Here’s the thing – no matter who you are, if you’re upgrading to a better house, the probability is high that you have been thinking about mortgage options and how to tackle those, but, did you know that there is another option? That option is a bridge loan.
This type of loan is not that widely used and hence not known as much but in this article, we are going to explain to you everything that you need to know about bridge loans, as well as a couple of reasons for which you might need one.
First Things First – What is a Bridge Loan?
Now, in order for you to understand if you even need a bridge loan, it is important for us to talk about the basics first. So, what even is a bridge loan? Well, this is a form of short-term financing that gives individuals and businesses the possibility to borrow money for up to a year.
The biggest reason for people to get a bridging loan is the fact that the application and underwriting process for bridge loans is generally a lot faster than when it comes to traditional loans, with closing times typically from 5 to 7 days. On top of that, if you can qualify for a mortgage to purchase a new home, you can probably qualify to get a bridging loan, which is in most cases a better option. Considering the fact that it’s way less risky than a mortgage, bridge loans are a pretty popular option for homeowners that want quick access to funds to purchase a new house before they have even sold their current property.
Now that we have covered all the basics, let’s jump onto the reasons you might need a bridge loan.
The Cash-Flow is Really Quick
When it comes to getting a loan, in most cases, you need cash quickly. Due to the fact that closing a regular loan can sometimes take a lot more than you want it to take, getting a bridge loan can be your best bet if you are in a time pinch. If you opt for getting a bridging loan, you’d be able to get the money even within a matter of hours with funds released within 72 hours. In some cases, it takes up to a couple of weeks, but in most scenarios, everything is settled extremely fast.
So, having all of that in mind, the summary is that a bridging loan will be able to grant you quick approval and almost instant cash, which will ensure that you are going to end up having what you need to get through a rainy day.
It Is Short-Term and Low Risk
The sole point of a bridge loan, as the name suggests, is that you are able to quickly “bridge” a situation financially speaking, with as little complications as possible. That being said, getting such a loan is a lot easier than getting a regular one, considering the fact that a long-term loan can take significant time for approval. The problem with this is the fact that by the time your application is approved, you’ll already be left without the cash or funding you needed in the first place.
When it comes to bridging loans, they are really fast and efficient. Considering the fact that borrowed amounts are oftentimes lower than a long-term loan, these types of loans are a lot more often approved than the regular ones.
That being said, the repayment deadline is usually shorter too, from a few weeks to up to a year – but this is a good thing since you avoid the possibility of being in a long term financial commitment.
Buying Property at an Auction
Bridging loans are a great thing for those that opt for buying properties at auctions. So, here’s the scenario: after a successful bid on the property at an auction, you need to pay a 10% deposit that is going to secure the property and the rest of the purchase price is due within 28 days. So, how do you achieve that?
Considering the fact that the application process for a standard mortgage for the property oftentimes takes more than 28 days, this is clearly out of the picture. On the other hand, a bridging loan can be arranged much more quickly than this and be used to complete the purchase. You can easily repay it once the mortgage is ready.
Bridge Loans Can Help You Fund a Construction Gap
Bridge loans aren’t necessarily always used in order to buy a house, they can also be used to help with a piece of a larger project. This can involve the construction of a new or remodeled facility, regardless of its purpose. So, If you have some but not all of the funding you need, a bridge loan can help with that.
In the end, whenever you are in such a scenario that requires you to get a loan, the key to the best possible resolution of the entire situation is doing the research necessary in order to properly assess the possible options. That being said, after reading this article, you have already finished one step – which is covering the basics regarding getting a bridge loan. So, be sure to keep being vigilant, keep researching, and you will find the best option for your situation!