Key Takeaways

  • A bridge loan may not be the right fit for fix & flip projects, new construction, or rental acquisitions, each of which benefits from a loan structure designed specifically for that strategy.
  • Fix & flip loans disburse funds in stages tied to rehab milestones rather than as a lump sum, making them better suited for distressed property renovations than a bridge loan.
  • New construction loans function similarly to fix & flip loans but may require demonstrated prior construction experience given the complexity of ground-up projects.
  • DSCR rental loans qualify based on a property’s debt service coverage ratio rather than personal income, making them accessible to investors with non-traditional income or large portfolios.
  • ABL’s minimum DSCR requirement is 1.0, meaning the property’s income must at least cover its debt payments, with higher ratios improving approval odds.
  • Choosing a loan based on interest rate alone is one of the most common mistakes investors make. Loan structure, draw schedules, and term length matter just as much as the rate.

If you need quick property financing, a bridge loan can be an attractive option. It’s faster than a traditional mortgage and offers more flexible terms. However, some projects benefit from highly tailored loan programs designed specifically for your investment strategy.

At Asset Based Lending (ABL), we offer a few bridge loan alternatives (on top of bridge loans) that may be the perfect match for your next real estate investment. Whether you’re flipping, building, or renting out houses, we have a dedicated loan option for you.

When a Bridge Loan May Not Be the Right Fit

A bridge loan is a versatile short-term mortgage. You can use it to secure a property in a competitive market, pull out equity to fund repairs, or raise cash for unexpected expenses. 

However, a bridge loan may not be the best fit if you plan to:

  • Flip a distressed home. Fix & flips require a loan that disburses funds after you reach agreed-upon construction milestones (aka construction draws), not a lump sum.
  • Build a new house. Similar to fix & flips, new construction projects require a carefully planned construction draw schedule. Few lenders will fund the entire project at once.
  • Acquire a rental property. Rental properties require a long-term rental loan that you can use to hold onto the property indefinitely. A short loan term isn’t long enough.

Bridge Loan Alternatives to Consider

Now that you know when a bridge loan isn’t ideal, here are alternative loan types to consider:

1. Fix & Flip Loans

A fix & flip loan is a short-term mortgage designed to help you buy, rehab, and sell a property for a profit. As such, the loan term typically lasts 12-24 months, with loan approval based on the property’s after-repair value (ARV) and the viability of a successful flip. 

Once the loan is approved, you’ll receive the first fund disbursement. As you reach the agreed-upon rehab milestones, you can then request additional loan draws. The lender typically sends an inspector to verify progress before approving and releasing the next payment.

ABL offers dedicated fix & flip loans for amounts ranging from $75K to $50M. Here are some of the key loan requirements and highlights:

Minimum Credit Score 660
Origination Fee (Points) 0-2%
Max Loan-to-Cost (LTC) 92.5%
Max Loan-to-After-Repair-Value (LTARV) 75%
Loan Term 12-24 months
Property Type Single-family, multifamily, and condos
Prepayment Penalty None
Extension Option Available

2. New Construction Loans

New construction loans are short-term mortgages for building properties from the ground up. They function like fix & flip loans in most respects. The biggest difference is that you may need to demonstrate prior construction experience since these projects can be complex and lenders may not want to take a risk on a beginner.

If you have some experience under your belt, new construction loans can be the perfect way to get a project off the ground. They let you get started without the need to fund the land acquisition, construction, and holding costs all on your own. 

That’s why Asset Based Lending offers dedicated new construction loans for experienced builders who need anywhere from $75K to $50M. Here are the requirements and highlights:

Minimum Credit Score 660
Origination Fee (Points) 0-2%
Max Loan-to-After-Repair-Value (LTARV) 75%
Loan Term 12-24 months
Property Type Single-family, multifamily, and condos
Prepayment Penalty None
Extension Option Available

3. DSCR Rental Loans

DSCR rental loans are long-term mortgages for rental properties. The “DSCR” stands for debt service coverage ratio, which is the main criterion by which lenders approve loans. The higher the DSCR, the more easily the property’s rental income can cover its debt service payments.

