When Does a Mortgage Bridge Loan Make Sense For You?
When Does a Mortgage Bridge Loan Make Sense For You?
What is a mortgage bridge loan and when does it make sense for you. Check out this article to learn about the situations in which a mortgage bridge loan could benefit you.
Keyword(s): PKW: mortgage bridge loan SKW: how does a bridge loan work, residential bridging loan, bridge loan rates, bridge mortgage, residential bridge loan
Did you know that home ownership rating in England alone is at 63%?
In other words, of the 23.1 million houses in the country, 14.4 million are owned and occupied.
What's more, the difference between outright owners and mortgagors isn't that big in terms of percentage. Buyers purchased 34% of these houses outright, while 28% were under mortgages.
So... What does this mean to you as a potential home buyer?
One is that mortgages still play a huge role in consumers' dreams of becoming homeowners. But what if you can't secure a mortgage right away?
A mortgage bridge loan is then your next best option.
What exactly is a residential bridge loan though? How does a bridge loan work?
Don't worry. In this post, we'll answer all these questions so you can better understand how these funding programs can help.
So, keep reading to learn more about them!
Key Facts about the UK's Billion-Pound Mortgage Bridge Loan Industry
The bridging finance sector in the UK is a 4 billion pound industry. This represents more than a 530% growth from its 750 million pound worth back in 2011!
So, what has fuelled this massive increase?
First, we have the obvious tightening of loan qualifications traditional lenders now implement. For instance, most traditional home loan lenders now require at least a 5% down payment. Some have even stricter regulations, requiring their borrowers to put at least 20% down.
To put things in perspective, here's an example:
Say you want to purchase a home priced at 224,000 pounds. That's roughly the average UK house price (as of March 2018). This means you need to put down at least 11,200 pounds (5%) or up to 44,800 pounds (20%).
Now let's consider the findings of a study saying that regularly-saving Brits have, on average, at least 4,212.40 pounds put away. Even with this amount of savings, you still lack nearly 7 thousand pounds to more than 40 thousand pounds to make the cut.
This is where a bridge loan comes into play.
At its core, a bridge loan (also commonly referred to as gap financing) is a short-term financing program used both by individuals and companies. They take out these loans to "bridge the gap" until they secure a more permanent or long-term funding.
Qualify for this short-term financing, and you can "bridge the gap" between how much you've saved up and how much you still need to make the necessary down payment.
Buying a New Home before Your Old One Sells
A residential bridging loan isn't just for new home buyers, although this group makes up 47% of all mortgage-backed home purchases in the UK. As a current homeowner, you can benefit from this financing program as much as first-time buyers would.
For instance, as you wait for your current home to sell, you're already on the hunt for a new place to move in. Then, you find the perfect home to move in.
The problem is, your current home hasn't garnered the interest of buyers. Or maybe the potential buyer hasn't made a down payment yet. In any case, you still haven't sold it, which means you may not have enough for a down payment on the new home.
Now, consider that the average time it takes before a homeowner can put up that "SOLD!" sign is 96 days. That more than 3 months of waiting means you can miss out on a great housing opportunity! That could also mean higher mortgage rates once you're ready to buy.
In this case, you may want to consider a bridge mortgage program. This way, you'll have enough to secure the sale of the new home, even if you haven't sold the old one yet.
This is a good idea if the market forecasts indicate a considerable increase in mortgage rates in the following months. Or if you simply want to move into that new place ASAP, before any other buyer can take it away from you.
Qualifying Even with Bad Credit
Sad but unfortunately true: Traditional banks reject as many as 20 million UK borrowers. The reason?
Bad credit - or having a credit score below 720. These lenders already consider a score of 720 or lower either as poor or very poor.
With the UK's current population at 65.64 million, this means that as many as 30% of Brits, including you, are at risk of facing loan rejection.
This then brings us to another benefit of bridge loans - acceptance even with bad credit. Not all bridge lenders offer their services to people with bad credit though. But if you do your search, you'll find lenders who'll qualify you based on property equity and not credit score.
The best part is, you'll receive news almost instantly - whether you qualify or not. If you do, you'll also know how much you can borrow. Once you accept the offer, you'll gain access to the funds right away.
How's that for bridging the gap?
Reminders Before Taking Out that Bridge Loan
Before you sign the dotted line though, it's important you understand the terms of the bridge loan, such as if the lender will run a credit search. Although in most cases, this won't affect your qualifications even if they do.
Also, keep in mind that a residential bridge loan is only a temporary, short-term funding option. It's imperative you can pay it back within the agreed-upon terms, which usually run for only up to about one year. This way, you don't have to worry about penalties or seeing your credit score go even lower.
One more thing: Just like how you'd compare mortgage rates, you shouldn't forget to compare bridge loan rates too. Even just a 0.1% difference can already mean a savings of 500 pounds on a 5,000 pound loan!
Ready to Bridge the Gap?
If so, then feel free to request a quote from us.
We'll be more than happy to assess your mortgage bridge loan application as quickly as possible, so that you can finally bridge the gap separating you from that new home.