how a bridge loan works
also known as interim financing gap financing or swing loans bridge loans bridge the gap during times when financing is needed but not yet available both individuals and companies use bridge loans and lenders can customize these loans for many different situations 1bridge loans can help homeowners purchase a new home while they wait for their current home to sell borrowers use the equity in their current home for the down payment on the purchase of a new home while they wait for their current home to sell a bridge loan gives the homeowner some extra time and more often than not some peace of mind while they wait however these loans normally come at a higher interest rate than other credit facilities such as a home equity line of credit heloc 2typically lenders only offer real estate bridge loans to borrowers with excellent credit and low debt to income dti ratios bridge loans roll the mortgages of two houses together giving the buyer flexibility as they wait for their former house to sell however in most cases lenders only offer real estate bridge loans worth 80 of the combined value of the two properties meaning that the borrower must have significant home equity in the original property or ample cash savings on hand 2businesses turn to bridge loans when they are waiting for long term financing and need money to cover expenses in the interim for example imagine a company is doing a round of equity financing expected to close in six months it may opt to use a bridge loan to provide working capital to cover its payroll rent utilities inventory costs and other expenses until the round of funding goes through in the case of real estate bridge loans people who still haven t paid off their mortgage end up having to make two payments one for the bridge loan and one for the mortgage until the old home is sold 3example of a bridge loan