To calculate DSCR, divide a property’s projected net operating income (NOI) by its total debt service. Here’s the formula:

DSCR = Net Operating Income (NOI) / Total Debt Service

For example, if a property generates $1,000 in monthly NOI and the monthly payment is $800, the DSCR would be 1.25 ($1,000 / $800). Anything higher than 1.0 means the property can cover its debt, anything lower means it can’t, and exactly 1.0 means it’s breaking even.

Most DSCR lenders have a minimum DSCR requirement to mitigate the risk of you falling behind on payments. However, unlike traditional lenders, DSCR lenders care less about your personal income and creditworthiness (though your credit score will still be a factor). 

ABL offers DSCR loans for anywhere from $85K to $2.5M. Here are the loan highlights:

Minimum Credit Score 660
Minimum DSCR 1.0
Loan Term 30 years
Rate Lock Option 30-day rate lock upfront
Rate Buy Down Options Available
Property Type Single-family, multifamily, and condos
Short-Term Rental Eligibility Available with AirDNA qualification

Common Mistakes to Avoid When Choosing an Investment Loan

To ensure you choose the best loan for your project, avoid these common pitfalls:

  • Choosing based on interest rate alone. A slightly lower rate doesn’t matter if the loan structure doesn’t fit the project, e.g., taking a lump-sum bridge loan for a rehab that needs staged construction draws.
  • Overestimating ARV or NOI. Overly optimistic after-repair value (ARV) or net operating income (NOI) estimates can lead to loan terms that don’t match reality, or a deal that won’t cash flow once it closes.
  • Not accounting for potential delays. Real estate projects are prone to delays, especially if you have to wait on other stakeholders for inspections before you can move forward. Plan some extra time into your construction schedule to be safe.

Get the Right Loan for Your Needs From Asset Based Lending

Ultimately, choosing the right loan comes down to matching the loan structure to your project, whether that’s staged draws for a rehab or new construction project or a long-term DSCR loan for a rental you plan to hold.

At Asset Based Lending, we’ve built dedicated loan programs for each of these strategies, so you’re not stuck forcing a bridge loan into a project it wasn’t designed for. Ready to find the right fit for your next deal? Pre-qualify for a loan with ABL today!

What is a bridge loan alternative?

A bridge loan alternative is a loan product designed for a specific investment strategy rather than general short-term financing. For real estate investors, the most common alternatives are fix & flip loans, new construction loans, and DSCR rental loans, each built around the unique cash flow and disbursement needs of that project type.

When should I use a fix & flip loan instead of a bridge loan?

If your project involves buying and renovating a distressed property, a fix & flip loan is the better fit. It disburses funds in stages tied to completed rehab milestones, which keeps the project on track and protects both the borrower and the lender. A bridge loan typically disburses as a lump sum, which is not well suited for projects that require staged construction funding.

What is a DSCR loan and how does it work?

DSCR stands for debt service coverage ratio. It measures whether a property’s income can cover its debt payments. To calculate it, divide the property’s net operating income by its total debt service. A DSCR above 1.0 means the property generates enough income to cover the loan, which is the minimum ABL requires. Unlike traditional mortgages, DSCR loans do not require personal income verification.

Do I need construction experience to get a new construction loan from ABL?

Prior construction experience is typically required for new construction loans because ground-up projects are more complex than renovations. If you are newer to building, a fix & flip loan may be a more accessible starting point while you build your track record.

What is the biggest mistake investors make when choosing a loan?

Choosing based on interest rate alone. A lower rate does not matter if the loan structure does not fit the project. Investors should evaluate draw schedules, loan terms, prepayment penalties, and LTARV or LTC maximums alongside the rate to make sure the loan actually works for their specific deal.

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