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Comparison

Bridge Loan vs Construction Loan (and Other Alternatives)

Both are short-term loans from the same kind of lender, and investors mix them up. The difference is what the money is for and how it's paid out. Here's how to tell which one your deal needs.

By Joseph Snado · Published

Quick comparison

A bridge loan carries an existing property from purchase to its sale or refinance, and funds in one payment at closing. A construction loan pays for building something new, or rebuilding most of what's there, and releases money in draws as the work is inspected. If the property exists and the problem is timing, you need a bridge loan. If the value you're creating doesn't exist yet, you need a construction loan.

Bridge loan vs construction loan
Bridge loanConstruction loan
PurposeCarry an existing property to its sale or refinanceBuild new, or rebuild most of what's there
How the money is releasedAll at closingIn draws, as each stage is finished and inspected
What the lender reviewsThe property's value and your exitPlans, permits, budget, timeline and the builder, plus the finished value
Term with us12 to 18 months12 to 18 months
Rates with usFrom 8.99%From 9.75%
Time to closeAs little as 7 business daysAbout 3 to 4 weeks
LeverageSet per deal, confirmed on a callUp to 80% LTV, up to 100% of construction costs

When a bridge loan fits

Use a bridge loan when the property already exists and the problem is timing. A seller wants to close in two weeks. An auction needs funds in days. A buyer's mortgage fell through and the closing is about to collapse. A building needs a few months of lease-up before it qualifies for long-term financing. In each case, the property is the collateral as it stands, and the exit is a sale or a refinance.

A bridge loan can include light work, but it isn't built to fund a major renovation. For a buy-and-renovate plan, a fix and flip loan does that job, with up to 100% of the rehab budget included.

See our bridge loan terms

When a construction loan fits

Use a construction loan when the value you're creating doesn't exist yet. Building on a vacant lot, tearing down and rebuilding, or adding units to a structure are construction projects: the lender is funding a plan, not a finished property. That's why the money comes in draws tied to progress, and why the lender wants plans, permits, a budget and a builder before closing.

Our ground-up program funds the land and up to 100% of construction costs for qualifying projects, on 12 to 18 month terms designed around the sale or the refinance once the build is done.

See our ground-up construction loan terms

Bridge loan vs hard money loan

These aren't two different products so much as two names for the same family. "Hard money" describes where the money comes from: a private lender making short-term loans secured by real estate. "Bridge loan" describes what the money does: carries a property from one step to the next. Most bridge loans for investors are hard money loans, and our bridge, fix and flip and construction programs are all hard money in that sense.

If a lender quotes you a "bridge loan" and a "hard money loan" as different things, ask what differs: the rate, the term, the leverage or the use. The label on its own tells you little.

Read the full guide to hard money loans

Other alternatives to a bridge loan

A bridge loan isn't the only way to move fast. Depending on what you already own, consider:

  • A cash-out refinance on a rental you already own. A DSCR cash-out can turn equity in one property into the down payment on the next, with the new loan qualified on that property's rent.
  • A home equity line or loan on your own home. These are consumer products from a bank, often cheaper than a bridge loan but slower, and they put your home on the line. We don't offer them.
  • Partner or private capital. A partner who brings cash for a share of the deal, or a private individual lending on a note.
  • Seller financing. Some sellers will carry part of the price, which lowers what you need to borrow.
  • Buying with cash, then refinancing. If you have the cash, a DSCR loan after the purchase can put most of it back to work.

Each of these trades something: speed, cost, control or risk. A bridge loan's advantage is that it's fast and it's secured by the deal itself rather than by your home or your partners' patience.

FAQ

Questions, answered

A bridge loan funds an existing property at closing and is repaid when it sells or refinances. A construction loan funds building work in draws as it's completed, and the lender reviews plans, permits and the budget first.

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