Bridge Loans Explained and The Best Bridge Loan Lenders for Seniors

In the United States, as many as 7 out of every 10 people will require some form of assisted living care at some point in their lifetime. Unfortunately, such care can be expensive. According to Genworth Financial, the average monthly cost of assisted living in the United States is approximately $4,500 and the median monthly cost of in-home health care is $5,148.. Living in a nursing home (with a private room) is substantially more expensive with a monthly median cost of almost $9,034. However, the overall costs may vary by geographic location, the care setting chosen, and the level of necessary care. Often, when in-home care is needed or a transition to a senior living community is required, such changes need to be made quickly, which may be difficult emotionally as well as financially. 

If you or a loved one needs senior care immediately, but can’t afford it until you sell a house or wait for the approval and payment of insurance or VA pension benefits, a bridge loan may be the perfect short-term solution. Designed for quick approval and dispersal of funds for up to a year (sometimes longer), bridge loans help families that have immediate and time-sensitive financial needs. By removing financial barriers, you or your loved one can access health care quickly without the stress of having to wait for long-term financing to become available. Once the house is sold or when insurance or pension benefit payments are received, repayment of a bridge loan with some of these funds is simple.

In this guide, we will explain more about what bridge loans are and how they work. We will also discuss the requirements to get approved for bridge loans and the application process, in addition to reviewing three of the best companies that offer bridge loans to help fund senior care. We also provide information about alternative financial assistance options for seniors and/or their families as they wait for bridge loan approval or who may want to explore different ways to finance senior living.

What Is a Bridge Loan and How Do Bridge Loans Work?

Bridge loans, also called swing loans, are short-term loans with a typical term of six months to a year. Bridge loans are designed to provide quick funding to those who need a source of capital during a transitional period before they can secure other permanent, long-term financing. In fact, unlike typical loan processing times, institutions may approve a bridge loan in 24 hours or less. In this way bridge loans can provide virtually instantaneous financial support to those who need cash for time-sensitive purposes.

How Bridge Loans Can Help Seniors

Bridge loans can help seniors pay for residential or assisted living costs while waiting for a home to sell, long-term care insurance plan payouts to be made, or approval to be granted for veteran’s pension benefits. Then, once these payments are received, repayment of the loan can be made easily. Seniors may otherwise be forced to delay much-needed care due to limited finances.

Bridge loans can also be used in situations other than to finance senior care. For example, one might be used to provide funds to make a down payment on a new home before an already existing home is successfully sold. Then, once a buyer purchases the original property, profits from the sale can go towards paying off the bridge loan. This provides homeowners flexibility as well as peace of mind if their house doesn’t sell quickly.

Bridge Loan Rules and Loan Structure

Bridge loans may vary somewhat based on the lender. Unlike a traditional home equity line of credit, or HELOC loan, lending institutions will specify the purposes bridge loan funds may be used for and prohibit other uses. They are typically a bit more expensive than a traditional HELOC loan as well, though they are purposefully designed to have shorter approval times and provide funds faster. 

Lending institutions may use one of two payment structures for their bridge loans: offering either a lump sum payment or a line of credit. Most bridge loans are provided as a line of credit, and typical credit lines range from $20,000 to $30,000. These line-of-credit loans work the same way a credit card does: A loan is approved for a total amount, but borrowers can draw on funds as needed, and only pay interest on the amount used.

Bridge Loan Repayment

The monthly payments for bridge loans are structured to be very low. The 9-month sample repayment table below assumes the borrower has a line-of-credit bridge loan and requires a loan of $3,000 each month to pay for care. This schedule assumes a monthly, interest-only payment of about $8.00 per $1,000 borrowed.

When to Use a Bridge Loan

Bridge loans are designed to serve as a bridge until more permanent financial resources can be arranged. The following are several examples of situations in which using a bridge loan makes economic sense.

