If you are a property investor, homeowner, or real estate agent, then you might have heard the finance term, bridging loans.
If not, then not to worry, we will brief you with it in the following post.
We all know the house is an essential buy in people’s lives and finding a way to purchase your dream home is sometimes challenging. Especially when fast availability of finance is not there.
Buying a house involves proper planning and careful consideration and most importantly, a suitable loan.
An affordable mortgage is critical to buy a house. But what if you are looking for renovation finances with your purchase.
Then, you might need extended funding for it. And when it comes to obtaining money, we look for the best residential finance available.
We all have a belief that housing finance is only possible for purchasing a new home, but on the contrary to our general view, one can get a loan for renovation or refurbishment of a house too.
Now, you must be wondering how?
So, to help you out, here we are casting light on the underrated finance product, which are bridging loans.
What Are Bridging Loans
Bridging loans are a short duration loan provided by certain banks and specialised lenders until the person can find permanent financing.
It helps in removing any obligation and offers urgent cash quickly. Also known as interim finance or swing loans. It is most suitable for times when people look out for fast cash flow.
The need for Bridging Loans
Those who are wondering about the need for bridging loan. Here are some pros to this financial instrument.
- It provides immediate cash flow.
- Easy to get.
- Less complicated than traditional mortgages.
What Is a Refurbishment Bridging Loan?
Most preferably, bridging loans are adopted by property developers as it provides easy money for building and developing costs.
The homeowner can also benefit from it, as one can buy a home with a bridging loan and to refurbish the property while the current house is on sale.
Utilising bridging loans for property refurbishment?
As we already mentioned above, it is a fast, flexible, and reliable way to buy a home. The perfect solution for buyers looking for cheap run-down houses to purchase.
So, by using a refurbishment bridging loan, the user can purchase the house and money for repairs or renovation and later sell it with a potential profit.
How to Buy a Home with a Bridging Loan?
If you’re looking for some help in purchasing a new property, then bridging finance may be the answer. It helps in purchasing a new house when you are short on cash flow.
Suppose you have an existing house that you want to sell, along with that you also want to buy a new property. So the plan is to sell the existing house and then use the same money to buy a new one. But, that can be tricky as we all know, selling a home can become complicated at times.
It requires time and patience to get what you are looking for, which can be a problem for those who require money quickly.
In such conditions, bridging loans can be a saviour as you can obtain the cash flow to buy the new property.
The time duration provided gives you time to sell the old house and get the right price you are looking for. Read More on getting a bridging loan to buy a home.
How Is Refurbishment Bridging Loan Different from a Regular Loan?
If you have applied for a regular mortgage, then you will surely be aware of how troublesome that process can be.
To start, it is not easy to get a loan for an un-mortgageable property. Secondly, most of the traditional home loans are generally granted for the long term.
Finally, the mortgage gets quickly rejected if the property has structural issues or has a value under the asked limit.
Considering all the limitations we mentioned above, bridging loans are ideal over a traditional mortgage.
Cons Associated with Bridging Loans
The only cons we came across so far is that the interest rate of bridging loans is high as compared to other loans.
Usually, it has hefty fees too. Another con of such loans is, it can be assigned for a short period. However, that can be acceptable for a borrower who requires the cash.
Despite its numerous cons, the bridging loan works well for all those who are in need of quick cash flow.
Bridging Loan Costs
The cost of bridging loans is distributed into three main categories which are the following:
- Arrangement fees:- It is the process fees which is generally 1-2% of the total capital.
- Interest:- The interest for a loan that you can pay in a monthly instalment or a one-time payment when the duration of your loan ends. Moreover, the interest rate of such loans is comparatively higher
- Exit charge:- As the name suggested, it is the cost if users decide to redeem a unit trust or make some other investment.
All the charges can be varied. Most of the finance companies don’t charge any exit fee. So, our advice here is before jumping on any services, conduct proper research and give a thought to its interest and arrangement fees.
Other costs associated with bridging loans is valuation and legal costs.
There you have it, we have mentioned all the essential details regarding the refurbishment home loan.
We know that the decision of buying a home takes courage. And honestly saying, most of the people struggle with a down payment for it. So, in such cases, bridging loans can be a massive help for you.
Not only, it provides the initial investment, but it also gives you enough time to look for some other source.
Find out more about property finance solutions: Contact Property Finance Partners on 020 3393 9277 or Email: [email protected]