A bridging loan is a handy tool for home owners who are trying to sell their old home and buy a new one. It is difficult to perfectly time the purchase of a new home with the sale of the old home. A bridging home loan allows a buyer to purchase their next home right away with the idea that the sale of the old home will happen in the near future and funds from that sale will go to the lender to cover the remainder of the home. This loan is effectively the “bridge” between the old and new homes, and takes the stress out of coordinating this complicated process.

 

More About Bridging Home Loans

One of the most difficult tasks of home ownership is selling an existing home while buying a new one. Timing the process perfectly is easier said than done. This is why bridging home loans exist. The purpose of a bridge loan is to ease this process and take pressure of the home owner who is in transition. The bridging home loan pays for the next home with the understanding that this loan is a short-term loan that will be paid off in short order when the sale of the old home is completed. There are two types of bridging home loans: closed bridges and open bridges. A closed bridge loan has its term already set. This occurs when the old home’s sale has been agreed upon and the seller, buying a new home, knows the date when the funds will come through. An open bridge loan is taken when the home owner has found their ideal new home but does not know when the old home will sell. The typical length allowed for an open-ended bridge loan is 12 months.

 

Advantages of Bridging Home Loans

The major advantage of a bridging home loan is that it relieves pressure on the home owner who is both buyer and seller. Trying to coordinate a sale and a purchase to happen during a very specific time frame is very difficult. At the same time, a seller should take care to get their maximum value for the old home from the sale. Without a bridge loan to relieve the difficulty of this process, the seller may be pressured to sell the old home for less in order to make a deadline. The bridging home loan allows the seller to properly complete the sale and maximize their profit, fully able to dedicate themselves to being a true seller without outside forces hurting the process.

 

Disadvantages of Bridging Home Loans

One shortcoming of the bridging home loan is the interest rate. Since a bridge loan is short term by nature, banks charge higher rates on them in order to make a profit. Another drawback is the amount of documentation and other hurdles in the difficult process of obtaining a bridging loan, especially if the loan is open-ended. Banks will require a lot more information due to the nebulous nature of the purchase. The lender will especially want strong details on the prospective purchase and definitive proof that the existing home is on the market. They will also require the borrower to have a specific amount of equity in the old home and a plan to cover the possibility of the sale collapsing. This is a difficult loan to get, so please feel free to fill out the contact form below for further information on bridging home loans from a qualified professional.