When a landlord wants to buy a new home, the best solution is to make the sale of his property coincide with the acquisition of the next home. This process is not easy to implement given the sales deadlines. Another possibility is to rent while awaiting sale, which has limitations and costs if the mortgage obtained for the first home has not yet been paid. This is why many people choose the staging loan option. Concretely, it’s about asking the bank to give you a short-term mortgage (12 to 24 months) called a bridge loan. The amount of this varies according to the banks and your financing profile and is generally between 60 and 80% of the value of the property you own. Thus, this staging loan makes it possible to buy before selling, but beware, this solution has risks.
Bridge loan carries risks
When a bridge loan is contracted, the real countdown begins. The owner who made this choice has one to two years to sell his old property, or else he won’t be able to pay off his bridge loan. In some sectors where the market is said to be tight, this is generally not a problem, provided the value of the property for sale is not overestimated. But beware, even if the real estate market is doing well, nothing is guaranteed, especially since a feel the slowdown. This phenomenon is further exacerbated by the fact that Interest rates are going up due to inflation. If the sale does not materialize at the end of the bridge loan, the consequences can be dire for the borrower, as the bank can proceed to expropriate the property for sale in order to compensate itself.
Solutions in case of a bridge loan problem
For a landlord who has taken out a bridge loan, the most important thing is his expectation. If the first property sale is slow, you should not delay in finding a solution that generally involves lowering the price. Do not forget that it is possible to call real estate professionals to help you correctly estimate and enhance your property. Alternatively, contact the bank with which you took out the staging loan to request a repayment period. It is already possible to extend this credit for a period of six months or a year, but you should know that the bank is not required to accept such an agreement. It is sometimes possible to convert a bridge loan into a classic mortgage by deciding to lease your property for some time, but this solution will only be accepted if your debt ratio remains below the acceptable limit for the bank, generally 30%. Before taking out a phased loan, it is necessary to think carefully and find out the various possible solutions. Feel free to ask Good Borrowing Tips.
(by HREF Editorial Board)