Bridge loan vs hard money loan
“Hard money” is what investors call a short-term loan secured by the property and sized mainly on the property. A bridge loan is one kind of hard money loan: the one for a property that needs little or no work, while you sell it, lease it up or arrange a long-term loan. Both are for business purposes only.
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A bridge loan is one kind of hard money loan
“Hard money” is what investors call a short-term loan secured by the property and sized mainly on the property: what it is worth now, what it will be worth after any work, and what the whole project costs. Investors use one to buy and renovate a property to sell, to renovate and keep it as a rental, to build new, or to carry a property that needs little or no work. That last use is a bridge loan.
So the real question is how much work the property needs. When it needs renovation, the loan has two parts: the money to buy is paid out at closing, and the renovation money is held back and released in draws as the work is finished and an inspector confirms it. A bridge loan has no renovation budget to hold back; it finances the property as it stands.
On both, you pay interest only each month, and the balance is repaid at the end of a term measured in months, when you sell or refinance. Ours come from a licensed lender you can look up on NMLS Consumer Access, with your terms in writing before you commit.
At a glance
- Hard money loan: the short-term, property-based loan investors use to buy, renovate, build or carry a property; renovation money is released in draws
- Bridge loan: the hard money loan for a property that needs little or no work, until you sell, lease it up or refinance
- Both: business purpose only; usually borrowed through a company; the property is never your home; generally no prepayment penalty
Hard money loan and bridge loan compared
The questions that separate a hard money loan with renovation from a bridge loan.
| Question | Hard money loan | Bridge loan |
|---|---|---|
| What it is for | Buying, renovating, building or carrying a property for a short time, until you sell or refinance | Carrying a property that needs little or no work while you sell, lease it up or arrange a long-term loan |
| The renovation money | When there is work, held back and released in draws as the work is done and a third-party inspector confirms it | Not part of the loan: there is no renovation budget to hold back |
| How it is sized | On the property’s value before and after the work and on the total cost, not on your personal income | On the property as it stands, not on your personal income |
| What the lender checks | Your record of completed projects, credit and background, recent bank statements, the purchase contract and a line-by-line rehab budget when there is work | Your record of completed projects, credit and background, recent bank statements and the purchase contract when you are buying |
| Payments and term | Interest only each month; the balance is repaid at the end of a term measured in months, with an extension on request | Interest only each month; the balance is repaid at the end of a term measured in months, with an extension on request |
| Prepayment penalty | Generally none | Generally none |
| How fast it can close | Often in about 7 to 10 days once the appraisal or valuation and the title are in | Often in about 7 to 10 days once the appraisal or valuation and the title are in |
| The way out | Selling the finished property, or refinancing into a long-term rental loan once it is rented | Selling the property, or refinancing into a long-term loan, such as a DSCR rental loan once it is leased |
Business purpose investor loans are for investment property only. Nobody on the loan may live in the property.
Both loan pages show the program terms in figures, dated: hard money loan terms and bridge loan terms.
When a hard money loan with renovation fits better
When the property needs real work, or you are building, and you want the work financed.
- The property needs work. The renovation money is held back and released in draws as each stage is finished and inspected.
- The value comes from the work. The loan looks at what the property will be worth after the work, as well as before it, and at what the whole project costs.
- You are building new. Buy a lot and build, or build on land you already own; a feasibility report, contractor details and plans or a permit are part of the file.
- You might keep it. Once a renovated property is rented, a long-term rental loan based on the rent can replace the short-term loan.
When a bridge loan fits better
When the property is ready, or nearly ready, and what you need is time.
- Little or no work. There is no renovation to plan around, so you finance the property as it stands.
- Buying before the long-term loan is ready. Close on the property and put the long-term financing in place afterwards.
- Leasing it up. Short-term money while you find tenants, then a long-term rental loan, such as a DSCR loan, can replace it once the property is rented.
- Carrying it while it sells. A bridge loan carries the property while it is on the market.
How to choose between them
Walk the property
Real renovation or new building points to a hard money loan with draws. A property that needs little or no work points to a bridge loan.
Decide the way out
Sell, keep as a rental, or refinance into a long-term loan. Both loans are short-term, so have a real plan to sell or refinance.
Get your terms in writing
A term sheet for your deal, signed online, before you commit.
Run the numbers
Try the fix and flip calculator, and if you will keep the property, the DSCR calculator for the long-term loan.
Questions about bridge and hard money loans
Is a bridge loan a hard money loan?
Investors often call short-term, property-based loans hard money, and a bridge loan is one of them: the one for a property that needs little or no work. Ours are sized on the property rather than on your tax returns, from a licensed lender you can look up on NMLS Consumer Access, with your terms in writing before you commit.
What is the difference between a bridge loan and a hard money loan?
The work. A hard money loan on a property that needs renovation releases the renovation money in draws as the work is done. A bridge loan finances a property that needs little or no work, while you sell it, lease it up or arrange a long-term loan.
Does a bridge loan include renovation money?
No. A bridge loan is for a property that needs little or no work, so it is not built around a renovation budget. If the property needs real work, a fix and flip loan holds the renovation money back and releases it in draws after each stage is inspected.
How fast can they close?
Both often close in about 7 to 10 days once the appraisal or valuation and the title are in.
Can I use either for a home I live in?
No. Both are business-purpose loans for investment property, and nobody on the loan may live in the property. To buy your next home before you sell your current one, talk to a licensed loan officer about the options for a home you live in, such as a home equity line of credit.
Do I need a company to borrow?
Usually, yes. These are business-purpose loans, so you normally borrow through a company such as a limited liability company. The property is an investment and never your home.
Do you lend in my state?
Fidelity Residential is licensed in many states, and business-purpose investor loans have their own state list, which differs from our consumer list. The full, current license list is on NMLS Consumer Access (opens in a new tab), or call us at 732-686-9999 and a loan officer confirms your state.
Have a deal to size up?
Request a quote, apply online, or talk the deal through with a licensed loan officer.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on the property, your experience, credit and underwriting review and are subject to change without notice. Business purpose investor loans are for investment property only.
Reviewed by Robert Shamie, CEO, NMLS #241428 · Last reviewed:
Fidelity Residential (PFN Lending Group, Inc., NMLS #103098) is a direct mortgage lender licensed in 40 states and the District of Columbia, with 26 years in business.