whats a bridge loan?
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A bridge loan is similar to a hard money loan. The lending criteria are generally based more on real estate property value than on the credit profile of the applicant. The documentation is usually lower, while the appraisal standards are emphasized.

The term "bridge loan" indicates it will bridge the borrower to the next transaction. It is a shorter term loan that will be used for interim financing until the following occurs:

1) The property is sold
2) The property is refinanced with a traditional lender.
3) The borrower's credit and or financial picture improves
4) The property is improved or completed
5) A business has resumed or improved, or changed in a specific way allowing for permanent commercial mortgage financing to occur.

Bridge loan interest rates are usually 12-15%. Terms are usually 1-3 years. Points or lender fees are usually 2-4. Therefore borrowers usually seek to repay a bridge loan as soon as possible. Pre-Payment penalties may apply if a bridge lender seeks a specific yield and the borrower pays the loan off earlier.

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When a home buyer is buying another home before selling an existing home, two common ways to find the down payment for the move-up home is through financing either a bridge loan or a home equity loan (or home equity line of credit).

Generally, a home equity loan is less expensive, but bridge loans contain more benefits for some borrowers. In addition, many lenders will not lend on a home equity loan if the home is on the market. Smart borrowers will compare the benefits between the two loans to determine which is a better fit for their particular situation and plan ahead before making an offer to purchase another home.