Hard Money Loan vs Bridge Loans

A hard money loan and bridge loans are similar. Hard money loans are a type of asset-based financing where the loan is secured by the current sale value of a borrower's equity interest in a parcel of real estate. These loans have higher interest rates than loans from commercial banks or traditional lending or deposit institutions.

A bridge loan is a short-term loan taken out to provide funds to bridge a temporary financial gap for the borrower.  The borrower can acquire a bridge loan for the brief period of time it takes to arrange a longer term loan, or until a short-term, temporary monetary obligation by the borrower is relieved.

Like a hard money loan, a bridge loan is issued at a higher interest rate to the borrower than a conventional loan. 

Hard Money Loans vs. Bridge Loans

The primary difference between hard money and bridge loans is the purpose for which the loan has been issued, the financial condition of the borrower, and the length of the term for which the loan has been issued.

A hard money loan most commonly refers to a high interest loan secured by real estate, and is most frequently issued in a situation where the borrower is in debilitating financial circumstances. The borrower may be facing foreclosure or bankruptcy procedures, or be dangerously in arrears on the mortgage. A hard money loan is likely the only available fund resource for which the borrower qualifies, and the only way to quickly relieve an immediate financial crisis. A hard money loan generally has shorter term than a traditional bank loan –the term is usually only six months to a few years.

A bridge loan is normally issued in case of undeveloped or investment property or commercial real estate that is in transition and fails to meet the criteria for a commercial bank loan. A bridge loan issues funds for a period of financial transition, and is commonly used by property owners who need funds for the purchase of new property before their existing property has been sold. The term of a bridge loan is often just a few short weeks, limited to the period of transition. Many banks will not consider a home equity loan if the home is for sale.

A bridge loan is secured by the sale price of the property currently owned by the borrower. In order to qualify a borrower, a bridge loan lender will examine both the borrower's income and the sale value of the borrower’s current property.

Neither hard money loans nor bridge loans are issued by traditional lending institutions such as a commercial bank or deposit institution. Both loan types are issued by private lenders. The business of bridge lending and hard money lending is lightly regulated. It is important to verify the reputation of the bridge and/or hard money lender before doing business with them.

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