In today’s volatile real estate market, housing finance companies may not actually be forthcoming for people trying to move to a bigger property or to a different town. In such cases, a bridge loan comes in handy for people looking to buy another home before selling their existing one.
Although more expensive than a home loan, a bridge loan enables a homeowner to move into a new place without having to wait for the current residence to be sold. By immediately using the equity from the current residence, the buyer is at liberty to make quick decisions about investing in a new property. A bridge loan provides the necessary line of credit to fund the down payment and other incidental expenses.
Unlike housing finance, funding a bridge loan is based on the value of the current residence. In fact, lenders tolerate a higher debt-to-income ratio if a housing finance loan for the new home is confirmed. In case, there is already a loan running on the existing home, then the homeowner would have to bear the burden of making two payments. Moreover, a bridge loan can become a pain if the old residence is not getting any sales offers. These are some of the drawbacks with a bridge loan. In any case, it is always best to have an exit strategy for closing a bridging loan, especially when the property is not selling within the stipulated time.
A bridging loan has evolved as a necessity for today’s families and even property developers. With a bridging loan, immediate access to the funds is possible–not just for property purchase but also for property renovation, refurbishment and development. These short-term loans have become a necessity in today’s market conditions; especially, given the fact that not all properties are considered for financing by lenders. In such situations, the bridging loan comes into the picture and helps you to get the work done and thereby return to the lender’s reckoning.
