Buying your dream home should be a pretty simple process. You find a great property, you put your old home on sale, and then you move into your new home. However, in reality, things do not always go that way.
Also, maybe you have an amazing piece of real estate before you have found a buyer for your old home. It can often take several months to get hold of a buyer, relying on your location. Aside from that, selling your current home and purchasing a new property (simultaneously) can get complex and intricate.
On the bright side, there's a solution to this, bridging loans. This type of loan enables you to purchase your new house before you find a buyer for your old home. Want to know more about bridging loans? Well, then, you are in for a treat.
In this post, we've covered all the important things about bridging loans that you may want to know.
What Are Bridging Loans?
Consider a bridging loan as crossing over the finance gap. For instance, you want to purchase a home priced at $600,000. The problem is that you do not have the money to buy it because your old property has not been sold yet. In these situations, lenders make their way in.
Provided that you meet or match up to the other standard lending specifications, you can necessarily borrow money against your existing home and the new property. The size and cost of a bridging loan will then be determined by the sum of your existing mortgage and the value of the new home, as well as the lender you choose, how many lenders are vying for your deal, your specific needs, and your borrowing profile.
Then, deduct the appraised value of your current home. An estimate of both properties is required here. Additionally, you will be left with end debt, which refers to the principal amount of the whole loan.
It's crucial to know and learn that your potential to pay the loan is evaluated on this end debt. Keep in mind that creditors make use of both the existing and new properties as collateral. By that, we mean, you will get one home loan or peak debt to fill in for both the expenses of the new purchase and current debt until your old home is sold.
And what happens once you have sold your old property? You continue to pay your loan with added interest on the new loan.
Bridging Loan Benefits
Here are some of the benefits of using a bridging loan to buy your dream home.
No More Waiting
With bridging loans, you don't have to wait to purchase your dream home. You can steer clear from waiting for your loan application to be approved and desperately watching your dream property being bought by other homebuyers with their savvy or pre-approval investor.
In this kind of loan, you can buy the property you want right away. Your only worry or concern left is finding a buyer for your old home. There are two crucial things to keep in mind when applying for a bridging loan. These are:
- Setting a sensible time frame for your old property to be sold.
- Setting a sensible price based on an expert's valuation.
Obtain Standard Variable Rates
Little did you know, bridging loans are not new in the market. Their reputation and fame raised incredibly after banking deregulation or the free market concept; wherein all banks were permitted to set their own rates and operate in the financial market.
The banks first saw or considered this kind of finance as a higher risk, resulting in extremely high-interest rates. Even though some creditors charge high-interest rates for short-term loans, there are many lenders that provide you with bridging loans with similar variable rates as a typical mortgage.
Remember that even if bridging loans lets you capitalize on interest over the peak debt, interest rates are combined monthly. Thus, your loan will accumulate or build up interest if your property sits on the market for a long time.
Save Money From Moving Twice And Renting
Let us say that you plan to sell your existing house first before buying a new property. In this case, you will perhaps rent an apartment or a room to stay in for the time being. Once you purchase your new home, you can then move your stuff in.
This is a perfect instance of how people typically lose their money by moving twice or renting after they have sold their old home. But, with bridging finance, you can keep these costs away because you can buy your new house before you can even sell your old home.
On the other hand, you might be in a better position if you sell your old home first and then rent an apartment instead of using a bridging loan, relying upon the real estate market in your area. It will depend on the interest you are paying and the loan size compared to how much you will be paying in rent if you can't sell your current property before buying a new one.
It is vital to consult a mortgage broker from Next Level Lender if you are planning to apply for a bridge loan because moving twice and renting might often be a better option, depending on your situation.
Same Home Loan Fees
Are you worried about paying expensive or costly fees for bridging finance? Well, in case you didn't know, you don't need to worry about getting charged for expensive application fees because they are the same as a normal home loan. But know that break costs and termination fees might be applied if you decide to change lenders throughout the loan period.
Takeaway
Bridging loans are a convenient and suitable option for people looking to purchase a new property quickly and steer clear from the hassle and stress of selling your old property first. However, keep in mind that this kind of loan option is not for everyone. Thus, better think it through and discuss it with a broker.