• When Entering Assisted Living – The costs of moving into assisted living can be significant considering monthly fees, community (entrance) fees and relocation expenses. A short-term loan gives a family the flexibility to absorb these costs and ease the burden until other funds become available over the next 6, 12 or even 18 months.
• When Waiting for Veterans Benefits – The VA Pension for war-time veterans, when coupled with the additional Aid and Attendance benefit, can provide thousands of dollars per month toward the cost of assisted living or home care. However, families may have to wait a year or more to begin receiving benefits. This pension is retroactive, so a bridge loan works well to cover the waiting period.
• When Selling a Home – It can take many months to prepare a home for sale, find the right buyer, and arrange financing. A bridge loan allows families the time to receive the best offer for the home, rather than rushing a sale simply to have funds available for making a downpayment on another property or covering the transition to senior care.
• As an Alternative to a Reverse Mortgage – Reverse mortgages are a popular way to finance long term care, provided at least one homeowner remains in the home. Should both owners move from the home to assisted living, a reverse mortgage is not an option. Additionally, an AARP study finds reverse mortgages make economic sense for homeowners who intend to use the proceeds for at least 5 years. A bridge loan makes sense for shorter loan periods.

The 3 Best Bridge Loan Lenders for Seniors

ElderLife Financial

Best for Fast Approval 

ElderLife Financial has spent the last 20+ years providing financial assistance to more than 75,000 families. This includes $200 million in bridge loan financing. Specifically designed to help cover the cost of senior living as families wait for a home to sell, benefits to be approved, or for some other source of long-term financing to become available, ElderLife Financial bridge loans provide funds for periods of up to 12 months. This money can be applied to the costs of senior care in different settings, such as assisted living, independent living, skilled nursing facilities, continuing care retirement communities, home care, and more. 

With ElderLife Financial bridge loans, cash is available as soon as within 24 hours of submitting an application. While other companies may take several business days to approve an application and disburse funds, ElderLife Financial can offer families the money they need almost instantaneously. The chances of application approval may also be higher than with other companies, as ElderLife Financial allows up to six co-borrowers, so an otherwise disqualifying low credit score may be offset by the higher credit scores of others. Further information as well as personalized guidance is available through company concierges, making the process of applying for a ElderLife Financial bridge loan quick and easy.

ElderLife Financial Bridge Loans

Pros and Cons of Elderlife Financial Bridge Loans

Second Act

Most Flexible Payment Policy

Second Act is a division of the federally chartered Liberty Savings Bank and prides itself on offering some of the lowest rates compared to its competitors. In addition to this, some of its origination fees are less than half those charged by others. It also has an exceptionally long and flexible repayment policy for its home equity bridge loans; however, this is in part due to the nature of these loans. As home equity loans, the amount of the loan depends on the value of the home a recipient is planning to sell. This is because some of the proceeds from this sale will be used to repay the loan. 

Therefore, repayment depends on when a house sells, which may be impacted by various factors such as current market conditions. Because of this, Second Act’s home equity bridge loans allow up to 60 months of interest-only payments and an additional 300 months of principal and interest payments if a house cannot be sold beforehand. In the meantime, the bridge loan funds can be used to help finance the entrance fee or the monthly rent charged by a retirement community. Second Act also offers bridge loans to veterans who are not selling their homes but who are waiting for VA benefits. These bridge loans still generously allow up to 18 months of interest-only payments.

Second Act Bridge Loans

Pros and Cons of Second Act Bridge Loans

*Rates are subject to change without notice.

Care Planning Institute

Most Affordable Option for Veterans

Founded in 2013, the Care Planning Institute (CPI) was created by individuals with family members who didn’t know about all of the VA benefits that were available to them. For this reason, CPI was created to assist qualifying veterans and their spouses through every step in the process of applying for a VA pension with the Aid & Attendance Benefit, a benefit not widely known about among military communities. In addition to this, CPI also provides a bridge loan, or “care loan,” to cover the costs of home care during the time it takes the VA to process the veteran’s or surviving spouse’s application for benefits. 

This loan begins once applications are mailed to the VA and covers up to 5 months of care; however, with CPI’s assistance, applications are usually approved well before this period of time is over. Once an application is approved, the VA will reimburse applicants for the care service expenses they incurred while their application was being processed. They can then pay back their care loan with these funds. This care loan is the only bridge loan on our list that has no included fees and charges no interest. Because of this, while other companies also offer bridge loans for veterans, The Care Planning Institute provides the most affordable option for retired service members and their families.

