Bridging Loans

Bridge Loan Basics Have you ever been stuck in between a new property and the old one, paying both mortgagesIf you have ever been stuck in between the purchase of your new home and the sale of your old home, understanding bridge loans would have been helpful

Bridge Loan Basics

Have you ever been stuck in between a new property and the old one, paying both mortgages.If you have ever been stuck in between the purchase of your new home and the sale of your old home, understanding bridge loans would have been helpful.Bridging loans offer a solution if you are stuck between your current home selling and your next home purchase, allowing you financial funding to cover the loans. Paying two mortgages can be challenging, especially when it is not planned.Nothing is worse than paying two mortgages when it is unexpected. Thankfully, bridging loans have been created by lenders to help solve this challenging situation.

Bridging loans are short term loans that help to bridge this gap between the sale of the present property and the purchase of the new home. Even though this is not common. Despite this not being a common scenario, under a few circumstances there is an extended time frame than was initially anticipated. The bridging loan helps the property buyer to manage their dual mortgage expenses, with the funds from the bridging loan being used towards the down payment on the new property once closing occurs.

The Bridging Loan Procedure to Funding as with the same process for a home mortgage, the buyers} must go through underwriting for approval for a bridging loan. Each} lender will often have their own approval procedure that must be adhered to in order for the property buyer to be qualify for the bridging loan. And, these standards are generally more flexible than traditional home financing in regards to debt to income ratios, suggesting that these ratios can be greater than with traditional lending.

The rationale of varying requirements associated with a bridge loan is that they are short term and generally designed to help a property buyer in moving from their existing home into their new property. And, the funds from the bridging loan are almost always applied to the new property loan in the event that they are not used during the transition period prior to closing on the new property.

Benefits of Bridging Loans

There are several benefits to the property buyer of bridging loans, including:

? It allows the property owner to put their property onto the market faster than normal and generally with fewer restrictions than if they did not have the additional financial cushion.

? A lot of bridging loans do not require monthly loan or mortgage payments, providing some financial relief to the existing property owner.

? The bridging loan can provide the home owner some flexibility with restrictions on their home sale, allowing them to reject offers that are not favourable without financial worry of paying two loans in the event that their new home closes as anticipated and on time.

Disadvantages of Bridge Loans

While there are several advantages to using a bridge loan when selling or buying properties, including:

? The costs associated with bridge loans are generally higher than traditional mortgage loans and even home equity loans.

? Some property owners may not be approved for a bridge loan due to the lending requirements

? Even though the bridging loan assists the property owner in covering mortgage costs during the transition process between properties, they must still financially cover both loans and the interest that is accruing on the bridge loan.

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