Real Estate Bridge Loans

Real estate bridge loans, or swing loans, cover your expenses while you are selling one piece of property and are looking at another. Also known as swing loans, these temporary loans bridge the gap until you get a much more permanent loan. Businesses usually repay their real estate bridge loans quickly, using money from the new loan or the eventual sale of their property.

In real estate, bridge loans act as a temporary bridge until long-term financing is established; that's why they're also called bridge financing. It also says something about the nature of real estate: businesses are always moving on to the next project, development, or property. They build equity in a place then and move up the ladder by getting something a little nicer.

Real Estate Bridge Loans Require Assets

On paper, a bridge loan makes sense and looks easy. However, the key to this financing is having sizable assets that can be used for collateral. Without it, banks will hesitate at giving you a loan, although hard money lenders may--at a higher rate. The usual scenario is this: owners have a home for sale and are in the processing of buying another, but don't have enough cash on hand.

This is when having assets really pays off: they can get a quick bridge loan to close on the home they are buying, using their home that's for sale as collateral. Once it sells, they can repay their temporary loan and negotiate long-term financing on their new place. Or, they can use part of the new loan to repay the bridge loan.