When it comes to moving home, trying to purchase a new property while already owning a home with a mortgage can be challenging. This is where bridge loans come into the equation, allowing homeowners to move into their new home, even if they are yet to sell their current residence. Here is a guide on what bridge loans are, as well as the benefits and drawbacks, helping you to figure out whether they’re the right option for you.
Understanding Bridge Loans
When buying a new home and replacing your current residence, you have three options available. These are – selling your property first and then looking for a new one; making an offer on a property with the promise that you will have to sell your current home to finalise the move-up purchase; or taking a bridge loan out to buy a new home before selling your current residence.
Bridge loans are for short-term use, helping a homebuyer transition from their current residence to the new move-up property. Most people can’t afford two mortgages simultaneously, making bridge loans are more suitable option. If you are interested, you can apply for a bridge loan for a residential property here.
Pros and Cons
There are various pros and cons that are attached with bridge loans. While many financial advisors strongly discourage clients from taking out a bridge loan because of high lender fees, interest rates, and lots of risks involved, there are tons of great benefits that you can receive too. These include saving money on temporary living and storage, being able to move into your new property before selling your current residence, as well as being able to put your home up for sale immediately and buy a new property without any restrictions.
Bridge Loan Conditions
There are lots of mortgage lenders who offer bridge loans and mortgage loans. In some instances, lenders will want you to take a new mortgage out with them as they are the ones offering the bridge loan. Some lenders only offer bridge loans, but you need to remember that these types of loans are short-term, meaning they range from just 6-12 months. If you experience any problems when it comes to financing your new home, you will still need to repay your bridge loan plus interest and fees, which could end up costing you thousands of pounds.
Why Choose a Bridge Loan?
While bridge loans are used by many homebuyers, they are also used by investors for various reasons, such as funding the construction of a new property, or to make repairs. Bridge loans are also used to buy property at auctions, buying land before planning permission, as well as developing uninhabitable property.
Before taking out a bridge loan, you need to remember that there are risks involved. While they can be a major help when it comes to bridging the gap between selling your current residence and purchasing a new property, you may have to pay out thousands of pounds should there be any issues when financing your new home. It’s important that you’re in the know and understand how bridge loans work before you consider taking one out.