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Bridging Loans - Fulfilling Financial Shortfall Between Real Estate
Transactions
By: Natasha Anderson
You are trying to buy a new property and selling the current one to raise money
for the new purchase. It is usually difficult corresponding sale of one property
with the buying of another. This almost always leads to financial gap. For this
particular circumstance bridging loans are organized.
Bridging loans are another term for short term financing. It is meant for real
estate financing until permanent financing is secured. Commercial real estate
transactions require bridging loans to “bridge” in cash gaps.
Bridging loans can serve to fill up temporary shortfall while buying property,
business or even paying for renovation. Bridging loans can serve the same
function if you are buying property at an auction.
Bridging loans are secured loans, secured on property. The borrower would be
required to place significant collateral. A Bridging loans lender would accept
the following as security for the loan –
• Residential properties
• Auction properties
• Commercial and semi-commercial properties
• Development sites
• Sites with planning permission
• Buy to let properties
• Retail shops
• Overseas property
Heavy machinery, business equipment, inventory can also function as collateral.
Bridging loans can be secured by getting a mortgage on the new property and
taking out a second mortgage on the property being sold.
Bridging loans involve an evaluation of property. Bridging loans are offered on
the value of the property and not the purchase price. Bridging loan approval
process is the beginning of getting a bridging loan. If this is your first time
at loan borrowing, start looking around for loan lenders that you are at ease
with. Getting pre approved would give you an idea of how much you can get. Being
pre approved, enables you to act quickly when the property is available. Loan
amount on bridging loans can range from £25,000 to £500,000. The loan amount
usually depends on loan lender so shop around for better deals. Higher amount
can be arranged but usually takes longer time.
Bridging loans, loan term that can be anywhere between a week and six months.
The maximum term is two year. The borrower must be certain of his situation and
that he can repay it within a short period of time. Speedy finance is probably
the most sought after benefit of bridging loans. Bridging loan can be made
available within 24 hours, if you have all the necessary documents ready. Most
bridging loan lenders do not ask for upfront legal and arrangement fees. Usually
there are no redemption penalties with bridging loans. Self certification in the
context of bridging loans is also possible.
Be prepared to pay more on bridging loans. A bridging loan poses a sizeable risk
to the loan lender because the old home may not sell for some time. The interest
rate on bridging loans is comparatively higher than conventional mortgages. The
typical interest rate is one half of a percent. The interest rate is generally
dependent on credit history, value of collateral placed and loan term. The
borrower starts making interest payment at the end of the term, in case, the old
property is not sold. After the old home is sold, the bridge loan is paid back.
If the house is sold within the term limit, all the unearned interest is
credited back to the borrower.
It is a short term mortgage and bridges in temporary shortage of finances in the
face of a real estate transaction. The bottom line is bridging loans are for
short term financing. They are devised for a specific purpose and therefore not
meant for everyone. It is also available for bad credit. Thus, bridging loans
can assist in forming a record so that you can apply for conventional mortgages.
Having a trust relationship with the loan lender makes bridging loans process
highly uncomplicated. However, if you can’t boast of such an association, don’t
sign anything related to bridging loans without completely understanding the
loan process. The market for bridging loans is constantly increasing. Healthy
competition has resulted in keeping the bridging loans interest rate low. This
has made bridging loans a realistic option for those who need funds quickly.
About the Author:
After having herself gone through the ordeal of loan borrowing, Natasha Anderson
understands the need for good quality loan advice.She works for the UK secured
loan web site uk finance world.To find a Secured or unsecured loan that best
suits your needs visit http://www.ukfinanceworld.co.uk
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