As the name suggests, a bridge loan is a short term borrowing facility for people planning to purchase new homes, but are yet to close or finalize the sale of their existing home. Hence, a bridge loan is often described as an extraordinary way out for people engaged in real estate transactions as it enables them to avail money temporarily to meet their requirements.
A bridge loan works in a very simple way and has several advantages too. Generally allows an individual a fiscal relief for approximately three months from the date of purchasing a new home and finalizing the sale of their existing or current residential premise. In fact, a bridge loan is very useful for prospective home buyers and offers them mental peace in a situation where they have already located a new home of their choice, but have just registered their existing property for sale in the open market. In other words, a bridge loan meets the financial requirement of a person in purchasing a home when they are short of money owing to the fact that they are yet to sell their existing home. In addition, a bridge loan also enables a new home owner to proceed with repairs and renovation of the property they have acquired before they move into the new premise. Again, at times it helps a home owner to space out the closing the sale of their current home by some time and enable them to clean the property thoroughly prior to the occupation by the property by the new owner. It offers the vital suppleness as the prospective home buyer is able to purchase a new residence, move in and then repay the loan with interest once he or she has sold their current property.
Contrary to the common concept that acquiring a bridge loan means carrying the burden of two mortgages, a bridge loan is basically not awesome at all. In fact, acquiring a bridge loan means that you are only obtaining a short term loan equivalent to your stake in your current home, while the remaining money needed to purchase a new home or undertake repairs and renovations at the new premises is made available through an upfront payment from your new mortgage. Once you obtain a bridge loan, you will be using the sum or the equity of your existing home in purchasing the new property and would be repaying the entire amount secured through the bridge loan as well as the interest accrued on the amount once the current is sold. Hence, you will not be required to carry the loan for long. Instead, this is a special facility that allows you some economic flexibility between the period you purchase a new home and finalize the sale of your existing home.
All said and done, here is a word of prudence. To be eligible for a bridge loan, the lenders emphasize that the borrower provide them with two definite offers - one for the current home and the second for the property they are purchasing. And it is essential for the borrower to fulfill these conditions. In many situations these stipulations by the lenders make it difficult for a borrower to arrange a bridge loan when he or she has already purchased a new home before selling off their existing property. Hence, it is very essential to be conscious of the alternatives before you prior to purchasing a new asset while you are yet to close the sale of your existing property. Such mandatory conditions or clauses for financing or granting a bridge loan may eventually prove to be serious.