What is a bridge loan?

A bridge loan is identified as a short-term financial instrument that provides funding to meet immediate cash flow needs while transitioning to a more permanent financing solution. It is commonly utilized in real estate to bridge the gap between the sale of an existing property and the purchase of a new one, allowing homeowners or investors to access funds quickly without having to wait for their property to sell.

The defining characteristic of a bridge loan lies in its temporary nature—typically ranging from a few weeks to a couple of years. It is specifically designed to ensure that an individual or business can act swiftly in a competitive real estate market by obtaining immediate funding. This is particularly advantageous in scenarios where new property acquisition opportunities arise before the existing property is sold, thereby facilitating a seamless transition.

This type of loan is distinct from long-term loans intended for purchasing rental properties or mortgages for first-time homebuyers, which involve more extensive terms and conditions associated with permanent financing. Additionally, while bridge loans can be used in commercial real estate transactions, they are not limited to that sector, reinforcing their role as a flexible, short-term financing solution across various types of real estate deals.