The greatest challenge when looking for a house to buy is finding the money to buy that dream home. In many cases, home buyers don’t have the cash to buy a home because their money is tied up as equity in a current home or like us you simply do not have that kind of money saved up. Looking for mortgage deals can be stressful too. Until that home is sold, the money to pay for a new house simply isn’t available. However, a lack of money to finance a new home purchase is now available via a bridge loan.
The Four Main Features of a Bridge Loan
In its most simple terms, a bridge loan is a short-term financial scheme that allows home buyers to secure money to buy that dream home. Here are the four main features of a bridge loan:
- It is a short-term loan that allows buyers to purchase a property until a traditional loan can be arranged.
- Borrowers will pay more in interest than a traditional loan.
- Terms for a bridge loan can be established in 48 hours or less.
- These loans are set for a short period, usually meaning three to nine months.
Borrowers should be aware that the monthly interest rate for a bridge loan will typically fall in the 1 to 1.5 percent range per month. For that reason, you will want to exit these loans quickly. That means that you should “get your ducks in a row” before signing for a bridge loan – you need an exit strategy.
For example, a bridge loan would be a good deal for a homeowner who is in between selling his old home and buying a new home. A homeowner has a buyer for his home, but the deal won’t close for three months. In the meantime, the homeowner has a found another house that he wants to buy. He can’t buy it, though, because his equity is still tied up in his old home.
The bridge loan steps in as a financial bridge between the old and new home and is becoming one of the more popular financial instruments used in UK mortgages. The homeowner can use this loan to pay for the new home and pay off the loan when the old home is sold.
The bridging loan acts as financial assistance to people who are asset rich but short on cash. It’s a great way to raise money quickly and buy a home now, that’s right for your family.