located. A few loan types will show lenders that provide short-term bridge loans:

  • Private Money
  • Hard Money
  • Residential Bridge
  • Residential Fix & Flip
  • Residential Rehab & Rent
  • Residential Ground-Up Construction
  • Commercial Bridge
  • Commercial Property Value-Add
  • Commercial Ground-Up Construction

Browse Lenders 

 

Option 2: Create a Loan Request
Fill out a questionnaire with information about your financing needs. You can then browse lenders and invite a few of them to view your deal. Or ask us for recommendations; we’ll review it and invite a few select lenders that we feel may be a good fit.

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May 19, 2022