Bridge Financing
Definition and meaning of Bridge Financing in real estate.
Bridge financing is a short-term, temporary financing option used to secure immediate funds until permanent financing can be obtained or an existing obligation is fulfilled.
In more detail
This type of financing bridges the gap between the purchase of a new home and the release of equity from the sale of an old one. Lenders generally require borrowers to have significant equity in their current home and a signed sales contract to qualify.
Borrowers use these funds to cover the down payment and closing costs on the new property. While convenient, this option is often more expensive than standard mortgages, carrying higher interest rates and origination fees. Borrowers must plan carefully, as they may end up carrying two mortgages simultaneously if the sale of their original home is delayed.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Swing loan or interim financing |
| Typical term | Six months to one year |
| Required security | Equity in the borrower's current home |
A family finds a new home and uses bridge financing to secure the property, paying the down payment with the short-term funds while waiting for their current house to close.
Frequently asked questions
What is the difference between bridge financing and a bridge loan?
The terms are often used interchangeably, but bridge financing refers to the overall strategy of using temporary funds, while a bridge loan is the specific debt instrument used.
Is bridge financing hard to get?
Yes, qualification criteria are typically strict, requiring excellent credit, low debt-to-income ratios, and substantial equity in the existing home.