Of all the short-term funding options, bridging loans provide the best example when it comes to financing real estate. These loans are used to bridge the gap between a debt soon coming due and a primary line of credit. In some instances, they merely function as short-term financing.

An Opportunity That Is Hard to Overlook:

What is nice about a bridging loan is that it makes it possible to purchase a property that otherwise may not be possible. This type of stop-gap measure can be more costly. However, it does help you facilitate a purchase before your home is sold so you can have short-term access to cash. As with most short-term loans, the interest rate is usually high.

Besides the homeowner, this short-term solution can assist anyone who wants to sell a renovated property quickly or help a buyer purchase real estate at an auction. Because of the economy, bridging loans have become a trending thing. Both building societies and banks do not lend money as they once did.

Therefore, buyers have turned to another source. However, you still need to scrutinize the loan packages carefully as, again, the interest can be high. For example, if you take out a bridging loan at a cost of around 1.5% per month, you can end up paying an interest rate of 18% annually.

Types of Bridging Loan Customers:

Most of the people who take out bridging loans are property developers, landlords, or people who are buying at auction and need to mortgage a property quickly. They also are provided to asset-rich customers who wish to obtain straightforward lending on properties used as residences. Therefore, these types of loans can be used for property investments, development, or buy-to-let purchases.

Bridging loans are popular because the financing is easier to obtain than waiting on a traditional bank. They seem to be a basic alternative to the financing offered by mainstream lenders. However, buyer beware! You may not be able to obtain a mainstream mortgage if you take out a bridging loan first. In turn, you could lose your house. Whilst this type of financing is indeed popular and on the rise, you should still tread the waters carefully.

Carefully Scrutinise Your Choices:

If you have not applied for a bridging loan before, you need to first consider your exit strategy. Bridging loans can also feature hefty or hidden charges or even administration fees that you were not expecting. Whilst you can creatively finance a property development using this type of financing, it should not be used entirely in place of mainstream lending packages.

You will find that bridging lenders come in all forms. Therefore, make sure you choose a broker that is regulated by the Financial Conduct Authority or FCA. This type of broker will not make any recommendation for a bridging loan unless they know that it is right for your particular real estate purchase.

It Pays to Learn the Basics:

Learn the basics of bridging and take out a loan responsibly. Do not make it part of your traditional banking property transaction.

Read Also:

• How to Budget Your Finance When Considering Property
• 5 Mistakes to Never Make When Applying for a Loan against Property