by Andrew Lennard

Created on: February 22, 2010

Bridging Loans – Advantages to Think About

If you’re an experienced home buyer, you might already know about bridging loans. If you worked with a good lender or financial advisor, they probably told you that these loans are only to be considered in dire circumstances where the only thing standing between you and your dream home is the fact that you haven’t been able to sell your current property yet. You probably filed this information away in your brain with the idea that you hoped to never need one of these emergency loans, but the truth is that these “swing loans” or “gap financing” aren’t always bad if you know how to use them.

If you do a little bit of research about bridging loans, you’ll probably discover that they are often used in both individual and business situations where a loan is needed right away, and the borrowers are confident that a more permanent financing situation is in the works. If this seems confusing, think about a prospective home buyer that’s finally found the property of their dreams, but doesn’t yet have a buyer for their current property. This is a situation when swing loans would be very useful, because they could be paid back as soon as the old home was sold successfully.

Those who are in a situation that might benefit from bridging loans should be fully aware of the terms of the lending situation before they sign the contract. First of all, it’s important that you are aware of the high interest rate associated with swing loans. This is one of the biggest reasons why you should only enter into a swing loan situation when you know that money to pay it off is on the way. If you get to the end of your six to twenty four month period, and don’t yet have other funding, you’re going to find yourself paying lots of money in interest.

Another thing to think about when you’re considering bridging loans is that in order to qualify, you’re going to have to prove that you’ve got assets or the income coming in to assure the bank that you can pay back the balance with interest. The lender will want documentation of your current employment, as well as any investments that you can put up as equity. The last thing you want is to risk losing everything if the sale of your current home takes longer than you thought.

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