If you are in the process of moving and have found the perfect new home but can't sell your old one, you might want to get a bridging loan to cover the difference.
A bridging loan is a short-term loan that is used to make up for a shortfall in cash when moving your business or home. When you buy a house at auction, you may also need a "bridging loan" so that you can pay for it within 28 days. The lenders take on more risk with these loans, so they cost more. So, you shouldn't get a bridging loan unless you know you can pay it back in 6 months.
Who can get a loan to bridge the gap?
Getting a bridging loan is often easier than getting a normal loan or mortgage. People who are self-employed or have bad credit can get these loans. This depends on the lender, but in general, as long as you can make the payments, you should be able to get a bridging loan.
How do bridging loans work?
In the case of real estate, a bridging loan lets you take out a mortgage on the new property and a second mortgage on the property you are selling. Most of the time, you can borrow up to 65% of the value of the properties, less any mortgages you already have. Depending on how much the house is worth, this means you can usually borrow between GBP25,000 and GBP500,000.
How to get a short-term bridge loan
Getting a bridging loan is similar to getting any other loan in that you have to look at different online lenders and mortgage companies. But the main difference is that for a bridging loan, the lender will do a valuation to make sure the property is worth what it is being loaned for. Most of the time, the process takes between 7 and 10 days. During that time, you can take care of the rest of the legal steps needed to buy a house.
Costs
There are different rates for bridging loans, with the lowest rates going to lenders who specialise in giving loans for auctions. This is because it is assumed that you can afford the property because you legally bought it at auction. If your credit is bad, you will have to pay more. Bridging loans usually have monthly interest rates, and the average rate is about 1.5 percent per month. Most of the time, the interest rate on a bridging loan doesn't matter much because you will pay it back quickly. The most important thing is that you get the loan on time so you can buy the new property.
Any other ideas?
If you can't sell your house in time to pay for the new one, you don't have many other choices besides bridging loans. You could get a traditional loan, but it might take longer, the terms might be too long, or the amount you could borrow might be too low. If you know that the money from the sale of a property will be coming back to you soon, a bridging loan might be the best option for you.
