The bridging loan is a loan that is offered over a short period (two years maximum) to allow candidates for purchase, already owners, to acquire new property without waiting for the sale of the first home to be concluded. A system often perceived as dangerous and to be handled with care, which nevertheless turns out to be a tool in order to seize opportunities! Explanations.
The security provided for the establishment of a bridging loan
The bridging loan allows you to acquire new property without having sold the property currently owned, whether it is an apartment or a house. In this sense, it is a financing mechanism that allows two credits to be available temporarily, in particular to avoid missing an opportunity.
In an ideal and fluid real estate market, a new purchase would always be preceded by a sale. But in reality, this is not always possible. So, to avoid having to find a temporary housing solution (rental, accommodation with friends or relatives), or to miss the property of your dreams, the bridge loan exists. Fortunately, guarantees are backed by this credit to avoid drifts.
For example, the amount loaned to you as part of the bridging loan is directly related to the value of the property you already own and the purchase price of the property you covet.
- If the value of the property for sale is greater than the value of the new home, we speak of a dry bridging loan. As a general rule, the property to be acquired must have a value less than or equal to 70% of the property offered for sale. The bridging loan is, therefore, a financial advance and this percentage calculated on the value of the property makes it possible to avoid poor sales (that is to say a sale with a price lower than the estimates which thus involves a difficulty of repayment).
- If the value of the property for sale is less than the value of the new home, then it is a back-to-back bridging loan. In this case, the bridging loan can be supplemented by a conventional mortgage. The advantage is that the latter will be offered to you at the same market conditions as for any purchaser, with a possible repayment period over several years.
- Finally, be aware that there are also solutions that take the outstanding credit on your property for sale, which frees you from any stack of repayments between your old property and your new home. This “buy-sell” formula will allow you to immediately amortize your credit on the property acquired, and to master the negotiation on the price of your old property for sale.
To estimate the value of the property for sale
Therefore the envelope to which you can claim under the bridging loan, you will need to produce a reliable estimate of your property. A single estimate by a real estate agent is no longer enough for banks. Expert or notary advice will be required. In addition, the bank may also mandate one of the experts it has approved to confirm the value of the property, especially during periods of fluctuating prices, both up and down. Indeed, in the event of default on your part, it is on the projection of the value of your property that the bank can hope to recover the loaned amount.
The bridge loan, a tool to act quickly
In a tight real estate market, the bridging loan can be for you a tool that facilitates your decision-making. If you plan to buy in a city in which the number of properties that meet your criteria are few, or if you finally find the rare pearl within a plethoric offer, you surely want to take action quickly!
In this sense, a bridging loan allows you to face a change by adapting your accommodation quickly. If your family is growing because you are having children, if you are transferred and need to move, or if your children are leaving the home and you want to have a smaller area, the bridge loan helps you.
Bridging loan precisely makes it possible not to miss your new main residence
You do not have to sell before you can buy again. Obviously, this system involves a cost for you purchaser, but this can largely be compensated. A bridge loan – often at the same rate as the main loan – is simple to set up.
- If you have not yet sold when buying your new home and signing the sales agreement, perhaps the transaction will finally take place a few days or weeks later. The time lag between sale and purchase will therefore be minimal. It would have been a shame to miss out on the property you only wanted for this period!
- As soon as you have sold your old property, you must settle the bridging loan first. By fully repaying the amounts advanced, you put an end to this financial arrangement and the interest that you must honor. This repayment is made without penalty from the bank and is provided for at the origin of the loan contract.
- You bought your new property, sold the old one… and you even have a little money left from the sale! Good news, you can keep this surplus and use it as you wish, for example to carry out work.
Like a conventional mortgage, a bridging loan commits you and its repayment must take place during the period provided for in the contract. This funding tool may seem complex, but it is actually framed and intended to support you over a short period. So, not to miss THE property that meets your expectations, consider requesting support from your Good Lenders Credits broker with this formula!