A bridging loan is a temporary loan that is intended to ‘bridge the gap’ that could exist when a homeowner is still selling his house and when he is set to take another mortgage. In other words, when a homebuyer is purchasing a new home before completely selling his current house, the bridge loan can be a source of cash needed to pay the down payment of the new home purchase.
Bridging loans are supposed to use the buyer’s existing house as security. The facility can provide sufficient amount of money to fund the down payment, which is a requirement to buy and relocate to the new move-up home. There is doubt that a bridging loan can help you finally buy your dream house.
Benefits of bridging loans
The popularity of bridging loans can be enough indication about how advantageous it can be. First, a bridge loan can enable a homebuyer to immediately put his current home up for sale without any restriction. This can speed up the process of possibly finalising a deal to buy his target home.
Second, the loan may possibly come with waived monthly payments, at least for several months. In some cases, least monthly payments are required, which will always be to the advantage of the buyer/borrower. Lastly, if the buyer makes a contingent offer and the seller sets a Notice to Perform, the homebuyer can possibly lift the contingency to sell so he can move on with the purchase.
Bridge loan financing
The main purpose of bridging loans is to fund purchase of a new house even if the current home is not yet completely sold. The settlement or completion of the sale of the existing home can be expected only after the new home purchase. Thus, the loan makes it possible to use the old property as a leverage to acquire the new. This is ideal for individuals who cannot wait any longer to finally buy their dream homes. It is also well if many parties are rushing to buy the same dream house.
Thus, the bridging loan makes it possible to apply new equity in the current home as a form of convenient down payment when buying the new home. That happens prior to the realisation of the equity. Bridge loan financing is most noted for strategically alleviating time pressure if there is a need to immediately move from the current or old home to the new dream home on a specific or targeted closing date. Bridging loans usually allow borrowers to move to the new address in just a matter of several days.
Before applying for and taking a bridging loan, you must carefully read the terms and conditions. It also helps to do further research and to discuss unclear points with representatives of a lender or loan provider.