Bridge Loan vs HELOC: What’s the Difference?

Are you curious to learn about the significant differences between a bridge loan vs HELOC? Did you know that you could possibly use both to fund your real estate investment ventures?

Although you may be able to use them to purchase and renovate investment properties, it is essential to note a few restrictions you should be aware of.

If you are ready to learn about the difference between a bridge loan and a HELOC, continue reading below! We will cover all you need to know and who you can reach out to for more information.

What Are Bridge Loans?

Bridge loans, also known as fix and flip loans, are short-term, high-interest loans that most real estate investors use to cover the cost of a home purchase. You also have the opportunity to use the money to cover the cost of repairs and renovation.

These short-term loans are very different from a traditional mortgage loan because bridge loans are designed to help you with your real estate project, and then the money from the loan is paid back to the lender once you sell the property.

Bridge Loan Collateral

When applying for a bridge loan, your lender will most likely require you to use the real property as collateral. In this instance, the house you wish to purchase for your real estate portfolio is the collateral for the loan.

Most lenders worry more about the collateral in question instead of your creditworthiness. Keep in mind that most lenders may still want to glance over your credit, but they mainly focus on the investment property.

Bridge Loan Terms

The terms for most bridge loans are between six months to three years, depending on your lender and the terms you agree upon. Most real estate investors who use these loans usually pay off the loans with the money from the sale of the property.

Benefits of a Bridge Loan

One of the most significant benefits of obtaining a bridge loan is quick access to capital. Most loans receive same-day approval, and funds are released within a week.

So, if you found a property at an auction, where you must show proof of cash for purchase within 24 hours, you can receive an approval and collect your money from the lender in time to purchase the investment property.

How Do Bridge Loans Work?

Qualifying for this home loan is a lot easier than other conventional loans. You also won’t be able to find this loan through any traditional means. This means that you will need to reach out to a reputable bridge loan private banking institution or a private investor.

As mentioned earlier, bridge loan lenders do not focus too much on your credit as they are more concerned with the investment property. So, even if you don’t have perfect credit, you may still qualify for a loan.

In general, the lender will have someone appraise the property’s value to make sure that it is worth what you are asking for. Once the lender receives the appraisal, they can start the process of generating your loan. This process typically won’t take longer than a week to complete.

What Happens if I Default?

If you default on your bridge loan, the lender has the right to repossess the property purchased. Once they have possession of the house, they can sell it to make their own profit or turn it into their own rental property.

The risks fall on you, the borrower. So it is up to you to make sure that all of your renovations and repairs are done on time.

To make sure that you avoid a default, you will also need to make sure that the property sells. Even after you sell the property, you should still be able to make a decent profit.

Bridge Loan Considerations

Before you apply for your bridge loan, it would be in your best interest to draft up a business plan. This will help the lender make their underwriting decision. It will also help you plan out the money you need for your project.

Fixing and flipping properties, if that is what you use the loan for, is more than just purchasing the property. You need to consider other fees, such as realtor fees, closing costs, and utility bills.

It is best to reach out to contractors so they can give you an estimate for the cost of repairs and renovations. Keep in mind that these estimates from your contractors may not cover any unexpected maintenance or updates. It is best to pad your estimate by about 10% to 15% to cover any unexpected repairs or fees.

What Is a HELOC?

A home equity line of credit (HELOC) is a line of credit you can receive based on the current equity in your home. You can use these funds for large expenses or debt consolidation.

A HELOC has a lower interest rate than some other types of home loan products available on the market. The interest rate on your loan may be tax-deductible as well. Make sure to reach out to your tax provider about the tax-deductibility of your interest rate as the tax rules may change.

HELOC Collateral

The collateral for your HELOC is your home. This is because the money received from the HELOC is from the equity in your home. If you do not pay back the loan, you risk losing your home.


The terms for most HELOCs depend on the terms agreed upon with your lender but typically vary between five to ten years. HELOCs have a “draw period” which is a set amount of time that you have to use the funds.

You can use the money during your draw period, and you will only need to repay the interest payments each month. You can pay back more each month, but make sure you check in with your lender to ensure there are no prepayment penalties.

