People tend to consider bridge loans when they realize they should have arranged one! Bridging loan finance is often the last thing on their minds when they are trying to deal with the 101 things involved in selling one home and buying another.
You have decided sell your existing home and purchase another. Maybe you are relocating to a different area, or need an extra bedroom for a new arrival to the family. You have been house-hunting and have found a beautiful home that meets your needs perfectly. The home is gorgeous, neighborhood amenities perfect and the price is good.
Somebody has made an offer for your existing home and you are all set – only they can’t close until they sell their old property. You have made a good and acceptable offer to the owner of your new home. You state that the offer is contingent upon you selling your existing home. Their response? ‘Sorry, but that is no good!’ They have another offer they will have to accept. It’s slightly lower than yours, but they have no choice.
The Need for Bridging Loan Finance
The result is all too familiar and entirely predictable – so why do so many people fail to act until it is too late? The situation is so common that most countries have their own terms for them: queues, chains, contingencies. . .
Fundamentally, you can’t buy your new house until you sell your old house. Your buyer is in the same situation, and so on down the chain. Right at the top is a poor couple trying to sell their own home, but can’t until the guy at the bottom of the chain can sell his, and buy from the next up who can then buy hers and so on. They feel they have no option but accept the next best offer – and you lose out!
Bridge loans can resolve all of this. If the person selling the house you want to purchase is ready to move on, but needs your payment to enable them to do so, then bridging loan finance could be the answer. Bridge loans are temporary loans that bridge the time gap between you paying for your new home and selling your old. They enable you to jump out of the queue or chain.
The Advantage of Bridge Loans
One thing you could have done was to get an offer on your existing home first. Get that settled and accepted, and then looked for a new home before closing date. Then there would have been nothing to stop you closing your old and new houses and moving in immediately. Too late for that now!
However, if the equity on your old home covers it, you can apply for a bridge loan. Using bridging loan finance, you can make your down payment, pay the closing fees and move in to your new home. Yes, there are fees to pay and interest rates are high, but you don’t lose the dream home you thought you had.
Bridge loans are useful if you have no other source of spare cash. Because they are secured by equity, the funds are qualified by lenders to be used for the down payment. There are other sources of cash funds you can use, such as a 401K or ‘gift’ from a relative. If necessary, however, your bank will probably offer bridging loan finance at relatively low cost – or even your mortgage lender.
Bridge loans are one way to break your link in a chain and pay the down payment for a new home while waiting to sell or close on your old home. If you or your partner has fallen in love with a fabulous new house don’t lose it through a lack of forethought. Bridging loan finance may be your answer.