You have an eye on your dream home and you are waiting to dispose off your old house in order to acquire a new one. You must know that selling the old home is not an easy task. If you do not want to end up incurring losses, you have to definitely put a lot of time and efforts into selling it. You can apply for a bridging loan in the meantime to buy your new home and close the deal.

Bridging Loans are meant for resolving short-term money needs. They are used to bridge the cash deficit that occurs in the purchase of a house, its improvisation, and are used even to help in your business. If you have an instant requirement for cash and your savings have gone into the home you have, these loans help you tide over such cases, until you attain stability. As the borrowers have the resources that can to be converted to cash, such loans are instantly approved, unlike other conventional loans that take lot of time to process, and involve heavy paperwork.

People without regular income, and those with bad credit are also sanctioned Bridging Loans despite the risk involved. If you are about to buy a home and sell the old one, you can secure a bridging loan by getting a mortgage on the new property, and taking out a second mortgage on the property being sold. You can borrow up to 65 per cent of the worth of your home. It is generally high for residential properties, but the amount may vary with the lender. Rate of interest is between 12-15 per cent, with terms up to three years.

Bridging Loans are interim financing measures till another stage financing is arranged. Such loans are costlier than usual ones due to high interest rate, equity participation and various fees by the lenders in many cases. Lenders may also require loan-to-value ratio and cross-collateralization to further lower the risk. Though costly, the loans can always save you from the risk of falling through a deal.

If there is a property boom, there is not much activity in the bridging-loan market, as homes can be sold quickly in such a situation. Once there is not much market, people opt for these loans. Loans also come from individuals, investment pools, and businesses that offer high interest loans, because banks generally have difficulty justifying its lending practice to government regulators and investors. The loans are helpful in business enterprise capital and corporate finance in case of companies running out of cash stuck between consecutive major private equity financings, companies searching for a big investor or acquirer, and as final debt financing ahead of an initial public offering.

The two main types of Bridge Loans are the 'closed' bridge and the 'open' bridge. A closed bridge is sanctioned to home buyers where the sale of the old property has been exchanged and there is a predetermined time frame. In an open bridge the home owner has yet to put the home on the market and there is no fixed pay off date. Naturally lenders need lot of supporting information in this case unlike closed bridge, and they will insist on you having ample equity on your existing property. Lenders can put a 12 month limit on an open bridge after which there is renegotiation- depending on the property market and interest payment etc. Mortgage offer on the new property, property details, proof of marketing of the existing property etc, are to be provided to the lender, along with your exit strategy in case the sale falls through.

Bridging Loans are also used for commercial real estate purchases to close deals quickly and retrieve real estate from foreclosure, despite the speculation and risk. The loans on property are repaid once the property is sold, refinanced with a traditional lender, or in case of mortgage financing. It is advised that you spend ample time choosing the right lender for you, however short-term your need may be.

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