Are you waiting to sell your old home or property to arrange the down payment for a new house? We understand your worry and have some good news for you. You don’t need to lose your sleep over getting the down payment amount ready on time. A Bridge Home Loan is the solution to your problem. Never heard about it? Here are the features of the loan:
What Is A Bridge Home Loan?
A Bridge Loan is essentially a short-term loan that gives you the money to make down payment for your new house before you get the funds from the sale of your old house. Banks usually extend a one year window to their Bridge Home Loan customers to repay the amount.
How Can You Avail It?
The eligibility and documentation requirements to avail a Bridge Home Loan are similar to those of a regular Home Loan.
Banks offer Bridge Loans to customers only after entering into a formal agreement with them pertaining to the sale of the borrower’s property. In case there is no formal agreement to sell the existing property, banks usually offer a six month to one year window to sell the property and repay the loan. The maximum repayment tenure for Bridge Loans is two years.
On the one hand, Bridge Home Loans buy borrowers time to sell their existing property, and on the other hand, it equips them with funds to make down payment towards the purchase of their new house.
In case the borrower is unable to sell the property within the stipulated period, banks usually convert the Bridge Loan to a simple mortgage loan. Post conversion, banks keep the old property as mortgage and convert the Bridge Loan to a regular Home Loan with a higher rate of interest.
Additional Reading: Home Loans: Why Your Application Might Be Rejected
What Is The Eligibility Criteria?
To be eligible for a Bridge Loan, a borrower needs to be at least 21 years of age and should be the rightful owner of the property to be sold. The loan amount will be equivalent to the value of the property to be sold or 80% of the cost of the property to be purchased. The assets, liabilities and credit history are other criteria that are used to evaluate the loan amount to be disbursed under the Bridge Loan agreement.
Banks will assess your income documents, bank statements and credit history for a Bridge Home Loan just like they would assess a regular Home Loan application. They will verify and check the legal documents of both the properties. Banks will also undertake technical verification to assess the value of the properties.
The legal documents of the property to be sold will be mortgaged with the bank till the repayment is over. You can repay a Bridge Loan by asking the buyer of your old property to issue the payment cheque favouring the bank.
What Are The Repayment Options?
Bridge Home Loan is repaid in equated monthly instalments or in one shot when the property is sold. A borrower must repay the entire loan amount within the stipulated two-year window once the property is sold.
Additional Reading: Pick the best home loan repayment option!
What About The Interest Rates?
Bridge Loan interest rates are higher than Home Loan rates. This is because the former is a short-term loan.
What Are The Pros of Bridge Home Loans?
Here are reasons why you should consider taking a Bridge Home Loan:
- You buy yourself time to sell your old house and get money to buy a new one.
- Bridge loans are quite flexible. They may not require monthly payments for a few months.
What Are The Cons Of Taking A Bridge Home Loan?
Though Bridge Home Loans offer much-needed flexibility, there are some pointers you must keep in mind:
- Borrowers have to service a higher rate of interest.
- Borrowers have to qualify to own two homes and many may not meet this stringent requirement
- Although these loans are flexible, making two mortgage payments plus accruing interest on a Bridge Loan could cause stress.
Want to know more about your loan eligibility and other amazing Home Loan offers? Just click the link below.