Bridge Loan vs. Home Equity Loan: Pros and Cons

Bridge loans and home equity loans both provide borrowers with quick access to cash that’s secured by an existing property.

Both loans also can be used as a source of funding for real estate investments or improvements, but bridge loans are often better suited for this purpose due to their flexibility.

In this article, we’ll explore the key similarities and differences between bridge loans vs. home equity loans, and the pros and cons of each.

How does a bridge loan work?

Bridge loans are a short-term source of financing backed by collateral, such as an existing home or investment property.

They also are known as gap financing or swing loans because they are used during transition periods or periods where you need an immediate source of financing to cover the purchase of a new property while you wait for another property to sell.

Bridge loans also can be used for the following range of purposes:

• A quick source of short-term capital for small businesses
• Housing transitions for seniors, including downsizing or senior living costs
• Property upgrades or renovations on investment properties that are struggling to bring in sufficient income
• Purchasing distressed properties for fix-and-flip or fix-and-rent
• Making a non-contingent offer on a property
• Consolidating multiple debts into a single loan
• Making an all-cash offer on a home

Bridge loans can provide funding for all of these scenarios and many more.

Working with an experienced, reputable hard money lender will unlock the most complete range of options.

While some traditional lenders also offer bridge loans, it’s more difficult to find one who will and even more difficult to qualify for one due to the strict requirements.

How does a home equity loan work?

Home equity loans (HELs) and home equity lines of credit (HELOCs) are secured by a borrower’s home equity.

While HELs provide a lump sum with a fixed rate, HELOCs are a revolving line of credit with an adjustable rate.

Loan limits are typically based on a percentage of the home’s appraised value minus the outstanding mortgage balance.

Home equity loans are generally leveraged for personal use, such as home improvements or debt consolidation.

Borrowers can acquire a home equity loan or line of credit through a traditional lender, so accessing home equity is subject to strict documentation and credit requirements.

Pros and cons of bridge loans vs. home equity loans

Every loan type has pros and cons, depending on how the borrower intends to use it and how it fits into their financial situation and goals.

Let’s take a look at the pros and cons associated with bridge loans and home equity loans.

Bridge loans

Bridge loans provide quick access to funds for time-sensitive transactions.

Working closely with a hard money lender like Marquee Funding Group, borrowers in a range of scenarios can access more flexible qualification requirements and personalized financing solutions.

Hard money bridge loans can be used in a wide range of scenarios and purposes, from commercial to residential, owner-occupied to non-owner-occupied, renovations, property acquisition, business expenses, and much more.

One potential downside to a bridge loan is the short term, which generally is about 12 months.

However, if this isn’t enough time to complete your deal or fulfill the loan’s purpose, borrowers can consult with their lender to either adjust the repayment terms or find an alternative solution.

Home equity loans

Home equity loans and HELOCs are helpful solutions for borrowers who can qualify with a traditional lender such as a bank.

They are suitable for homeowners who are looking to leverage their home equity to make home improvements, cover a large expense, or consolidate their debt.

Home equity loans can be used to make a down payment on an investment property or a new home, but the loan amount for these products is typically based on a percentage of the home’s equity, which may be lower than the appraised value.

Home equity loans also have more structured repayment plans and take longer for approval due to credit checks and documentation requirements.

What’s the best option for your loan scenario?

If you’re a homeowner who can qualify for a home equity loan with favorable rates and terms for your personal renovation projects and debt consolidation, this loan option may be the most reasonable for your scenario.

But for borrowers who are real estate investors, business owners, homeowners who have to make a quick transition, or any other borrower who needs to “bridge the gap” between the sale and purchase of a property, a bridge loan is the ideal option.

Hard money lenders are more focused on the deal you are bringing to the table than strict income or employment documentation.

We will need to understand the details of your plan to purchase the property and your exit strategy, and we will also evaluate your credit score and bank statements. 

But beyond that, we can offer maximum flexibility with structuring the loan, approval within days, and funding within a few weeks.

Home equity loans and HELOCs cannot be issued fast enough for borrowers in the unique types of scenarios that bridge loans cover.

Apply today with Marquee Funding Group

Hard money lenders such as Marquee Funding Group are proud to fill the gap left behind by other lenders.

Marquee funds all types of loans in both the consumer and commercial marketplace by offering access to borrowers who cannot find a source of institutional financing. 

We can arrange debt on all types of real property.

If you’re new to the world of hard money lending or want to talk to us about your unique or challenging real estate transaction, fill out our contact form or call us at (818) 222-5222.

We think you will love our quick, personalized service and common-sense approach to lending.

Photo by Mikhail Nilov