What is a bridge-to-perm loan?
A bridge-to-perm loan is a single loan commitment that funds the short-term phase, such as renovation or lease-up, and then converts to a permanent loan once the property hits agreed targets, without a second closing, typically saving 1 full set of closing costs. In exchange, the permanent rate is set by the same lender rather than shopped across the market.
How it works
The lender underwrites both phases at the start. The bridge phase is interest-only, usually 12 to 24 months, at bridge pricing. When the property meets the conversion tests, such as a minimum coverage ratio, occupancy, and completed work, the loan converts to the permanent terms already set in the documents: a fixed or adjustable rate, an amortization schedule, and a term of five to thirty years depending on the product.
| Two separate loans | Bridge-to-perm | |
|---|---|---|
| Closings | 2 | 1 |
| Closing costs | Paid twice | Paid once, sometimes with a conversion fee |
| Refinance risk | You must qualify again at maturity | Conversion is pre-approved if targets are met |
| Permanent rate | Shopped at the time of refinance | Set or indexed at the start |
| Flexibility | Choose any permanent lender | Locked to one lender |
| Availability | Any bridge lender | Fewer lenders offer it |
The conversion tests
Typical conditions to convert: work complete and inspected, occupancy at 85 to 90 percent or a coverage ratio of 1.20 to 1.25 on actual rents, no defaults during the bridge phase, and sometimes a new appraisal. If the property misses the tests by maturity, the lender may extend the bridge phase for a fee or require a paydown to convert.
What it costs
The bridge phase prices like a normal bridge loan, 8 to 12 percent. The permanent phase is usually priced at a spread over an index at conversion, or fixed at the start. Expect a conversion fee of a half to one point with some lenders, and a total cost that is often lower than two loans because the second set of title, escrow, and lender fees disappears.
When it is the better choice
- You want certainty that the permanent loan is there when the work is done.
- Rates are volatile and you want the permanent pricing locked or indexed now.
- The property is a five-plus unit or commercial asset where a second closing is expensive.
- You do not want to run the refinance process while managing a lease-up.
When two loans are better
- You expect to sell instead of hold.
- You want to shop the permanent loan across many lenders for the lowest rate.
- The bridge lender's permanent product is more expensive than the market.
How CommFi handles it
Our lending desk prices both structures side by side: a bridge with a shopped refinance, and a bridge-to-perm with one closing. It funds direct when it fits. When a bridge-to-perm lender is the better fit for a multifamily or commercial deal, the desk searches a database of 7,000+ lenders and the ones that offer it compete for the file. Zero upfront fees.
Related reading
Related questions
- What is a bridge-to-perm loan?
- One loan commitment that funds the short-term phase and converts to a permanent loan when the property meets agreed targets, with a single closing.
- Do I save closing costs with a bridge-to-perm loan?
- Usually one full set of title, escrow, and lender fees, although some lenders charge a conversion fee of a half to one point.
- What are the conversion requirements?
- Typically completed work, occupancy of 85 to 90 percent or a coverage ratio around 1.20 to 1.25, and a clean payment history during the bridge phase.
- Is the permanent rate fixed at the start?
- Sometimes. Other lenders set it as a spread over an index at conversion. Ask which before you commit.
- What happens if the property does not qualify to convert?
- The lender may extend the bridge phase for a fee or require a principal paydown so the permanent loan fits.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.