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Bridge Loan Rates & Fees
A bridge loan is a form of short-term financing used by homeowners, real estate investors, and business owners to “bridge the gap” in liquidity when purchasing a new property while waiting for an existing property to sell.
Bridge loans require minimal paperwork, can be funded in under a week, and are used by borrowers for their speed, flexibility, and short-term durations, especially during times of urgent capital need.
While traditional 30-year bank loans offer the best interest rates, they can take weeks or months to fund, causing you to miss out on great real estate deals.
Banks and other traditional lenders typically do not offer short-term bridge loans as a financial product; instead, they focus on longer-term products, such as 15 and 30-year mortgages.
Hard money lenders are the most common issuers of bridge loans, which are backed by real estate as collateral.
California bridge loan interest rates typically range from 8% to 12% and are typically held for a period of 3 to 12 months.
If you’re exploring bridge loan options, understanding rates and fees is essential to securing a fair, competitive offer.
Here’s what you need to know.
Factors Influencing Bridge Loan Rates
Loan-to-Value (LTV) Ratio
A bridge loan is usually secured by real estate as collateral.
LTV is one of the first and most important factors in a lender’s loan assessment.
Formula:
LTV = Loan Amount/Property Value
Example:
Property Value: $1,000,000
Amount Borrowed: $600,000
LTV = 60%
Lenders want to ensure you have sufficient equity in the property to protect them against a sudden downturn in the real estate market, which could potentially result in borrower default.
Property Type & Location
Before taking on a loan, hard money lenders must weigh both the property’s value and the potential challenges of selling it if things don’t go as planned and the borrower defaults.
Therefore, lenders prefer to lend against commercial, residential, and industrial properties in the stable markets of major cities, as these assets are easier to sell due to their high demand.
Properties in these categories also generally qualify for the best rates.
On the other hand, rural properties and vacant land are more challenging to finance due to their limited uses and remote locations, which typically result in higher interest rates.
Among all property types, single-family homes and apartments are considered the most liquid, making them the easiest for lenders to fund.
Borrower's Experience
While not absolutely necessary, having experience helps assure the lender you know what you are doing.
For projects like fix-&-flips, some lenders require it as a condition of funding.
Lenders may be hesitant to finance novice investors, as they are more likely to make mistakes, which can result in project failure.
Having strong credit, a track record of great real estate deals, and sufficient collateral will help you immensely to obtain a bridge loan.
Property Condition
Lenders generally prefer properties in good condition, but some will finance distressed or dilapidated assets if the LTV makes sense and you have demonstrated a history of successful fix-and-flip projects.
Unfinished homes or properties requiring major renovations usually come with higher interest rates, since construction adds significant risk.
Whenever possible, work with a local lender who has strong market knowledge. In many cases, they may even visit the property in person before making a decision.
Exit Strategy
Lenders want to know upfront how you plan to repay them. Always be prepared with an answer to this question, because without a plan, financing is unlikely.
The most common exit strategies include:
- Refinance into a longer-term loan
- Sell the property
- Cash-out from another property
- Use of outside funds
A realistic and concrete plan will improve funding chances and build lender confidence in you.
Direct Lender vs. Broker
Working through a broker can result in paying both the lender and the broker, potentially adding tens of thousands of dollars in costs, compared to working directly with a lender.
- Direct lenders provide the capital and determine whether you receive financing or not; they typically charge an origination fee of 1% to 3% of the loan amount.
- Brokers are middlemen who charge a broker fee of 1% to 2% of the loan amount for connecting you with a direct lender.
In almost all cases, a direct hard money lender will be more affordable than a broker.
Example:
- A $500,000 bridge loan from a direct lender with a 2% origination fee costs $10,000.
- On a $500,000 bridge loan, a 1% broker fee plus a 2% lender fee would cost you $15,000.
Working directly with a lender not only saves you money but also typically speeds up the approval and funding process.
1st Lien vs 2nd Lien
The position of your lien directly impacts your likelihood of funding and the interest rate a lender will offer.
- First liens are easier to get funding for and carry lower rates because they have priority in repayment if the borrower defaults, making them less risky for the lender.
- Second liens, on the other hand, are more difficult to obtain funding for and are repaid only after the first lien is satisfied. Because of this increased risk, lenders charge higher interest rates to compensate.
Learn more about 2nd trust deed loans in our complete guide.
Borrower’s Financial Strength
While not as critical as LTV or property condition, your financial strength can make the difference between approval and rejection.
Financial strength is a strong indicator of your ability to make monthly loan payments.
Key indicators include whether you:
- Own additional properties or real estate investments
- Maintain a strong credit score
- Have a stable, high-paying job
- Hold sufficient cash reserves
- Have other liquid investments
Demonstrating a solid financial footing reassures lenders that you can endure unexpected challenges.
Common Bridge Loan Fees
Origination Fee
An origination fee is a one-time charge assessed by the lender for setting up your bridge loan.
Typically ranging from 1% to 3% of the loan amount, it covers the costs of processing, underwriting, and funding the loan and is collected at closing.
Underwriting Fee
This fee covers application review, property evaluation, and funding, usually costing a few thousand dollars.
Appraisal or Broker Price Opinion (BPO) Fee
Usually, either a professional appraiser or BPO will determine your property’s current market value. The borrower pays this fee, regardless of whether the lender requires a specific appraisal company.
Pre-payment Penalty Fee
Most bridge loans have terms of one year and are accompanied by a prepayment penalty clause of 3 or 6 months, which is charged if you pay off your bridge loan early.
In some cases, the lender may be willing to waive this fee.
Closing Costs
Standard closing fees include costs associated with recording the mortgage, obtaining title and escrow insurance, and paying for other administrative or regulatory services required to finalize your bridge loan.
These fees ensure that the loan is recorded correctly, is legally enforceable, and is protected against title issues. They typically vary depending on the property's location and the complexity of the transaction.
FAQ
What is the interest rate for a bridge loan?
Most hard money lenders in California charge interest rates starting at around 9% and can go as high as 12%.
Do bridge loans have higher interest rates than bank loans?
Yes. A bridge loan typically has higher interest rates than a traditional 30-year mortgage from a bank. This is because these loans are riskier and are used for shorter durations.
Do you just pay interest on a bridge loan?
Yes. Bridge loans are typically interest-only, meaning you pay only the interest during the loan term and do not make payments toward the principal.
How do you repay a bridge loan?
A bridge loan is typically repaid at the end with a balloon payment, which can be achieved by either selling the property or refinancing into a bank loan.
How quickly can you get a bridge loan?
Some California hard money lenders can fund a bridge loan in as little as 5 to 7 days.
The Bottom Line
Whether you’re financing a business, purchasing a property, or renovating a multi-family investment, bridge loans can be a powerful tool. Understanding rates and fees upfront helps you make smarter decisions and save money in today’s market.
Our team in California is here to simplify the process, clearly explain all costs, and help you secure funding quickly.
Contact us today to get started and turn your next project into a success.
Handpicked Resources
Bridge Loans Guide Bridge Loans
Bridge Loans for Real Estate Investors Bridge Loans
Bridge Loans vs HELOCs Bridge Loans
Bridge Loans for Business Bridge Loans
How to Qualify for a Bridge Loan Bridge Loans
Multifamily Bridge Loans in California
About the Author
Russell Barneson Hard Money Lending
Russell is a seasoned real estate investor, writer, and hard money lending strategist, as well as the co-founder of Crescent Lenders. He holds a degree from the University of Southern California’s Marshall School of Business. Outside of work, Russell enjoys surfing and spending time outdoors with his dog, Amy.