Buying A House With A Bridging Loan

Bridging finance is commonly used in real estate transactions to provide quick cash to complete the purchase of the property. It is very beneficial for homeowners and property investors to get a short-term loan to finance a new home or pay off an existing debt. Taking out a bridging loan for buying a house is the most common use of bridging debt. Although it offers several benefits to borrowers, like other forms of financing, it has some drawbacks. If you are considering securing such a loan, you must have sufficient information before making a final decision. 

Here we will describe bridging loans for house purchases, how they work and the application process so that you can make a better decision. 

What Is A Bridging Loan? 

A bridging loan is a short-term funding solution that usually lasts from 6 months to 18 months. Such loans are specially designed to bridge the gap and provide borrowers with quick access to the money they need to purchase a property.   

These short-term loans are more accessible compared to traditional mortgages and standard bank loans. Bridging lenders also offer loans to borrowers with low credit, low income and even those without substantial financial documentation. 

How Do Bridging Loans Work?  

A bridging loan is also known as gap financing, and it is different from a traditional mortgage as it has a temporary nature. Instead of providing fixed and regular payments for a long period, bridging loans have a different structure. Bridging lenders allow you to choose interest repayment, and you can repay monthly or at the end of loan terms. 

You can take out this loan from p2p lending platforms or specialized barging lenders. To secure a loan, you must have a strong exit strategy and a property to use as a security against the loan. 

Can You Purchase a House with Bridging Finance? 

While most investors use bridge loans to buy commercial or residential properties, purchasing a primary residence home is possible using funds from bridging loans. Such loans offer more flexibility and accessibility for those who want to purchase a property but are waiting for the funds to become available by the sale of existing property. There may be better options for first-time buyers, but it can serve other types of homeowners.

Reasons to Use Bridging Loan For House Purchase 

The odds are that bridging finance is only one of the things you would consider when purchasing a home. However, many reasons help you understand why you should consider this funding source when looking to buy a new home. 

Competitive Rates

With the increasing demand, the number of bridging lenders is increasing dramatically. Every lender tries to offer more benefits and lower rates to attract more customers. It means that if you shop around, you can find competitive offers and save money in terms of interest.   

Flexible Time Frame 

With a bridging loan to purchase a new home, you can get a more flexible time frame compared to long-term mortgages. It allows you to purchase a new home before you sell the existing one. It means you can handle getting everything ready to move out. So, instead of stressing out, use a bridging loan to make real estate transactions easily.     

High Down Payment 

Bridging lenders allow you to put more money down to make more competitive offers. However, it may be difficult for first-time home buyers to put in a high down payment. But it helps current home buyers to better compete with cash offers before selling their homes to access equity. 

How to Buy A House Using A Bridging Loan? 

Here are some steps that describe what you need to do to purchase a house with a bridging loan:

• First of all, you need to find a property you want to purchase. It is always better to work with a reputable and experienced real estate agent who has access to the local market and helps you find a perfect property.

• Next, you have to find a lender that meets your requirements. You may find a number of bridging lenders and p2p lending platforms offering bridging loans. It is always better to make a price comparison so that you can get competitive rates.

• Once you find the right lender, make your loan application. To make this process smooth, you should try to meet eligibility criteria and keep the required documents ready. 

• When you complete your loan application, your lender will assess your application and verify all the documents. One best thing about bridging lenders are that they offer flexibility and quick access to funds. You can even get approval if you have a bad credit score. Once you get approval, you will be able to complete the transaction, close the deal and get the key to your new home.  

• You have to repay the loan amount usually within 12 months. Loan terms may vary depending on the lender, but it is a short-term loan, so you can't take years to repay the loan amount. Always keep in mind that if you default on the loan, your lender has a right to repossess your property and sell it to get the money back. 

We suggest you shop around and choose a lender offering competitive rates and following the best lending practices. 

Conclusion

Bridging finance is a short term funding source offering flexible eligibility criteria and quick access to funds. Homeowners and property investors commonly use it to purchase new properties. You can use it to buy a home before the sale of your current property. This type of loan can also help you if you need a better credit rating. Bridging lenders usually consider exit strategy and security property value to make decisions.

Although it comes with a number of benefits, you should keep in mind its drawbacks, such as high-interest rates and risk of repossession. Only take out a loan if you can afford to repay on time. If you find a bridging loan unsuitable, you can look at its alternatives, such as conventional or home equity loans.