What are the requirements for a bridging loan?

Anything can happen when managing property transactions, either as a commercial dealer or for residential purposes. For instance, prospective buyers can change their minds about a particular purchase leaving you stranded with no funds to finance the ongoing transaction. 

Investors can turn to bridge financing for quick-fix solutions around that issue when such things happen. But it’s important to research the market and assess several other factors before applying for your loan.

  • Understand the types of bridging loans.

Bridging loans are short-term financial products. They act as a gap in funding until your house’s sale goes through (with enough to complete your transaction). A bridging loan can be your best bet if you’re looking to buy a new house but are yet to sell the current one. However, several types of bridging loans exist, and each comes with its own requirements, features, pros, and cons. Your bridging loan can be open or closed or can be a first or second-charge bridging loan. 

Open bridging loans have no fixed repayment date. The requirements include an exit strategy and practical plans to attract suitors for their present properties. In contrast, closed bridging loans have specific repayment dates signed off by all parties involved using a contract. 

The fixed repayment arrangements of closed bridging loans offer more guarantees for lenders. So it’s not surprising to find that closed bridging loans have lower interests than open bridging loan options. However, ensure you’re far advanced with your home sale before opting for a closed bridging loan.

Lenders can also qualify your bridging loan as a first charge or second charge loan. The former applies when you owe multiple lenders. First charge bridging loans determine which lender gets their payment first when you default on your loan and have to refinance through collateral. 

If your loan is in the second charge category, it means you have proof of ownership over your property and can repay your bridging loan before any other financial requirement. 

  • Be firm with your decisions.

Your bridging loan application process is not the time to be shady with critical information about yourself as an investor or plans for the properties on the line. No circumstance is too small or big to be left out of your bridging loan application process. 

Also, remember the information you offer can determine the total amount you can receive and your repayment terms. The more transparent you are with your application, the higher your chances of completing the loan and attracting your desired loan amount.

  • Check the credibility of lenders.

The real estate sector is home to numerous quacks parading as credible brokers. An extra background check can save you from a long list of troubles dealing with a fraudulent lender. Some lenders may also appeal to borrowers more than others because of their terms and conditions. So, it’s only right to know what different lenders are offering before sticking your neck out with a final option. 

  • Focus on your exit strategy.

The most important factor in managing your bridging loan’s repayment plan is effectiveness. Your exit strategy doesn’t need to be making promises you can’t keep. Focus on assessing the market to understand your potential to pay the loan, considering how you can find a suitor during your gap financing period. 

  • Be mindful of the time.

If you conduct your research before applying, you’ll realize how important time is to your repayment plans. It’s good to have a timetable against a steady cash inflow to ensure you don’t default on your loan within the expected one-year term.

To summarise; researching the loan application process can save you from numerous rookie mistakes. And this article cites more than enough reasons not to belittle research’s importance to your loan application process. 

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