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What is a Bridge Loan?
Ever found your dream home but can’t execute on the purchase until your existing home has sold?
This is where bridge loans come into play.
They are specifically designed for residential homeowners needing to “bridge a gap” in financing between the transition from one home to another.
Bridge lenders offer short-term loans to borrowers who need immediate cash to facilitate a property purchase or make a down payment.
While bridge loans can be funded in a matter of days, these temporary loans are typically associated with higher fees and interest rates compared to traditional bank loans.
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Funding in 5 to 7 days
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Interest-only rates from 8% to 15%
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Origination points from 1% to 4%
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3 to 12-month terms
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Collateral is your primary residence or another property you own
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Used in both real estate and business acquisitions
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving credit line, allowing you to borrow against the existing untapped equity in your home.
Instead of receiving a lump sum of cash, HELOCs function more like a credit card, allowing you to borrow and repay repeatedly within the designated draw period.
HELOCs enable borrowers to use the funds for a variety of purposes, not only real estate.
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Revolving credit line
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Structured draw and repayment timelines
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Variable interest rates are correlated with the prime rate
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Long-duration loans of 5 to 10 years draw periods
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Few restrictions on what cash can be used for
Differences Between Bridge Loans and HELOCs
Bridge Loans
Provides fast liquidity to bridge a temporary gap in property financing
3 to 12 months
8% to 15% fixed rate
Lump sum or balloon payment
Purchasing a new property before selling your existing one
Interest not tax-deductible*
HELOCs
Tap into your home’s equity via a reusable credit line when needed
5 to 20 years
5% to 9% variable rate
Flexible, interest-only during draw
Using funds for home renovations or living expenses
Interest sometimes tax-deductible*
When to Use a Bridge Loan
A bridge loan is often the better choice when you need short-term access to significant funds but can’t use a home equity line of credit (HELOC).
Here are some common situations where a bridge loan makes more sense, instead of a HELOC:
- Your current home is listed for sale: Most lenders won’t approve a HELOC on a property that’s already on the market. A bridge loan allows you to tap into your home’s equity even while it’s being sold. This can allow you to make an all-cash offer that will stand out amongst competitors and avoid the need for contingencies
- Need funds quickly: Bridge loans are designed for speed and are ideal in competitive purchase situations. While HELOCs can take weeks to process, bridge loans can often close in a matter of days.
- Buying before selling: Buy your new home now, a bridge loan provides the down payment or full purchase funds without needing to wait for sale proceeds.
- Unable to meet strict bank requirements: HELOCs typically require strong credit, steady income, and low debt-to-income ratios. Bridge lenders are more flexible, focusing on property value and exit strategy instead.
- You need short-term financing: Bridge loans are meant for quick turnarounds, typically 3 to 12 months, while HELOCs are revolving credit lines suited for longer-term borrowing.
In essence, if timing, flexibility, or property status prevents you from using a HELOC, a bridge loan offers a fast, practical way to unlock equity and move forward with your next purchase or investment.
When to Use a HELOC
A home equity line of credit (HELOC) is often a better choice over a bridge loan if you have strong equity and want flexible, low-cost access to funds over time.
Here are scenarios where a HELOC may be more advantageous:
- No time pressure to buy or sell: If you can wait, a HELOC offers lower interest rates and fees than a bridge loan.
- You plan to borrow gradually: HELOCs allow you to draw funds over time, paying interest only on the amount you use.
- You have substantial equity in your property: If your property has substantial equity and you’re not planning to sell immediately, a HELOC lets you access capital without refinancing.
- You prefer lower costs and longer repayment terms: Bridge loans are short-term and carry higher interest rates. Conversely, HELOCs offer ongoing access to funds with more favorable terms and fewer closing costs.
- Financial mobility: Once established, a HELOC acts as a revolving credit line, giving you quick access to funds whenever opportunities come up.
In short, a HELOC is best for homeowners with solid equity who are not in a time crunch to get funds, but rather value flexibility, lower costs, and long-term financial access over the speed and structure of a bridge loan.
The Bottom Line
Both bridge loans and HELOCs are valuable financial tools, but the right one to select depends on your particular situation.
If you are transitioning between homes, bridge loans can give you the financial power to act fast and allow you to secure a new property before your current one sells.
On the other hand, if you have more time and want ongoing access to funds with lower interest rates, a HELOC may be the better long-term solution for you.
When deciding between the two, take time to evaluate your overall financial goals, how long you’ll need access to the funds, and how comfortably you can manage repayment.
Need a bridge loan in California because you don’t qualify for a HELOC? Crescent Lenders can fund your deal fast (in days, not weeks).
Need a bridge loan in California because you don’t qualify for a HELOC? Crescent Lenders can fund your deal fast (in days, not weeks).
Handpicked Resources
Bridge Loans Guide Bridge Loans
Multifamily Bridge Loans Areas Served
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Residential Bridge Loans in California Bridge Loans
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Bridge Loans in Los Angeles
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.