Bridge Loan vs Hard Money Loan: What’s the Difference?
Though similar, there are differences to know in a bridge loan vs hard money loan.
Some lenders will use “bridge loan” and “hard money loan” interchangeably. After all, they are similar concepts, and lingo varies from lender to lender. But it’s important to know the actual definitions so you understand these terms if a lender uses them this way.
When to Use a Bridge Loan
A bridge loan is a very short-term loan – even shorter than the typical hard money loan. It helps you bridge the space between one project and another.
Let’s say you’re just finishing up a flip. The house is on the market, buyers are showing interest, and now you’d like to get another property bought so you can jump right in to your next flip.
Typically, you use the money from selling one property to buy the next one. But if you want to get that next property started before the current one is sold? That’s where a bridge loan comes in.
A true bridge loan covers up that gap between projects. It gives you the money to close on a new property before the first one is completely sold.
A bridge loan lets you overlap from an old project to a new one.
How is a Bridge Loan Different from a Hard Money Loan?
A hard money loan is longer and broader than a bridge loan.
- The average bridge loan lasts 30 to 45 days. Hard money loans can last up to a year or longer.
- Bridge loans get you from one property to the next. Hard money focuses more on a single project.
- You pay off bridge loans when your old property sells. You pay off Hard money loans when you refinance or sell the property the loan was originally for.
- You use a bridge loan as temporary funds to close on a house. You use a hard money loan as a more general budget for a purchase. Many come with the option for escrows to fix up the property over time.
Certain lenders do pure bridge loans, while others lump it all under “hard money.” Keep in mind as you’re learning the real estate investment game that a bridge loan vs hard money loan serves different purposes.
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