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Bridging Finance: Between Purchase and Sale of Real Estate

For individuals who are in the process of selling one home and buying another, bridging finance can offer a convenient way to meet financial obligations during the gap between closing on the new home and completing the sale of the old one. These loans are not without disadvantages, however; they usually have a higher interest rate than comparable long-term loans. Bridging loans typically have significant processing fees as well, and may assess penalties for unforeseen delays in payment. For most consumers, bridging loans can offer a way to manage cash flow difficulties; it is essential, however, to ensure that the funds will be in place to pay off the bridging loan when it comes due.

Therefore, it’s best to use bridging finance loans only when a firm closing date has already been arranged for the conclusion of the real estate sale. Bridging loans should not be entered into on a speculative basis; if there is no contract in place on the previous home, then sellers should not assume that an offer will certainly come. Bridging loans should only be sought when there is a definite date or range of dates during which the necessary funds are expected to arrive; otherwise the borrower may have to extend the loan at an additional charge or, worse yet, may end up in default if the buyer backs out on the deal.

The best time to use a bridging loan is when the sale of an existing home will take longer than closing on a new home, but all dates are already decided upon and are definite. In those cases, a bridging loan can often provide a convenient method for concluding the purchase of the new home without waiting for the old home’s sale to be financed and finished. Because bridging loans are usually processed much more quickly than the paperwork for mortgages and transfer of real property, homeowners can have the cash on hand right away, allowing them to take possession of the new home and to begin the moving process without delay. Used properly, bridging finance can provide home sellers with the cash they need to ensure a smooth move and a seamless transaction from beginning to end.

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