Confused about short-term real estate financing? We break down when a bridge loan is the right move vs. a full construction loan — and what each really costs.
Two of the most commonly confused short-term real estate financing products are bridge loans and construction loans. They serve overlapping purposes but are structured very differently — and mixing them up in your planning can lead to costly surprises.
Bridge Loans: Filling a Timing Gap
A bridge loan is a short-term loan (typically 6–24 months) that bridges a gap between two financial events. Common uses include: buying a new property before selling an existing one, acquiring a vacant or partially-leased property to stabilize before refinancing, or funding a quick value-add project before converting to permanent financing.
Construction Loans: Building from the Ground Up
Construction loans fund the actual building process. Funds are disbursed in draws as construction milestones are hit (land purchase, foundation, framing, etc.). They typically run 12–24 months with interest-only payments during construction, then convert to a permanent mortgage or are paid off with a takeout loan.
Side-by-Side Comparison
- Bridge Loan: Existing structure, 6–24 months, 8–13% rate, fund at close
- Construction Loan: New construction or gut renovation, 12–24 months, 7–12%, draw-based funding
- Bridge: Faster to close (2–4 weeks), less documentation
- Construction: Requires complete plans, permits, and contractor bids before approval
Critical: Make sure your exit strategy (takeout loan or sale) is locked in before you close on either product. These are short-term tools — not long-term holds.
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