Imagine this: you’ve found a property at auction with massive upside, but the closing date is in ten days. Or you’re halfway through a rehab and run out of capital mid-project. Conventional lenders won’t touch situations like these. That’s where bridge and rehab loans come in — fast, flexible, but not without costs and risks.
What Are Bridge & Rehab Loans?
At their core, these loans are short-term financing tools designed to “bridge” a gap. Sometimes that gap is timing (you need to close before long-term financing is ready). Other times it’s condition (the property doesn’t qualify for conventional loans until rehab is complete). Either way, bridge and rehab loans put capital in your hands quickly, usually at higher rates, so you can execute your plan.
Key Features
- Speed: Closings can happen in days, not weeks.
- Flexibility: Approval based on asset value and exit strategy, not strict income docs.
- Short Duration: Typically 6–18 months.
- Higher Costs: Interest rates 10–15%+, plus 2–5 points upfront.
- Exit Required: Plan to refinance, sell, or complete rehab before term ends.
Investor Story: A Timely Bridge
Jordan was under contract to sell a duplex but wanted to buy a fourplex across town before his sale closed. Conventional financing wouldn’t line up in time. He used a 12-month bridge loan at 11% interest, closed on the fourplex, and refinanced into a DSCR loan after his duplex sale funded. The higher cost was worth it: without the bridge, he would’ve lost the deal.
Investor Story: The Rehab Misstep
On the flip side, Lena borrowed $150,000 in rehab funds to renovate a triplex. She underestimated permitting delays and went six months over schedule. The extension fees plus added interest wiped out her profit. Her mistake wasn’t the loan itself—it was failing to pad her timeline.
Lesson: Bridge and rehab loans buy time and flexibility—but they punish delays and sloppy math.
When to Use a Bridge Loan
- Purchasing at Auction: Where quick cash closes deals.
- Buying Before Selling: Covering the gap between transactions.
- Rehab Ineligible Properties: Properties needing work before conventional loans apply.
- Partner Buyouts: Quickly funding equity buyouts while arranging long-term financing.
Bridge Loan Terms in 2025
| Term | Typical Range |
|---|---|
| Loan Length | 6–18 months (extensions costly) |
| Rates | 10–15% interest |
| Points | 2–5 upfront |
| LTV | 60–75% (ARV or As-Is) |
| Docs | Minimal: often just asset and exit plan |
Rehab Loan Structure
Rehab loans layer in construction draws. Funds aren’t released upfront — they’re reimbursed after completed work. This requires:
- Upfront liquidity to start work
- Clear, line-item rehab budget
- Inspection checkpoints before draws
- Contingency planning for overruns
Risks to Watch
- Extension Fees: Extra months cost thousands.
- Over-Leverage: High-interest debt magnifies mistakes.
- Exit Risk: No refinance or sale means balloon payment due.
- Liquidity Risk: Can you float costs until draws arrive?
Case Study: Market Timing
In 2022, investors who used bridge loans to flip suburban houses were printing money. By 2023, as rates rose, many were left stuck when buyers pulled back. Some refinanced at higher rates, others defaulted. By 2025, lenders are stricter, requiring clearer exit strategies. The lesson: bridge loans magnify both timing wins and timing mistakes.
Checklist: Before You Sign a Bridge Loan
- Do I have a clear exit strategy (refi, sale, pay-off)?
- Have I modeled worst-case holding period?
- Can I afford extension fees if needed?
- Do I have cash reserves to cover draws and interest?
- What’s my plan B if the market shifts?
FAQs
Can bridge loans be used for primary residences? Typically no, they’re investor-focused.
Do lenders check credit? Yes, but asset and exit matter more.
Can I roll rehab into the bridge? Yes, many “bridge + rehab” programs exist.
What happens if I miss the balloon payment? Default, foreclosure risk. Never enter without an exit plan.
Bottom Line
Bridge and rehab loans are powerful tools. They let you move fast, fund projects others can’t, and unlock deals that don’t fit conventional boxes. But they’re double-edged: used wisely, they’re stepping stones; used poorly, they’re traps. Always enter with structure, reserves, and a crystal-clear exit strategy.
