Fix and flip loan vs bridge loan
A fix and flip loan is short-term financing to buy a property that needs work and renovate it, with the renovation money released in draws, before you sell or refinance. A bridge loan is short-term financing on 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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Fidelity Residential · NMLS #103098 · Equal Housing Lender
How much work the property needs
Fix and flip loans and bridge loans are close relatives: both are short-term, business-purpose loans to real estate investors, and both are sized on the property rather than on your personal income. What separates them is the work.
A fix and flip loan has two parts. The money to buy the property is paid out at closing, and the money for the renovation is held back and released in draws as the work is finished and an inspector confirms it. A bridge loan is for a property that needs little or no work, so it carries you on the property as it stands while you sell, lease it up or arrange a long-term loan.
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. You can ask for an extension if you need more time.
At a glance
- Fix and flip loan: buy, renovate with money released in draws, then sell or refinance.
- Bridge loan: short-term money on 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.
Fix and flip loan and bridge loan compared
The questions that separate the two short-term loans.
| Question | Fix and flip loan | Bridge loan |
|---|---|---|
| What it is for | Buying a property that needs work, renovating it, then selling it or refinancing it into a long-term loan | Carrying a property that needs little or no work while you sell, lease it up or arrange a long-term loan |
| The renovation money | Held back and released in draws as the work is done and a third-party inspector confirms it | Little or no work is planned, so the loan is about the property as it stands |
| How the loan is sized | On what the property is worth before and after the work, not on your personal income | On the property, 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 | 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 |
| Property types | Houses and small residential buildings, townhomes and condos, including properties that need a lot of work | Houses and small residential buildings, townhomes and condos that are ready, or nearly ready, to sell or rent |
| Who it suits | Investors who buy, renovate and resell, or renovate and keep as a rental; first-time investors are considered for purchases on tighter terms | Investors who need short-term money on a property while they sell, find tenants or arrange a long-term loan |
| 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 rental loan once it is leased |
Business purpose investor loans are for investment property only. Nobody on the loan may live in the property.
When a fix and flip loan fits better
When the property needs real work and you want the renovation financed.
- The property needs work. Fix and flip loans finance properties that need a lot of work, not just a property ready to sell.
- You want the renovation financed. You list the renovation line by line before closing, and the money is 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.
- You might keep it. If you renovate and decide to hold the property as a rental, a long-term loan based on the rent can replace the short-term loan once it is rented.
Plan your cash. Draws reimburse work that is finished and inspected, and materials bought but not yet installed are not paid for, so plan the cash to pay for each stage before its draw.
When a bridge loan fits better
When the property is ready, or nearly ready, and what you need is time.
- The property needs little or no work. There is no renovation to plan around, so you are financing the property as it stands.
- You need time to sell. A bridge loan carries the property while it is on the market.
- You are 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.
- You are arranging a long-term loan. A bridge loan gives you room while the long-term financing is put in place.
- You are buying or refinancing. Bridge loans can be a purchase or a refinance; terms depend on the strategy and on your record of completed projects.
How to choose between them
Walk the property
Real renovation points to a fix and flip loan. 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: the exit shapes the loan and the time you ask for.
Plan your cash
On a flip, budget for each stage before its draw. On both, interest is paid monthly until you sell or refinance.
Run the numbers
Try the leverage estimator, and if you will keep the property, the DSCR calculator for the long-term loan.
Questions about fix and flip and bridge loans
What is the difference between a fix and flip loan and a bridge loan?
The work. A fix and flip loan buys a property that needs renovation and releases the renovation money in draws as the work is done. A bridge loan is short-term financing on a property that needs little or no work, while you sell, lease it up or arrange a long-term loan.
Does a bridge loan include renovation money?
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 do the payments and the term work?
The same way 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. If you need more time, you can ask for an extension while the loan is current.
Is there a prepayment penalty?
Generally no. You can repay the loan when you sell or refinance.
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.
What if I decide to keep the property?
Once it is renovated, if needed, and rented, a long-term rental loan based on the property’s rent can replace the short-term loan. See our DSCR rental loans.
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.
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