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Bridging Loan

If you have just found the perfect house you want to buy and have already put your house on the market, you may get a buyer immediately and that sale will go through before you have to close on the home you are buying. This would happen in a perfect world, but all too often the home you want to purchase needs to be closed before your own home sells. How do you handle paying for the new house before you have received the money for your existing house? For many people, bridging loans are the answer. In the US, bridging loans are often considered signature loans. It is also common for an individual to take out a home equity line of credit or do a cash-out mortgage refinancing to make the payment to bridge the gap between the two sales. 


When you purchase a home, you usually need to have a down payment in order to close the loan.  Thankfully, you don't need to have the whole amount of the home price because most of it will be financed.   You probably expected the equity from the house you are selling to cover the amount of the down payment on the new house.  However, to get the amount for the down payment and closing costs, you may need to apply for a mortgage refinance or a home equity line of credit as bridging loans to hold you over.  Often, bridging loans are given at a higher rate of interest because the amount of the loan is small when compared to a traditional home loan. 


In order to get this type of a signature loan you must usually apply and qualify for the loan.  You may have to attach this loan to one of your assets, such as a vehicle.  However, it is also important to remember that when you close on a loan, the down payment money must usually be seasoned.  This means that the lender will need to see a history of your assets.  Usually the money is required to be in your account for a period of time, and a bridging loan may not meet those requirements.  The only way you can know if you are meeting the guidelines is to discuss the options with your lender. 


Obviously, a bridging loan is probably not likely if you are getting a bad credit mortgage, but it can be a big help when you have a tricky sale taking more time than you want it to.  It is a good idea to pay it off as soon as the sale of your current house is funded.