In 2024, private lenders are witnessing an unexpected uptick in bridge and DSCR loan activity, reflecting growing investor demand for flexible financing options amid market uncertainty.

Lightning Docs is a software company specializing in loan documentation for private lenders. The data gathered from the Lightning Docs system provides deep insights into trends shaping our industry, from interest rates and loan volume to regional activity and loan structures. Drawing on Lightning Docs data from 2023–2024, we can provide private lenders with insights to make informed, strategic decisions (see Fig. 1).

Definition Review

First, let’s make sure there is a clear understanding of definitions.

A bridge loan is a short-term business purpose loan that is generally secured by a 1-4 residential property. It has many names: fix and flip, NonQM, RTL (Residential Transition Loan), ground up construction, private lender loan, and even that oh-so-dirty phrase “hard money loan.”

Technically, RTL is probably the most accurate description because the asset is almost always residential and the purpose is transitionary in nature: improving the property to rent or sell (fix and flip) or obtaining short-term financing for a rental property hoping long-term interest rates go down, and obtaining permanent financing (true bridge). For this article, any loan with a duration of 36 months or less (usually 12 months) that generally contains interest-only payments will be considered a “bridge” loan.

DSCR stands for Debt Service Coverage Ratio. There are many ways to underwrite a loan. The traditional conventional credit market looks almost exclusively to the creditworthiness of the applicant by using FICO scores as well as the applicant’s ability to repay the loan.

In traditional commercial real estate lending, however, a lender looks to the debt service coverage ratio of the property as the predominant underwriting factor. This formula divides the income of the property by the monthly payment obligation of the debt (including property taxes and hazard insurance impounds) and uses that number as the primary factor in determining the safety of the loan. For example, if a property produced $1,000 a month of income and the monthly debt service of the property was $800, the property would be a DSCR of 1.25 ($1,000/$800). Unlike bridge loans, which have a term duration of 36 months or less, DSCR loans are typically 30-year permanent financing products similar to conventional mortgage loans, except the end user is a real estate investor rather than an owner-occupant.

Significant Rising Loan Volumes in Bridge and DSCR Loans

One of the most notable trends of the past year, and one that was quite honestly unexpected, is the sharp increase in loan volumes for both bridge and DSCR loans. In 2024, the demand for these loans rose significantly, driven by real estate investors seeking flexible financing.

Bridge Loan Volumes. When isolating out the same users from 2023 and 2024 (i.e., removing any new user who started using Lightning Docs after Jan. 1, 2023) we track 124 unique lenders. Their bridge loan volumes surged by 30% year over year comparing the first three quarters of 2023 and 2024 (see Fig. 2). This upward trend indicates real estate developers and investors are leaning on these loans to seize opportunities and meet project demands without traditional financing delays.

DSCR Loan Growth. Even though interest rates remained fairly consistent in the first two quarters of 2024, DSCR loan volumes also saw substantial growth, with a 41% increase in volumes comparing first quarter 2023 with first quarter 2024 (see Fig. 3). When comparing the first three quarters of 2023 and 2024 together, there was a dramatic increase of 37% year over year. This spike reflects the growth of rental property investments; many landlords and investors continue to see these loans as viable options to scale rental portfolios, particularly amid rising rental demand and low housing inventory in several markets (see Fig. 4).

Interest Rates and Loan Amount Trends Across Regions

Interest rates for bridge loans vary across the country, influenced by local economic factors, property values, and demand levels.

High-Interest Locations. The national average interest rate for all bridge loans across third quarter 2024 was 11.19%. However, many counties exceeded the national average by a significant margin (see Fig. 5). Many lenders are surprised to find out that California, in particular, has some of the highest rates, with seven counties exceeding the national average in the third quarter. This makes California one of the most attractive markets for private lenders. Florida also had three counties with above-average weighted average coupons. Seven other states had one county that exceeded national averages during the third quarter of 2024.

National Bridge Loan Average. The overall national average interest rate for bridge loans trended down from a high of 11.6% in January to 10.99% in October 2024 (see Fig. 6). States such as New York and Massachusetts also report higher-than-average rates. Nevada and California consistently rank among states with loan balances over $500,000, indicating that higher loan balances are often correlated with higher interest rates.

DSCR Rates and Alignment with Market Averages. DSCR interest rates had significantly more volatility than bridge rates. In January 2024, the national average for DSCR loans was 8.3%; by October 2024, rates had plummeted to 7.12% nationally (see Fig. 7), with almost 50% of loans priced in the six-percent range, rather than in the sevens, representing  a large psychological hurdle for many real estate investors.

