Taking out a bridging loan is the best way for debtors to get the financing they require. It is a type of gap financing arrangement, which gives you short-term access to larger money at a high-interest rate. This way, you can sell your existing home while completing the purchase of the new property. Moreover, this loan is helpful to meet present obligations while securing permanent financing.
Buying new property should be simple and straightforward, where you find a stunning piece of real estate you sell your existing home and shift to your new place. We wish! But in reality, things do not always work out the way you want them to. You have to find a buyer to sell your place before you buy your new home. This purchasing of new property and selling the old can be very challenging and difficult.
In this article, we have gathered some tips for property buyers and developers to look at before they plan to take out bridging loans. To learn more about them, continue reading!
What is Bridging Loan?
Before we even get into details, we need to learn about what bridging loan actually is. It is a short-term liability and is pretty self-explanatory, which means ‘bridge the gap’ until the borrower secures a loan or a long-term mortgage. For instance, you need to buy the property of worth $700,000, but you don’t have that much amount because you haven’t sold your old home yet. This is where the lender steps in.
As long as you are fulfilling standard lending criteria, you can potentially borrow against your existing home and the new property. The lender will determine your loan size by adding the worth of the new property to your current mortgage and will subtract the projected value of your present home. This calculation will leave you with what is called the ‘end debt’, which is the main concern of the whole loan.
However, It is essential to know that your capacity to make loan repayments is evaluated based on this end debt. Moneylenders utilise both the new and current properties as security meaning that you’ll have one home loan known as the ‘peak debt’ to cover the cost of the new purchase as well as the existing debt until you sell your old home.
Lending Criteria for a Bridging Loan
In the United Kingdom, there are more than 150 providers in the bridging loan market, which includes both private individuals and biggest lenders in the region. Before considering to apply for a loan, you should know about what is bridging loan and that the charges, fee, and interest rates vary from lender to lender. However, the lending criteria candidates should meet to qualify for a loan in the first place. Usually, there are below-mentioned requirements that are provided to the customers.
Loan Size
Probably your foremost concern before applying for the loan is its size or range. Typically, the range of a bridging loan is from £50,000 to £1 billion.
Term
You must know by now that bridging loan is a short-term loan until a person meets the current obligation or secures permanent financing. The loan is typically lent up for one year or a maximum of 18 months. However, many bridging lenders offer a term for over 36 months. The loan can be repaid in minimum 24 hours or a maximum of 36 months.
Age of Applicant
If you want to apply for a bridging loan, it is important to know that every lender has set the age requirements of 18 years. You cannot apply for a loan until you are 18 or above it. Conversely, many lenders have also defined the maximum age limit.
Credit History
Credit history is not that significant where security or collateral is needed. It translates that bridging loans are also useful for those with bankruptcy, repossessions, CCJs, defaults, arrears, statutory demands, etc.
Security
Generally, these loans are backed up by some sort of collateral, usually in the form of property. Bridging loans are secured on the worth of one property for numerous collective properties. Both the borrower and the lender sign an agreement whereby the service provider takes rights of the property if the loan is not paid according to that agreement.
Types of Property
The loan is not limited to a few types of properties. It also includes all that are mentioned below:
- Hotels
- Bars
- Garages
- Parking spaces
- Health clubs
- Hotels
- Guesthouses
- Restaurants
- Holiday homes
- Land
- Houses
- Shops
- Industrial units
- Flats
- Bungalows
- Offices
- Mixed-use of properties
Property Condition
Though the lenders usually want the property to be in good condition as collateral, many lenders are agreeable to accept property that is not well-maintained or in poor condition. In fact, for developers that are looking to nurture funds for property improvements and remodelling, these loans have become a kind of standard.
Benefits of Bridging Loan
It is a Short-Term Commitment
If the defaulter has committed to pay monthly amounts during the whole loan period, then it can last up to 25 years. A loan can be repaid within 24 hours to one year, though it is also possible to arrange it within a longer period. However, you need to consider a lot of things before applying. If you want to get all the information to make the right choice, then bridging loans calculator would be helpful for you.
You did not have to wait to Buy
When it comes to the business of property, the best is sold within the blink of an eye. If you choose to get a bridging loan, you won’t have to wait for your home loan to be approved. If you consider getting a home loan, then your dream home can be snapped up by someone else. One of the main benefit of taking out bridging loan that you can get into your new home right away without even worrying about selling your existing property.