Bridge Loans for Luxury Homes: How to Fund Your Dream Home
8 minute read
May 31, 2023


For luxury home buyers, a common problem is bridging the financial gaps that may cost you your dream home. A bridge loan from a hard money lender like Marquee Funding Group can easily be the solution.

Traditional mortgages may not always provide the flexibility you need, especially when you’re trying to sell your current residence and buy a new one. 

Let’s start by discussing bridge loan benefits, usage, qualifications, and tips for securing one. We’ll also explore the advantages of using hard money for a bridge loan and understand their interest rates and fees.

What’s your loan scenario?

What is a bridge loan?

A bridge loan, also known as interim financing, is a short-term loan that provides immediate cash flow to help you purchase a home while waiting for your existing property to sell. It essentially “bridges” the time between selling your current home and purchasing a new one. 

A bridge loan should be viewed as a temporary financing option that allows you to access funds quickly with the plan to repay within a short period. It’s secured by the equity in your existing property and typically spells out the shorter repayment terms within the agreement, often usually one year. 

This can be especially helpful in competitive real estate markets where multiple buyers might be vying for the same luxury property you have your eye on. 

By having access to a bridge loan, you can make a strong, non-contingent offer that could give you an edge over other prospective buyers.

Benefits of using a bridge loan for luxury homes

Bridge loans can be used for any type of property but can be especially helpful when shopping for a luxury property. 

Speed and flexibility

One of the primary advantages of a bridge loan is the speed at which you can obtain funding. 

Traditional mortgage lenders can take weeks or even months to approve a loan, whereas bridge loan lenders can approve and fund a loan in a matter of days. This can be crucial when competing with other buyers in a hot luxury real estate market.

Buy before selling, or “gap financing”

A bridge loan allows you to purchase your dream home without having to sell your current property first. Many lenders will refer to this option as “gap financing,” bridging the gap between when you purchase your new luxury home and when your old house sells.

This type of immediate financing can be a game-changer in a competitive market. Waiting for your current home to sell might mean missing out on the luxury property you most desire. 

With a bridge loan, you can secure your new home while giving yourself more time to market and sell your existing property.

Non-contingent offers

Another significant benefit of using a bridge loan is that it enables you to make a non-contingent offer on a home. 

Especially when dealing with luxury or jumbo-priced homes, the larger volume needed to secure funding makes timing and financing much trickier. 

When a seller looks at the different offers on their property, the ones with the least number of contingencies (if any at all) will likely be more attractive to them. 

If your offer is not dependent on personal financing factors—like the need to sell your current property or avoiding financing issues by offering cash—it can easily increase your chances of securing a deal. 

Sellers want to sell with the least amount of difficulty. If you can offer that to them, it can give you an edge over the competition. 

Renovation financing

A bridge loan can also be used to finance renovations on your new luxury home. 

It’s rare for new homes to be set up exactly as you would like. There are always issues of interior decor, utilities, feng shui, or just plain personal preferences to be corrected. 

If you need to make improvements or updates to the property before moving in, a bridge loan can supply the necessary funds to cover those costs. 

Extensive renovations to meet your specific requirements can take significant funds, and a bridge loan can offer that.

Debt consolidation

In some cases, a bridge loan can be used to consolidate existing debts, such as a mortgage on your current property, into a single loan. 

This type of financial simplification can potentially reduce your overall interest costs while transitioning from your current home to your new luxury property.

Qualifications for a bridge loan

While the exact qualifications for a bridge loan will likely vary depending on the lender, some common requirements include the following. 

Keep in mind that these are general qualifications for conventional bridge loan lenders. Hard money or private loan lenders set their own criteria. 

Strong credit history

Lenders typically require a good credit score and solid credit history to approve a bridge loan. This helps ensure that you can repay the loan and manage the additional debt responsibly.

Sufficient equity

Borrowers generally need to have a significant amount of equity in their current property to qualify for a bridge loan. Lenders may require that you have at least 20%-30% equity in your existing home to secure the bridge loan.

Debt-to-income ratio

Lenders will also examine your debt-to-income ratio (DTI), which compares your monthly payments that go toward debts to your gross monthly income. 

A lower debt-to-income ratio indicates to lenders that you’re likely to manage your current debt obligations and take on additional debt from the bridge loan. Take the time to calculate your DTI to enable a clearer picture of your financial situation.

Exit strategy

Finally, lenders will want to see a clear exit strategy for repaying the bridge loan. This typically involves demonstrating that you have the plan to sell your current property or refinance the bridge loan with a longer-term mortgage once your new luxury home is purchased.

The benefits of using hard money for a bridge loan

Hard money loans—which are secured by real estate and funded by private investors—are practically a tailor-made option for luxury home buyers who need a bridge loan. 

Faster approval process

Hard money lenders are specifically known for approving loans more quickly than traditional mortgage lenders—something that can be invaluable in competitive real estate markets like luxury homes. Approval can come as soon as 24 hours with Marquee Funding Group. 

More flexible lending criteria

A lack of heavy regulatory restrictions that banks and credit unions have to deal with means hard money lenders are less constrained and can often approve loans based primarily on the value of the real estate. 

Even if the borrower has a less-than-perfect credit history or a higher debt-to-income ratio, the right hard money lender can make the deal happen.

Customized loan terms

Not every borrower has a traditional financial structure or income stream. If this describes you, you may have already seen how it makes conventional lending institutions nervous and less likely to approve a loan. 

On the other hand, hard money loans can be fine-tuned to meet the specific needs and requirements of their borrowers—providing a more customized financing solution than traditional mortgages.

Bridge loan interest rates and fees

Bridge loans typically have higher interest rates than conventional mortgages due to the short-term nature and increased risk associated with these loans.

Interest rates can range from 9% to 12% or higher, depending on the lender and the specifics of the loan.

In addition to higher interest rates, bridge loans may come with various fees, including origination, appraisal, broker fees, and closing costs. It’s essential to carefully review the terms and conditions of any bridge loan offer to understand the associated costs fully.

Fund your luxury home with a bridge loan

A bridge loan can be an effective financing solution for luxury home buyers looking to:

  • Secure their dream home without waiting for the sale of their current property
  • Consolidate debt
  • Make a cash offer
  • Fund renovations

By understanding the benefits, qualifications, and potential costs associated with bridge loans, you can make an informed decision about whether this type of financing is right for you.

Reach out to Marquee Funding Group today if you’re interested in connecting with reputable, honest, transparent bridge loan lenders who can be true investment partners.

We don’t have to follow the same rules and regulations as traditional lenders. We set our own borrowing guidelines that make the most sense for our borrowers and us. 

Submit your bridge loan scenario today for quick review by our experienced team. 

We look forward to structuring the best bridge loan for your unique lending needs.

Photo by Expect Best

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