If you’re thinking of purchasing new property, it is mandatory to get financing for this purpose. And, if you already found the property that meets your specifications and needs, you should move fast, especially if you want to lock in an excellent deal. That being said, today we will present a few guidelines regarding obtaining quick financing for the new property.
Introducing Bridging Finance
If you didn’t know until now, a viable alternative to getting financing quick is applying for bridging finance. Taking out such a loan would allow you to purchase new property, before actually selling your existing house. In other words, bridging finance covers the expenses linked to the purchase of a new property, until you manage to sell your old home.
So, this type of financing is rather convenient when you wish to purchase property ASAP, without the need to wait until selling your existing place. Additionally, you should take into account that these loans are short term, as they could last up to 24 months, at a maximum. During the bridging period, the repayments will be calculated on an interest-only basis.
How Does Bridging Finance Work?
We could say that bridging finance is a sort of temporary loan – a financial solution that gets you from point A to point B, until you can obtain a more permanent form of financing. That’s actually where the name of the finance comes from: since the loan functions as a bridge that gets you from a step to another.
This is, presumably, the only option you have for buying property fast. That’s because most loans may take weeks to months until the lender approves the application, so on and so forth. Nevertheless, a bridging loan may be accessible to you in a few days’ time, which is rather important when the time is of the real essence.
Moving on to the way in which a bridging loan is calculated, the value of the new property is combined with the outstanding debt on your existing home. Afterward, the potential sale price of your current home is subtracted.
The resulting amount is referred to an ongoing balance, or principal in the bridge financing. Concurrently, during the actual bridging period, you’ll have to pay back the interest calculated on the principal. The interest will be calculated considering the standard variable rate at that time, which should be added to the ongoing balance.
If you want to obtain competitive loan terms, you should have at least 50 percent of your current home’s value in equity, before applying for bridging financing. What is more, if you’re considering taking out such a loan, you should bear in mind that you’ll need to pay interest on two different mortgages. Hence, we advise you to have realistic expectations regarding the sale of your current home and don’t fall into the trap of overestimating your house’s value.
On a final note, getting bridging financing might be your only choice if you wish to purchase new property fast. It is a convenient, short-term solution that can aid you to accomplish your plans.