Once your draw period ends, you will enter into a “repayment period” where you must pay back the money used during the draw period. At this point, you will not be able to withdraw any more money, and you must repay the interest and principal monthly.

Benefits of a HELOC

One of the main benefits of a HELOC is the amount of time you have to draw from your account. You have approximately ten years to use these funds for whatever you need before you have to pay back the money used. As mentioned earlier, another benefit is that you may be able to deduct your interest on your income tax.

What Happens if I Default?

If you default on your payments, you risk losing your home. If you believe that you will have a hard time repaying this home loan, you can reach out to your lender for other repayment options.

How to Qualify for a HELOC?

Before you can qualify for a HELOC, you must have available equity in your home. The lender will also want to look into your employment history, monthly income, credit score, and monthly debt. They may ask for other information before they qualify you for the loan.

Bridge Loan vs HELOC

Now that you know the differences between these two financial products let us compare a bridge loan vs HELOC. One of the most significant differences between these two loans is the collateral.

With a bridge loan, the collateral is your real estate investment property, whereas, with a HELOC, your home is the collateral. If you default on your bridge loan, the lender may repossess the rental property, whereas, with a HELOC, you may lose your home.


With a bridge loan, there are virtually no restrictions with the loan. Once you receive the funds, you can use the money however you need for your real estate investment property. You can use these funds to purchase the house, fix it up, and pay for any carrying costs such as HOA fees or utility payments.

With a HELOC, the lender may be less inclined to release funds if they are aware that it is for a real estate investment property. As mentioned earlier, conventional lenders do not authorize bridge loans or funds for a fix and flip project.

These lenders look at your debt-to-income ratio, other open accounts, credit score, and more. Bridge loan lenders do not.

Available Funds

The funds received from a HELOC come from the equity available in your home. Most lenders only allow you to have a percentage of the available equity in your home, which may not be enough to fund your real estate investment venture. Even if it is, there is still a chance you may receive the funds you need due to your lenders’ restrictions.

Bridge loans do not have strict limits or requirements. Bridge loan lenders have the financial means to provide you with the money you need to fund your entire project.

It is very important that you properly estimate the amount of money you need for the entire project. This includes any possible delays or mistakes, carrying costs, realtor fees, and more.

Interest Rates

The interest rates for these two loan products differ significantly. Most bridge loans come with high-interest rates to mitigate the lender’s risk and because of the short repayment times.

Most lenders do not have prepayment penalties, and you can repay the loan with the profits from the home sale. On average, most bridge loans have an interest rate between 6% to 10%, depending on the lender. The interest rate for most HELOC is around 5% or lower.

Although the interest rate is lower, it varies. Bridge loans offer their borrowers with fixed interest rates, whereas HELOCs have varying rates. This means that with a HELOC, your interest rate is not set, and it can either go up or down based on the current market conditions.

Credit Requirements

With bridge loans, you don’t need to have a strong credit profile to receive an approval from a lender. As mentioned above, the lender is more concerned with the value of the investment property, not your credit background.

It is also important to note that with a bridge loan, you will most likely need to put down 20% to 30% for the loan, depending on your loan to value ratio. HELOCs require you to have a strong credit profile and other important things before the lender releases your funds.

Equity Requirements

Bridge loans do not require you to have equity in your home before you can receive an approval. The loan is backed by the investment property, not your own home.

With a HELOC, you must at least have 20% of the equity in your home for most lenders. If you are a new homeowner, you may not have that much equity as equity builds up after several years of payment. Unless you’ve made a sizeable down payment on your home, you may not have the equity needed to qualify for a HELOC.

Apply for a Bridge Loan Today

Now that you know the difference between a bridge loan vs HELOC, you should know that a bridge loan comes with more benefits. Bridge loans are also more convenient, and they are a perfect choice if you are looking to expand your real estate portfolio.

Contact us now if you are ready to apply for your bridge loan. We also have plenty of valuable resources on our blog for you to check out about other available loan products and helpful real estate investment information!