Care Planning Institute Bridge Loans

Pros and Cons of Care Planning Institute Bridge Loans

Eligibility Requirements for Bridge Loans

Credit Scores – Bridge loans with only one borrower will require that individual to have a fairly high credit score to be approved. However, a bridge loan is often made with multiple members as co-applicants (these individuals can either be family members or unrelated). Thus, while credit scores are still considered, a low credit score from any one co-applicant can be offset by the others if they are higher. Aside from credit scores, other consideration factors include liquid assets, income and home equity. It’s important to note that when there are co-borrowers, their income and/or assets may also be used for loan qualification determinations.

Alternative Funding Source – As the bridge loan is intended as a short-term solution, the lender will want to know what other source of funding will become available that can be used to pay off the loan. Most commonly, this will be a lump sum from the sale of a home or a lump-sum retroactive payback from veteran’s pension benefits.

Factors NOT Considered for Bridge Loan Eligibility 

Several other factors do not typically impact eligibility for senior care bridge loans. Since the loan is typically given to the family, and not the individual in need of care, age is not generally a factor in eligibility. Furthermore, neither the health condition of the applicant or his or her marital status should influence the approval process. Veteran status is only relevant to loan eligibility if the individual in need of care is waiting for approval of veterans’ benefits.

How to Apply for a Bridge Loan

Bridge loans are specifically designed to have a very fast approval process. In fact, it is possible to receive funding within 24 hours of submitting an application. Typically, it takes the family more time to coordinate the co-applicants than it does for the lender to approve the bridge loan. However, with home equity bridge loans that require certain documentation such as property appraisals, funds generally take a bit longer to become available.

Often, companies allow applicants the choice of applying for a bridge loan either online or over the phone. In each case, they will need to answer a series of questions. Questions that will be asked include the type of care applicants are seeking and how they hope to pay for that care long term. They will also be asked about their current situation. For example, if they are selling a home, where are they in that process? Or if they are applying for veteran’s assistance, what was the date of their application? These questions are asked to ensure the applicants receive a loan or line of credit that is enough to cover the gap and is sized appropriately for their situation.

Alternative Financial Assistance Options for Seniors

Seniors may find that they need

FAQs

What is meant by a bridge loan? 

Bridge loans are short-term loans that function as financial “bridges” for borrowers until they can gain access to an alternate source of long-term funding. Bridge loans are generally approved quickly to provide cash to those who need it for time-sensitive purposes, such as to cover the costs of care for a senior moving into a retirement community.

Is a bridge loan easy to get? 

Bridge loans generally require the borrower to have a secure line of equity, a source of income, and assets. Good credit is also needed; however, having several co-borrowers might help offset a borrower’s low credit score. Beyond this, some types of bridge loans are approved more readily by lenders than others. For example, individuals planning on repaying the loan after the sale of a house or with VA pension benefits will find approval much easier than individuals relying on long term care insurance benefits.

What are the costs of a bridge loan?

Bridge loans may have application fees and often have origination fees charged by the lender to cover application processing. Most bridge loans are issued as a line of credit, and borrowers will owe interest on the amount of the loan that they use to help cover the costs of their care. However, some assisted living communities will pay the interest on the loan as an incentive for the senior moving into their community. This allows families to borrow money with a bridge loan at virtually no expense. 

When are the cons of a bridge loan? 

The largest drawback of a bridge loan is the interest rate of the loan. According to some, it may be considered to be somewhat high. However, this is a relative statement. When compared to a home equity loan, the interest rate might be high, but when compared to a credit card or personal loan, it is very reasonable.  

What can a bridge loan be used for? 

Bridge loans can be used for several purposes. They can cover the costs of moving into assisted living while seniors wait for their home to sell to secure long-term financing. They can also be used to cover the costs of care while veterans and their families wait for the VA to process a pension application and approve benefits.