Bridging Loans

Have you ever been stuck in between a new property and the old one, paying both mortgages? Bridge loans offer a solution if you are stuck between your current home selling and your next home purchase, allowing you financial funding to cover the loans. Paying two mortgages can be challenging, especially when it is not planned. Luckily, bridge loans were created by lending institutions to help solve this financial challenge.

Bridge loans are short term loans that help to bridge this time frame between the closing of the current property and the purchase of the new home. Even though this is not common, under a some circumstances there is a longer time frame than was originally anticipated. The bridge loan assists the property buyer to manage their dual mortgage payments, with the funds from the bridge loan being also used towards the down payment on the new property once it has closed.

The Bridge Loan Process
As with the same process for a home mortgage, the buyers must undergo underwriting for approval for a bridge loan. Each lender will often have their own underwriting procedure that must be adhered to in order for the buyer to qualify for the bridge loan. And, these guidelines are generally more flexible than traditional home financing when it comes to debt to income ratios, meaning that these ratios can be greater than with traditional mortgage loans.

The reason that there are different requirements associated with a bridge loan is that they are short term and purely created to help a property owner in moving from their current property into their new home. And, the funds from the bridge loan are almost always applied to the new property loan if they are not used during the waiting period prior to closing on the new property.

The Benefits when Buying a Home

There are a number of advantages to the property buyer of bridge loans, including:
• It allows the property owner to put their property onto the market quickly and often with fewer restrictions than if they did not have the additional financial cushion.
• Many bridge loans don’t require monthly loan or mortgage payments, allowing some financial assistance to the existing property owner.
• The bridge loan can provide the property owner some flexibility with restrictions on their property sale, allowing them to turn away offers that are not favourable without financial worry of paying two loans in the circumstance that their new property closes as anticipated.

The Downside of a Bridge Loan when Buying a Home
While there are several advantages to using a bridge loan, there are also a few disadvantages when selling or buying properties, including:
• The fees associated with bridge loans are typically higher than traditional mortgage loans and even home equity loans.
• Some property owners may not qualify for a bridge loan due to the lending requirements
• Even though the bridge loan assists the property owner in covering mortgage costs during the transition time between properties, they must still pay for both loans and the interest that is accruing on the bridge loan.

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