No doubt, these days real estate markets are really competitive. Planning to buy a new house after selling your own? Guess you require a down payment from the selling of your current property. Isn't that so? Well, it can be all frustrating, especially for those who have a limited amount of time before the closing of their present house.
However, it could be preferable to purchase your new home before selling the old one if you are convinced that it will sell extremely quickly. Wondering how you are going to find the money for the down payment? The best option here would be a bridge loan. Worried if it will work? Here is everything you need to know about it.
What is a Bridge Loan?
A bridge loan is a short-term financing loan that lets homebuyers purchase a new home against their current home in order to make the down payment. Also, companies that need to pay running costs while awaiting long-term capital can find this type of financing useful.
However, when it comes to real estate, the borrower must pledge their current property or other assets as collateral to ensure debt security on a bridge loan. Besides, they also need to own that home with at least 20% equity. Also, it has high-interest rates and lasts for between 6 months and a year. Furthermore, you can also seek help from a bridging loan advisor.
What Makes Bridge Loan a Popular Option for Homeowners?
Wondering why every homeowner runs after a bridging loan advisor? It is because bridge loans are a popular option, and here are two major reasons why :
- Compared to standard loans, the application and underwriting process for bridge loans are typically quicker.
- Also, if you have the necessary equity in your primary residence, you can probably qualify for a bridge loan if you can qualify for mortgages in Essex to buy a new property.
How Does a Bridge Loan Work?
Wondering how a bridge loan works? In a bridge loan to pay for the down payment on their new property, the homeowner can take out a bridge loan on their existing home. This indicates a homeowner can work with their current lender of mortgages in Essex to secure a brief loan of 6 to 12 months.
However, this is done with the intention of "bridging the gap" between the sale of their old property and the purchase of a new one. However, keep in mind that not all traditional mortgages in Essex mKe bridge loans. Instead, you can opt for online ones.
Besides, bridge loans can be paid off if the borrower sells their primary residence, leaving them with only the mortgage on their new home. However, the borrower will be liable for making payments on their first mortgage, the mortgage on their new property, and the bridge loan if their house does not sell within the limited loan term.
When Can You Use a Bridge Loan?
Wondering when a bridge loan can be used? Ask any bridging loan advisor, and they'll ensure that the best time is when a homeowner wants to purchase a new property before selling their current home. Besides, to help you understand better, here are some situations when you can use a bridge loan:
- When you've chosen a new home and are in a seller's market where houses sell quickly.
- When you want to buy a property, the seller won't accept an offer if your present residence is sold first.
- When you're unable to sell your current home in order to afford a down payment on the new one.
- When you want to close on a new house before you sell the current one you have.
- When you're not set to close on the purchase of the new house before the sale of your existing home.