5 min read · Bridge
A bridge loan is short money that gets you from where you are to a sale or a long-term loan. Three things decide whether it works: the equity you have, the months it costs, and the exit that pays it off. The exit matters most.
Start by inverting the question
Most investors ask how much they can borrow. Ask the other question: what would make the lender say no? For a bridge it is almost always the same answer. The lender cannot see how the loan gets paid back.
What the lender is really testing
- ◆Value. Backed by an appraisal the lender orders. Use recent sales, not the price you hope for.
- ◆Equity. Enough left after the bridge for the lender to feel safe. Borrow what the plan needs, not the most you are offered.
- ◆A written exit. One page: sale or refinance, when, and the numbers. Write it before you apply.
- ◆Time. The exit has to land before the loan comes due, with room for a slow month.
- ◆Cash for the months. Interest comes due every month, so you need cash set aside to carry it.
Two exits, two tests
- 1
A sale exit
The price is backed by recent sales. What is left after selling costs has to pay the bridge. Test it at a lower price too, because the price you hope for is not a plan.
- 2
A refinance exit
The new loan has to be big enough to pay the bridge off, and the rent has to carry it. Run the rental numbers now, not in month eleven.
A hypothetical, in round numbers
Say a bridge of $700,000 (hypothetical). Interest is due every month it is open. A sale that takes three extra months is three extra months of interest on top of what you planned. And if the property sells for $100,000 less than you hoped, the cash you walk away with falls by at least that much, because the loan and the costs do not shrink to match. That is why you test the exit at a worse price before you take the loan, not after.
Five mistakes that cost bridge borrowers money
- ◆Taking a bridge with no written exit. "We will figure it out" is not an exit to a lender.
- ◆Counting the months on a best-case timeline. Add time for a slow sale or a slow refinance.
- ◆Setting the exit price from hope. Test a lower one.
- ◆Taking more cash out than you need. Every extra dollar borrowed carries interest.
- ◆Bridging your own home. This is business-purpose financing for business or investment property.
What to have ready
- ◆A one-page exit explanation: how and when the bridge is paid off.
- ◆The deed or purchase contract.
- ◆If you are refinancing: the current loan payoff statement and a 12-month payment history.
- ◆Recent bank statements that show the cash for the monthly interest.
- ◆Company documents: operating agreement, EIN letter, articles and certificate of good standing.
- ◆A signed business-purpose certification and use of funds.
The plain version
A bridge is a tool for a moment, not a place to leave the property. Write the exit, test it at a worse price, count the months on the slow side, and borrow only what the plan needs. If the exit holds up on paper, the bridge is a bet you can afford to make. If it does not, you have learned that for free.
Run the numbers
Free, no credit pull, no obligation. See the math before you talk to anyone.