There might be times when you might be waiting to sell your old property in order to buy a new one. This might be because you don’t have funds for the down-payment and you cannot get a home loan for the new property unless you make the down-payment. This is where bridge home loan help.
What is a bridge home loan?
A bridge home loan is a short-term loan that is especially for those who need funds for down-payment of a new property while they are waiting to sell their old property. The tenure of the loan usually ranges between one and two years.
The documents needed and the eligibility criteria for getting the bridge home loan is usually the same as a regular home loan. For taking a bridge loan, you have to enter into a formal agreement with the bank that will have details of the property that you will be selling. In case you don’t sign any agreement with such details, the bank might extend this loan to you for only six months. The bank might expect you to repay the loan once you have sold your old property.
In case you are not able to sell the old property within the time period given by the bank, they might convert the bridge home loan to a simple mortgage loan. Interest rates for mortgage loan might be much higher than those for bridge home loan and regular home loan.
What are the eligibility criteria?
Most banks require borrowers of bridge home loan to be at least 18 years of age. It is also required that the borrower should be the owner of the property that is being sold. The loan amount is usually only up to the value of the property that is being sold. Some lenders might insist that the loan amount should not exceed 80% of the cost of the new property that the borrower is looking to purchase. The bank will take into account your income, assets, liabilities, credit score and other such details for deciding your eligibility for the bridge home loan.
You might have to pay legal fees to the bank for assessing the property that you are going to sell and the property that you are looking to purchase. Technical valuation of the property will also be done by the bank. There might be charges for this also.
You have to provide the documents for the property that you are going to sell. This will be used as collateral until you repay the loan. So, after finding a buyer and before you actually sell the property, you might have to ask the buyer of the old property to close the bridge home loan. The buyer can write a cheque favouring the bank for closing the loan.
How are the repayment options?
You can repay the bridge home loan by EMIs just like a regular home loan. You can also repay the loan in a single installment if you want. The repayment has to be made within the period that is specified by the bank.
What are the interest rates?
The interest rate for bridge home loans might be slightly higher than that of regular home loans. However, it is usually only 1%-2% more than home loan rates. Some banks charge a lower interest rate for the first year and higher interest rate for the second year if you want to repay the loan in two years. For example, SBI’s bridge home loan interest rate is 10.6% for the first year and 11.6% for the second year. You will have to pay a processing fee for getting the loan.
There might be other charges such as stamp duty and property insurance premium. The best way to ensure that you pay lower interest is to get a loan with interest that is charged on a daily reducing balance. A joint home loan will help you get a better loan amount. Read this post for more information –All About Joint Home Loans.