The home-buying market is a volatile one. Fewer banking institutions are willing to provide lending to individuals for mortgages nowadays. When looking to buy more property, not all individuals may have the necessary equity to be able to afford this. This may mean that individuals need to find alternate sources of funding.
The use of bridge financing when buying a home is becoming increasingly popular.
Many buyers end up needing to finance more than one home for a few days, weeks or even a few months. If you lack the funds to make a down payment on a new home and you are waiting for your current property to sell, this form of finance may be very useful.
What do you need to qualify?
- Lenders have their own qualifying criteria but most rely on affordability as an important factor.
- You need to have excellent credit, as this type of loan is considered to be exceptionally risky.
- You need to have a low debt-to-income ratio
- You need to have significant home equity
How it may be used:
It is typically used to “bridge” a gap between a debt coming due and the main line of credit becoming available.
There has been an influx of bridging lenders into the market because banks have grown more reluctant to lend. This means that more people are using this finance to pay off all existing liens and are using the excess as down payment for the new home they are purchasing.
Generally aimed at amateur property developers, bridge financing when buying a home can provide short term access to money at a high rate of interest. Hefty administration fees often require individuals to be able to afford the loans comfortably.
It can also be helpful for someone buying at an auction.