Unlike previous generations, for many of us, the first home purchased is no longer the last. Getting a new home loan for the next apartment is not really a problem if you have repaid the earlier loan. However, getting all the elements of the transaction to fall in place at the right time can be a major problem.
For instance, you may have identified an ideal ‘next’ residence in a new project with all the aspirational lifestyle amenities your family has been wishing to experience, at a well-connected location with the all-important additional room and that too at a reasonable price.
Key hurdle: The only hurdle, which could keep that dream home from becoming a reality, is the down payment or basic funding that the transaction entails. In a perfect world, you would immediately find a buyer for your first home who is ready to pay your asking price, use that amount to make the payment required on the next home, take a loan to fund the balance amount and shift from one home to the other.
Costly delays: However, that is not always so easy. Finding a buyer who will pay the amount you have stipulated for your existing residence may take a bit longer than expected. Realising that you need the money urgently, the buyer may try to delay the process in the hope for your settling for a reduced price.
Net loss: If you stand your ground and refuse to budge on the amount quoted, the resultant delay could lead to you losing out on that ideal next home. By the time you get a buyer, the price tag for the new home you have identified may increase or that preferred apartment may have found another buyer.
Alternative path: If you are facing this situation, here’s some good news. You can opt for something that is known as a ‘bridge’ loan. This is a rather unique concept whereby the loan is to be used for just a short period of time. This tends to be for the duration of approximately 6 to 12 months.
Leveraging value: The rationale is simple. As a home owner, you are able to leverage its value to make the initial payment to secure your new home purchase. This enables you to wait for a few months until a buyer agrees to pay your stipulated price for the old home. These ‘bridge’ loans are so named because they enable you to ‘bridge’ the gap between your new home purchase and the sale of your existing residence.
Facilitating lender: It is observed that in most such instances, the institution providing the ‘bridge’ loan is a facilitator of sorts, who is also the one providing funds for the new home purchase and therefore, holds the mortgage on that home. Clearly, a smart way to manage the transition from one home to another without reducing the selling price of the former or losing out on the latter.
