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Have you ever been stuck in between a new property and the old one, paying both mortgages. Nothing is worse than paying two mortgages when it is unexpected. Luckily, bridging loans have been created by financial institutions to help address this financial challenge.
Bridging loans are temporary term loans that work to bridge this gap between the sale of the present home and the purchase of the new property. While it is not a common scenario, under a few occasions there is a longer time frame than was initially anticipated. The bridge loan helps the buyer to manage their simultaneous mortgage costs, with the proceeds from the bridge loan being used for the down payment on the new home once closing occurs.

Bridge Loan Steps to Funding

As with the same process for a home mortgage, the owners must undergo underwriting to become approved for a bridge loan. Each lender will generally have their own underwriting guidelines that must be adhered to in order for the buyer to qualify for the development finance. And, these guidelines are often more lenient than traditional home lenders when it comes to debt to income ratios, meaning that these ratios can often be higher than with traditional lending.

The rationale of varying requirements associated with a development finance is that they are temporary and purely designed to assist a buyer in transititioning from their current home into their new home. And, the funds from the bridge loan are generally applied to the new property loan if they are not used during the transition period before to closing on the new property.

Benefits of Bridge Loans

There are several benefits to the property buyer of bridging loans, including:
•    It allows the home owner to put their property onto the market faster than normal and often with fewer restrictions than if they didn’t have the added financial protection.
•    A lot of bridge loans don’t require monthly loan or mortgage payments, giving some financial relief to the current property owner.
•    The loan can provide the home owner some flexibility with contingencies on their property sale, allowing them to turn away offers that are less than desirable without financial fear of paying two loans in the circumstance that their new home closes on time.

The Downside of a Bridge Loan when Buying a Home

While there are multiple advantages to using a bridge loan when buying or selling properties, including:
•    The fees associated with bridge loans are often more than traditional home loans and even home equity loans.
•    Some home owners may not qualify for a bridge loan due to the lending requirements
•    Even though the bridge loan assists the property owner in covering mortgage costs during the transition process between properties, they must still financially cover for both loans and the interest that is accruing on the bridge loan.

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