Bridging Loans Bridge The Gap Between Times Financing Is Needed

February 24, 2012
by Jureb Smanioll

If you are planning on buying a property, it\’s quite likely you will be getting a loan. The thing is, loans from mainstream financing institutions usually take a long time to be approved. As soon as your loan application gets Okayed, another buyer has already bought the home or shop for sale you wanted.

Also, if you already own a home, you most likely will not qualify for a regular housing loan until you sell your existing house. If you do not meet qualifications for a regular housing loan, or if you need a financing option which can be approved quickly, a bridging loan may be a good idea.

A bridging loan, also known as bridge loans or gap financing is a short term loan, with durations usually up to one year, that is meant to \”bridge the gap\” between times when financing is needed. What makes this type of loan so appealing is that its providers have modest requirements, that is, they do not typically make use of FICO minimums nor decide how much to give you according to your income. Instead, a bridge loan is granted by an underwriter on his own judgment whether or not the loan makes sense to him.

This kind of debt instrument has many uses. For instance, a business owner has a deal which he expects will go through in a few months, he can take out a bridge loan, to get some working capital, then pay it off with the money generated from closing a deal. You can also use a bridge loan if you want to buy a new property prior to selling your existing ones. In these instances, the funds one gets from a bridge loan will be utilized as a down payment for the house or shop for sale.

Debt management professionals point out that if you get a bridge loan before selling your existing property you will be spending for both your mortgage and your loan payments, and that can be really stressful and overwhelming. In addition, they assert that this type of loan has higher interest rates and generally are costlier than loans offered by mainstream financing institutions. In such regard, debt management professionals agree that you secure a bridging loan only if you have considered other options.

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