What are the key criteria for qualifying for a bridge loan?

1 Credit score and history

One of the first things that lenders check is your credit score and history. They want to see that you have a good track record of repaying your debts on time and that you have a low debt-to-income ratio. A high credit score can also help you get a lower interest rate and a higher loan amount. Typically, you need a credit score of at least 620 to qualify for a bridge loan, but some lenders may have stricter or more lenient requirements.

2 Equity and collateral

Another important factor that lenders consider is your equity and collateral. Equity is the difference between the value of your property and the amount you owe on it. Collateral is the asset that you pledge to secure the loan, such as your existing or new property. Lenders want to see that you have enough equity and collateral to cover the loan amount and the associated fees and costs. Usually, you need to have at least 20% equity in your property to qualify for a bridge loan, but some lenders may accept lower or higher percentages.

3 Exit strategy

A bridge loan is a temporary solution that needs to be repaid within a short period, usually 6 to 12 months. Therefore, lenders want to see that you have a clear and realistic exit strategy to pay off the loan. An exit strategy is the way you plan to repay the loan, such as selling your old property, refinancing with a permanent loan, or completing a project. You need to provide evidence that your exit strategy is feasible and that you have enough income and cash flow to support it.

4 Loan-to-value ratio

Another key criterion that lenders look at is your loan-to-value ratio (LTV). LTV is the percentage of the property value that you borrow. For example, if you borrow $200,000 for a property worth $250,000, your LTV is 80%. Lenders use LTV to measure the risk of the loan and the likelihood of repayment. A lower LTV means that you have more equity in the property and less risk of default. A higher LTV means that you have less equity and more risk of losing the property. Generally, lenders prefer a lower LTV for bridge loans, but some may offer higher LTVs depending on your credit score, equity, and exit strategy.

5 Cash reserves

Finally, lenders want to see that you have enough cash reserves to cover the bridge loan payments and other expenses. Cash reserves are the funds that you have available in your bank accounts, investments, or other liquid assets. Lenders use cash reserves to assess your ability to handle unexpected situations, such as delays in selling your old property, changes in market conditions, or repairs and maintenance. Typically, lenders require you to have at least six months of cash reserves to qualify for a bridge loan, but some may ask for more or less depending on your situation.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?