You have just finished selling your house, and now you’re on the lookout for a new home. Congratulations! One problem still exists—the funds in-between. How will you put money down on a new home if you don’t have the money yet from your recent sale?
Many banks will not approve a second mortgage before the current property is sold, so this can create an issue when you prepare for your move. In these types of cases, people usually turn to bridging loans to help “bridge the gap” between your sale and your purchase.
What Is a Bridging Loan?
A bridging loan is a short-term loan that is given out with the intention that the buyer will meet their financial gap in a short amount of time. These loans are given so that people can get the money they need right away to help fund another purchase.
These types of loans are generally used for real estate purchases, and typically last about a year. They help you make the financial bridge between selling a home and getting ready to buy a new one.
These loans are designed to help cover costs in a short-term way.
Often, people think of bridging loans in terms of homeownership, but this is not always the case. A business is also eligible to apply for a bridging loan. In fact, a common use of bridge loans for businesses is when they may be waiting on long-term financing, but still need to cover costs within the company. They may use these loans to cover payroll, utilities, or rent, while waiting for a final round of funding.
Different Uses for a Bridging Loan
The most common use for a bridging loan is typically between the sale of one home and the purchase of another, but this is not the only time to consider these loans.
They can still be considered for a number of other things:
- Renovation Work
- Auction Property
- Unhabitable or Derelict Property Purchase
- Land Purchase
- Buying Business Inventory
Keep in mind when enquiring about a bridging loan that these are short-term loans, so find out which loan might work best for you. Whether you are buying a new home or funding a business, consider if a bridging loan might be right for you to make your dream come true.