It has become increasingly difficult for first buyers to find a mortgage to buy a property especially as many people are self employed or have credit problems and lenders require a larger deposit. Another way to do this is to purchase a property at auction usually under value .Although you have to be serious when buying at an auction as when the auction is over a ten per cent deposit is required immediately and the transaction has to completed within 28 days.
If you can find a property which is being sold undervalue for whatever reason for example repossession, the quickest and easiest way to do this is by obtaining bridging finance usually called a bridging loan.
A first time buyer with credit problems found a property at an auction, although it was structurally sound it had no kitchen or bathroom (which most lenders will usually consider unmortgageable).She had a valuation done and the property was valued at £100,000 but was able to purchase at the auction for £60,000 because a quick sale was required but she borrowed an extra £15000 to undertake the refurbishment. Because of time pressures this was an ideal situation for a bridging loan usually available up to 75% of the propertys value.
She managed with the help of family and friends to improve the property taking four months.She then had the property valued again and it was valued at £120000 so by spending the £15000 she had gained another £20000 in just four months. As she now had £45000 of equity in the property she could then approach a lender for a mortgage to replace the bridging loan and obtain a much better rate due to the equity in the property.Some lenders will allow clients to re mortgage up to six months after purchase whereas others have no minimum time period. Of course this scenario would also work for the budding property developer but they could then arrange a buy to let mortgage on the property or just sell for a quick profit.
A great source of information about bridging is the Heron mortgages website. The Heron Mortgages website also has great information about Adverse Credit Mortgage Lenders and getting a Right to Buy Mortgage
A bridging loan can be expensive and although you need not make any payments to it until it is repaid it should be viewed as a short term option as the interest rates can be as much as 1.00-1.25 per cent per month. This could also be the answer to someone wanting to arrange emergency finance for a short time for example to pay off arrears and this would also improve their credit rating.
Published: 10/23/2007
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