There are many benefits of Bridging Loans. These are a type of financing that help you to obtain extra money to pay for the down payment of a new home or for its full payments while waiting for a new mortgage.
How Bridging Loans Work:
If you’re planning to buy a house before selling your current home, you can apply for bridging loan to fill the gap between the sale price of your new home and new mortgage.
Let’s say you are waiting for your house to be sold for $500,000. At the same time, you have also take a loan for your new home in the amount of $500,000 but your new mortgage amounting to $400,000 cannot cover the new purchase which is $500,000. You can use a bridging loan to fill the need for the extra $100,000.
In most cases, the proceeds of bridging loans are used as a down payment for the new house. When you are finally able to sell off your old property, you can use the sale price to pay off your bridge loan. By doing so, you can finance your home purchase smoothly and save a lot of money. While the loan carries high interest and is built on the equity of your existing home, you can still save on mortgage rates. This is because most mortgage products with low down payments charge very high-interest rates. The period of the loan ranges from 1 year to 3 years.
Who Uses Bridging Loans?
Any qualified borrower who needs quick financing while in the process of selling an old property. You can also use a bridging loan while waiting for a higher amount of loan. Additionally, you can use the money to buy a house at an auction even if you’re still in the process of selling off your property.
This loan was originally intended for landlords, property developers and commercial property investors. However, average consumers who need financing can also access this loan. Banks often have strict policies on documentary requirements when it comes to granting loans. As a result, wealthy borrowers in need of straightforward financing on residential properties often use this type of loan.
Can Bridging Loans Benefit a Business?
At some point in a growing business, cash flow may slow down and will affect the ability of your business to meet demands and finance its expansion plans. Those with a stable income and complete financials may not find it difficult to obtain financing. However, for startups and companies experiencing financial strain, it can be a different story. Standard loans may not be approved if you are unable to produce income tax returns for the past three years. It might be a similar story if your books don’t prove to the lenders that your business is doing well.
So, instead of waiting for your next mortgage to be approved, or for your cash flow to grow dramatically, you can apply for a bridging loan to secure the new asset you want to purchase. Don’t let small setbacks prevent your business from growing. Instead, take advantage of the benefits that bridging loans can bring.
- Easy repayment terms.
- It has minimum qualifications.
- Quick processing.
- Your new mortgage can cover the bridge loan.
- The difficulty of paying two mortgage payments, for the old and new property at the same time.
- More costly than a home equity loan.
Before signing up for a bridging loan, it is advisable to determine the overall costs of the loan. Always ask about the interest rates and other relevant costs to avoid paying more than what you can comfortably pay. Contact ALC Commercial for more information.
If you are concerned about your chance of being granted a bridging loan due to your poor credit score, then we recommend getting in touch with Bad Credit Loans. They will be able to give you the advice & support that you require.