What are bridging loans and why do people take them out? How do they work and how do you apply for one, and what are the benefits of bridging loans? Before you apply for this type of financing, let’s discuss what they are in greater detail.
What is Bridging Finance
They are a type of loan that is secured by the home you currently own. The purpose of bridging loans are to bridge the gap between a homeowner’s new mortgage and the sales price of a new home, if the current home isn’t sold before closing. What you’re essentially doing is taking out a loan as a down payment for your new home, while waiting for the closing to be completed on your new home.
It is temporary financing until you can secure permanent financing for your new home. There are many lenders that offer bridge loans. Bear in mind that different lenders have different criteria for borrowers to meet.
How To Apply for Bridge Loans
Applying for a bridge loan is easy, as all you do is find a lender that provides the loans. You fill out an application, submit it with any requested documents and then wait to see if you’re approved. If any additional info is needed, the lender will let you know, otherwise they will eventually inform you that you were approved or denied for a bridge loan.
One of the best things about bridge loans is they can be used for various situations that require creative solutions, such as distressed borrowing and closings that are of time-of-the-essence. They are also ideal for those with credit issues or bankruptcy issues. If you need a solution when selling your home and it hasn’t closed yet, and you have a new home in mind, then a bridge loan might be for you.
Another benefit of bridge loans is how fast they can be acquired. They close very fast. Generally speaking, closings occur within 30 days, but they can close in as little as 15 days.
Another benefit is the prepayment options available. In many cases, you won’t have to pay a penalty if you decide to pay the bridge loan off earlier than planned. Whether you’re a company or a homeowner, a bridge loan is flexible when it comes to prepaying them back.
Finally, just like any other kind of loan, there are various amounts you can apply for. What you’ll be approved for depends on various factors, but generally speaking you can be approved for thousands, but some lenders are only willing to lend up to a certain amount. We suggest applying for what you need with a few lenders and wait to find out which one/ones approve you for a loan, and then accept the one that offers you the best rate and the best payment plan.
Now you know what are bridging loans and what their benefits are, as well as how to apply. However, make sure you carefully weigh the pros and cons before applying for a bridging loan. Good luck if you decide to apply for one.