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Bridging loans offer a solution if you are stuck between your current home selling and your next home purchase, allowing you financial funding to cover the loans. Paying two mortgages can be challenging, especially when it is not planned. Thankfully, bridging loans were created by lenders to help address this challenging situation.
Bridging loans are short term loans that assist to bridge this time frame between the closing of the present home and the purchase of the new property. While it is not a common scenario, under some circumstances there is an extended time frame than was originally anticipated. The bridging loans helps the property owner to manage their dual mortgage costs, with the proceeds from the bridging loans being used for the down payment on the new home once it has closed.

The Bridging Loans Procedure

As with any home mortgage, the owners must go through underwriting to become approved for bridging loans. Every lender will often have their own underwriting procedure that must be adhered to in order for the property owner to qualify for the bridging loans . And, these standards are generally more lenient than traditional home financing when it comes to debt to income ratios, suggesting that these ratios can often be higher than with traditional mortgage loans.

The reason that there are varying requirements associated with a bridging loans is that they are temporary and purely designed to assist a buyer in transititioning from their current home into their new property. And, the proceeds from the bridging loans are almost always applied to the new mortgage loan if they are not used during the transition period before to closing on the new property.

Benefits of Bridging Loans

There are several advantages to the property buyer of bridging loans, including:
•    It allows the home owner to place their home onto the market quickly and often with fewer restrictions than if they did not have the additional financial cushion.
•    Many bridging loans do not mandate monthly loan or mortgage payments, providing 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 reject offers that are less than desirable without financial worry of paying two mortgages in the event that their new property closes on time.

The Downside of Bridging Loans when Buying a Home

While there are several advantages to using bridging loans when buying or selling properties, including:
•    The fees associated with bridging loans are typically higher than traditional mortgage loans and even home equity loans.
•    Some home owners may not be approved for bridging loans due to the lending requirements
•    Even though the bridge loan helps the property owner in covering mortgage costs during the transition process between properties, they must still pay for both loans and the interest that is accruing on the bridge loan.