When it comes to the issues involved with bridge funding then a quick guide will help deliver some of the answers to questions that potential borrowers may have.
It’s important to understand that bridge funding is a form of short-term interest only finance for those who need quick access to capital funding.
Generally, the funds are used to buy property and will essentially bridge the gap between the borrower sourcing another form of finance, such as a mortgage, for the purchase their property once they have sold their current home.
This form of borrowing is popular with those moving house and want to buy their new home before they have sold their current property; because the sale is probably in progress they know that the money to repay the bridging finance will be in place in time.
A bridging loan is a form of secured finance
However, it’s important to understand a bridging loan is a form of secured finance so those looking to borrow the money will need to put up security for the lender which may be property or land.
One of the big attractions for using a bridging loan is that just about anyone, as well as a business, can apply for a loan.
While we have mentioned that those looking to complete on a property purchase are the main users including property developers and homebuyers, there are other purposes for bridge funding that help explains the growing appeal of this alternative finance.
For instance, it is possible to buy a property at auction since the buyer must complete their purchase within 28 days and will struggle to get a mortgage to be agreed within that timescale.
Bridge loan to buy a property
Other people use their bridge loan to buy a property that is uninhabitable or is in such a state that a mortgage lender will not lend money on it; a developer could use bridging finance to bring the property up to standard and then apply for a mortgage.
For instance, a property may not have a bathroom or kitchen or even running water which traditional lenders are reluctant to offer a mortgage on.
However, a bridging loan lender will base its criteria for loaning the money on the property’s current value so someone can get access to the property and get working on it to bring it up to a standard that meets a mortgage lender’s criteria.
Bridging finance is also popular
Finally, bridging finance is also popular for those looking to develop or renovate a property and have a timescale of several months to complete the work before selling it on to make a profit and repay the bridging loan.
While bridge funding offers an excellent way for people to use this short-term alternative finance, it is always good to speak with the friendly team at The Bridge Crowd to find out whether these loans will meet someone’s needs.