Bridging loans - fulfilling financial shortfall between real estate transactions

You are trying to buy a new property and sellingthe current one to raise money for the new purchase. It is usuallydifficult corresponding sale of one property with the buying ofanother. This almost always leads to financial gap. For this particularcircumstance bridging loans are organized.

Bridging loans are another term for short term financing. It ismeant for real estate financing until permanent financing is secured.Commercial real estate transactions require bridging loans to “bridge”in cash gaps.

Bridgingloans can serve to fill up temporary shortfall whilebuying property, business or even paying for renovation. Bridgingloans can serve the same function if you are buying property atan auction.

Bridging loans are secured loans, secured on property.The borrower would be required to place significant collateral.

A Bridging loans lender would accept thefollowing 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 functionas collateral. Bridging loans can be secured by getting a mortgageon the new property and taking out a second mortgage on the propertybeing sold.

Bridging loans involve an evaluation of property.Bridging loans are offered on the value of the property and notthe purchase price. Bridgingloan approval process is the beginning of getting a bridgingloan. If this is your first time at loan borrowing, start lookingaround for loan lenders that you are at ease with. Getting pre approvedwould give you an idea of how much you can get. Being pre approved,enables you to act quickly when the property is available. Loanamount on bridging loans can range from £25,000 to £500,000.The loan amount usually depends on loan lender so shop around forbetter deals. Higher amount can be arranged but usually takes longertime.

Bridging loans, loan term that can be anywherebetween a week and six months. The maximum term is two year. Theborrower must be certain of his situation and that he can repayit within a short period of time. Speedy finance is probably themost sought after benefit of bridging loans. Bridging loan can bemade available within 24 hours, if you have all the necessary documentsready. Most bridging loan lenders do not ask for upfront legal andarrangement fees. Usually there are no redemption penalties withbridging loans. Self certification in the context of bridging loansis also possible.

Be prepared to pay more on bridging loans. A bridgingloan poses a sizeable risk to the loan lender because the old homemay not sell for some time. The interest rate on bridging loansis comparatively higher than conventional mortgages. The typicalinterest rate is one half of a percent. The interest rate is generallydependent on credit history, value of collateral placed and loanterm. The borrower starts making interest payment at the end ofthe term, in case, the old property is not sold. After the old homeis sold, the bridge loan is paid back. If the house is sold withinthe term limit, all the unearned interest is credited back to theborrower.

It is a short term mortgage and bridges in temporaryshortage of finances in the face of a real estate transaction. Thebottom line is bridging loans are for short term financing. Theyare devised for a specific purpose and therefore not meant for everyone.It is also available for bad credit. Thus, bridging loans can assistin forming a record so that you can apply for conventional mortgages.Having a trust relationship with the loan lender makes bridgingloans process highly uncomplicated. However, if you can’tboast of such an association, don’t sign anything relatedto bridging loans without completely understanding the loan process.The market for bridging loans is constantly increasing. Healthycompetition has resulted in keeping the bridgingloans interest rate low. This has made bridging loans a realisticoption for those who need funds quickly.