When you make the decision to move house, the ideal scenario is that you put your current one up for sale, and manage to find a buyer at the exact same time you find a perfect house to move into. It’s all quick and easy and worry-free. Unfortunately, the housing market is one that constantly seems to be changing, which means there are no guarantees as to how long it will take to sell your current home, or when you’ll find that new perfect house. Sometimes, people go ahead and purchase a new home before their current one is sold, which means they’re left paying for two houses.
So, what are homeowners to do? This is where bridging loans come in. Here we’ll take a look at what a bridging loan is and how it can help you.
What is a Bridging Loan?
In very simple terms, a bridging loan is meant to help people buy a property while they are waiting for their current one to sell. It isn’t meant to be a long-term loan, rather these are short-term loans meant to fill a gap if you will. Once your current home sells, the bridging loan is no longer needed, since you will no longer be carrying both houses.
This style of loan tends to be secured by something such as land or property. While individual homeowners can certainly use this style of loan, typically they are used by property developers and landlords.
The Approval Process Needs to be Fast
One thing to note about this style of loan is that typically the approval process needs to be fast. Homeowners need to know they can go ahead with the purchase of the new home, despite the fact their current one hasn’t sold. The longer you wait to put in an offer on the home you’ve got your eye on, the higher the chances are that you will miss out on it.
Options such as Alternative Bridging Corporation Limited offer fast, regulated bridging loans that are flexible and tailored to meet your individual needs. If you were trying to get funds from the traditional sources, the process can move much slower, which is a huge disadvantage in the property market. Bridging loans can last anywhere from three to 36 months, depending on the arrangement.
The Different Types of Bridging Loans
It’s also important to point out that there can be two styles of bridging loans, so you need to be aware of what you’re looking for. A closed bridging loan has a fixed end date, which means you need to be able to pay off the funds by that date. Open bridging loans don’t have a set end date, rather they can be repaid as soon as the funds are available to you.
What About Fees and Interest?
Just as with any sort of loan, there will be fees and interest associated with it. These will be laid out clearly in the agreement before you make your final decision. Interest may be on a monthly basis, deferred (meaning you pay at the end of the term), or retained interest.
It Could Be the Best Solution
So, if you’re currently shopping around for a new home, it’s wise to keep the option of a bridging loan open in your mind.
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