Understanding Fees for Bridge and DSCR Loans

Upfront costs and fees are important considerations for both lenders and borrowers. Average fees for bridge loans and DSCR loans in 2024 are shown in Figure 8 and offer insight into transaction costs.

In addition to fees, the vast majority of lenders also charge points. Points consist of the origination charge for brokers and lenders. Similar to drops in bridge and DSCR interest rates, there was a modest decrease in the points lenders charged. Bridge points were as high as 2.33%; in October, the average points nationally were 2.09%. For DSCR, the high in 2024 was 2.43% with a low of 2.24% in October (see Fig. 9).

Structural Patterns in Bridge Loans

An analysis of loan structures reveals interesting shifts in preferences for bridge financing. Pure bridge loans, those without any construction holdback, made up 38% of bridge loans in 2024, indicating a significant preference among borrowers for simpler, faster temporary financing structures.

Approximately 18% of bridge construction loans included prepaid interest, with an average reserve period of 8.2 months. This trend suggests that borrowers may prefer a cushion for interest payments during the early stages of projects, reducing immediate financial strain and allowing focus on property acquisition and initial development phases.

An analysis of 8,832 bridge construction loans revealed that 28% of those loans were able to charge Dutch interest (i.e., charging interest on the entire loan balance) versus 72% of those loans charged Non-Dutch interest in which the real estate investor is only charged interest on amounts actually disbursed to the borrower at the time of loan origination.

Looking at both bridge and DSCR loans, 73% of loans charged a default interest rate of somewhere between 15-24.99% as the default interest rate. The median default interest rate charged was 18%. Default interest remains a highly unaddressed area for private lenders and one in which unwanted regulation is likely to intervene without standardization. When looking at agency (Freddie Mac and Fannie Mae) investor loans, the GSE standard notes provide for a default interest rate that is 4% above the note rate (see Fig. 10). Our industry would be wise to take note and produce a coherent standard of its own.

Regional Loan Volume Leaders in 2024

Regional differences play a key role in bridge and DSCR loan markets, with certain states and counties showing strong loan activity (see Fig. 11 and Fig. 12).

Los Angeles, Orange, and San Diego counties rank highly for bridge loan volumes. These California counties are followed by Fulton County in Georgia and Dallas County in Texas, illustrating how investment in major urban centers drives demand for private lending solutions.

For DSCR loans, Texas, Florida, and Illinois rank among the top states by volume. Strong economies and rental demand make these areas ideal for investors leveraging DSCR loans to expand rental portfolios, as steady tenant demand ensures reliable income streams to meet debt obligations.

The variation in loan demand by state and county highlights how private lenders can adjust their focus to align with local market conditions. Markets like Florida and California, for example, provide favorable climates for lenders to target both bridge and DSCR loans, particularly in high-growth metro areas where real estate values and demand are strong.

What’s most important is understanding the market the private lender is operating in because rates, loan amounts, and volumes vary dramatically based on geography for DSCR and bridge.

Key Takeaways for Private Lenders

This analysis of 2024 bridge and DSCR loan trends underscores several strategies private lenders can employ to thrive in a competitive environment.

Regional trends show the importance of adapting interest rates to market demand. Higher rates in California or Nevada reflect these markets’ specific needs and competitive conditions. By adjusting rates according to demand, lenders can maximize returns while remaining attractive to borrowers.

Growth rates of 30% year over year for bridge lenders and 37% for DSCR lenders are not accidents. The organizations driving this level of growth have two disciplines that you must learn in order to compete.

First, they provide an incredible customer experience to their real estate investors. They obsess over the minutiae of the process of obtaining construction draws and the ability to fund loans quickly. You must become the Amazon of private lending by providing an experience that involves the least amount of friction as possible.

Second, they have a diversified capital markets strategy, typically including a debt fund to fund from and to hold loans that are not appropriate for secondary markets, and then multiple institutional investor relationships, whether loan aggregators/purchasers or potential debt and equity investors.

Of the hundreds of Lightning Docs users, slightly more than 30 make DSCR loans. These 30 account for 40% or more of all volume on Lightning Docs in any given month. Assuming interest rates continue to decline, this product will become more attractive to your already existing real estate investor client base. With an incredibly robust capital markets system built to take out these loans, private lenders are foolish if they continue to ignore this product.

In conclusion, understanding these trends in bridge and DSCR loans is crucial for private lenders who want to maintain competitiveness and profitability. The data points to an expanding market for private lending, where strategic adjustments in interest rates, fee structures, and loan flexibility can set lenders apart.