A buy to sell mortgage basically is a short term finance agreement for the purchase of a residential property with the option to either buy the house outright or take out another bridge loan to pay for any outstanding expenses incurred during the transaction. Typically with a conventional mortgage the transaction period is generally longer and typically has more restrictive terms than what would be appropriate for a buy to sell mortgage. Also, with a conventional mortgage you are tied into the property for the full duration of the mortgage term which can potentially be several years depending on the financial status of the borrower. In some cases, the homeowner may have to wait a significant amount of time before the principal balance of the mortgage can be repaid. There are other advantages to this type of mortgage, but they all come at a cost.
Buy to sell mortgages do offer some advantages over conventional mortgages. Most importantly, it enables the lender to recoup some of the costs associated with underwriting the mortgage. With a conventional mortgage there is no guarantee that the homeowner will be able to maintain the property into the future or even if they are capable of doing so. A buy to sell mortgage offers a guarantee from the lender that the house will be sold if at the end of the term the homeowner does not meet the financial requirements of the lender. In some cases the lender will receive nothing at all if the home is sold at the end of the term.
Another advantage to a buy to sell mortgage and one of the reasons why it has become so popular in recent times is the potential to raise a considerable amount of funds through a successful renovation. Unlike a conventional residential property the price paid for a bridging loan is based only upon the value of the property and any associated renovations. The amount of money a homeowner raises through a renovation is usually dependent on their personal finances. Many homeowners like to live in comfortable houses with big yards, so they may want to consider taking out a mortgage for a large renovation. It can also be the case that a homeowner opts for an upgrade to their property that will generate a substantial increase in equity.
One of the attractions of buy to sell mortgages is that they offer a variety of options for the borrower. A typical option is an interest only mortgage where the monthly repayments are made until the property is sold. Another option is to take out a convertible loan against the property which converts the equity into cash at the end of the term. Some lenders may also offer a variety of standard mortgages to meet the needs of the individual borrower.
Buy to sell mortgages differ from mainstream lenders in several ways. Firstly they offer larger flexibility than the type of lending offered by the mainstream lenders. This is in line with the fact that the buy to sell product is more complex and requires the expertise and experience of a specialist. Secondly, they often offer interest only and conversion mortgages, which means that the repayments are significantly reduced until the property is sold. Thirdly, they often offer repayment holidays and the opportunity to pay off the loan early.
An important question to ask when considering what is a buy to sell mortgage is whether it would be suitable for the individual in question. While buying property with the intention of selling it within a relatively short space of time can be a good way to raise money, do so without haste. A short-term funding solution is usually best planned for over a few months’ time. Therefore do not use a buy to sell mortgage as a long-term solution. Instead look towards secured short-term financing with the possibility of a longer term solution as soon as the property is purchased.
Auctions can take place using standard residential mortgages but this is not recommended. Auctioneers take a lot of time to prepare their business before placing any of their properties on open sale. This means that you will have a very limited period of time during which to find a buyer and therefore your best option is to apply for a bridging loan from your chosen lender. When applying using a bridging loan, you will find that you will be charged interest rates that are much lower than if you had been looking using standard residential mortgages.
Buying refurbished property is also very popular these days. With so much property on the market there are a large number of lenders who now offer a variety of mortgage options available. Most of these lenders will provide competitive rates and loan products that are suitable for individuals who wish to purchase pre-owned properties with the intention of reselling in the future. It is also possible to find some lending companies who specialise in providing a buy to sell mortgage solution for homeowners looking to finance refurbishment projects.