Sometimes it may so happen that a homeowner may want to change the house they live in and buy themselves another house. But as it turns out, they are lacking some funds to close the deal on their second house and cannot sell their first house until they buy the second one. In situations like these, the house owners can look to get some interim financing that would help them meet their money shortage.
As the name suggests, interim financing is a tool used to bridge the short-term monetary needs of a person or a company. It is a loan raised for a short term and repaid usually within a period of sixty to ninety days. It helps increase the cash flow and meet the current needs of the borrower. These types of loans are mostly raised when the borrower anticipates a future cash inflow but urgently needs the money in the present
Though used in a variety of businesses, Interim Financing is most often used in real estate transactions. In terms of real estate, Interim financing is used to meet the money shortage of a house buyer who is looking forward to buying a second house by selling their first house. However, it may not be feasible for them to wait for the first house to sell, as it might lead them to miss the new house as well. Therefore to meet that urgent money requirement the borrower may get the house interim financed instead of raising a well-structured mortgage loan for the same.
An interim finance loan is also known as a bridge loan or a gap loan as it helps the borrower bridge their money requirements.
As these loans are raised to fulfil the short-term yet urgent needs of a borrower they are often high-interest loans.
These loans are raised for a short period, therefore even though high-interest loans, the overall cost does not turn out to be very high.
These loans are typically extended to borrowers with high credit scores and low debt-to-income ratios.
Interim financing the need to buy a new house can prevent the borrower from missing out on the house while waiting to raise money from the sale of their current house.
When interim financing for a new house, the borrower uses his equity in the current house as collateral to raise the interim loan.
