In short, bridge loans allow investors or homebuyers to close on a property before their own home has sold. These loans essentially ‘bridge the gap’ between sale and purchase in the property chain – hence the name. If you find yourself struggling to sell your current property and don’t want to miss out on a potential new property, then a bridge loan could be a solution for you.
A bridging loan may also be used for a variety of different real estate purchases:
- Buying a property at auction where a mortgage may be too slow to arrange.
- Paying for renovation work on your property until a refinance is possible.
- Buying land for development, using the loan until the property is built and a mortgage can be arranged.
- Buying an uninhabitable property, using the loan until the property is liveable and a mortgage can be arranged.
Advantages Of A Bridge Loan:
- A homeowner can use the equity in their current property to purchase a new property, without having to wait for the sale to complete.
- You may not be required to make any monthly repayments for the first few months, or until the property owner has enough cash flow once more.
- The contingency to sell can be removed from the offer contract, making your offer more attractive.
Disadvantages Of A Bridge Loan:
- Bridge loans often come with higher interest compared with a standard fixed-rate mortgage, making it more expensive.
- The loan is still dependant on the property you’re purchasing being able to close, and you receiving the desired amount from the property you’re selling.
In conclusion, the use of bridging loans depends very much on your personal circumstances. They can be of great help when purchasing real estate and ‘bridging the gap’. However, they don’t come without their risks.
For more information on bridge loans and to find out if they may be suitable for you, get in contact with our expert team HERE.
