What is a bridging loan?
Do you want to buy a new house, but you are still waiting for your first house to be sold? Or are you a business owner who is eager to buy a new premise, but a bit short on cash? This can be highly stressful, especially if you’re relying on using the proceeds from selling your current property to purchase your new home. This is where a bridging loan can be utilized to ‘bridge the gap.’ Good news: there are a variety of lenders that supply bridging loans to help acquire your ideal property.
How does it work?
A bridging loan can be a lifesaver when you find yourself in a tight spot and need extra cash while waiting for your house or property to be sold.
A bridging loan covers the purchase price or the advance payment for your prospective property whilst giving you time to sell your current home, even with an existing mortgage. It is an additional loan on top of your existing home loan (usually for up to 12 months).
Some benefits of a bridging loan
Flexibility
Bridging loans are renowned for being a flexible way to access short-term capital. Generally, non-bank and private lenders tend to be more flexible with their loan criteria and processing time than traditional financial institutions.
Quick access to funds
Bridging loans can be arranged quickly – often within days of the successful application, which is why this loan type is appealing in an emergency or if there are time-sensitive opportunities too good to miss.
Easier processing
Bridging loans typically require less paperwork in comparison to other loans. Again, non-bank and private lenders tend to require less documentation than traditional lenders.
Secure property before
Time is often of the essence when securing a property. A bridging loan enables you to secure a new real estate before your existing place is sold.
Broad application of fund uses
In addition to ‘bridging the gap’ between selling and buying property, a bridging loan can be used for many different purposes, including:
· Additional funds to close on a property
· Deposit for a new property (investment or principal place of residence)
· The bank won’t provide a loan based on your circumstance or within the time you need funds
· Financials are not in order, but you have equity in your home or another real estate
· Funds to renovate or prepare your property prior to the sale
· Complete a small land subdivision or duplex intended for sale
· Moving, living, legal or medical costs
· Pay a personal bill or debt that can’t wait until the property is sold
· Downsizing
Compared to other types of loans, bridging loans tend to be approved more quickly. They also have a shorter duration of repayment compared to traditional loans, which can reach up to more than 3 years.
How to apply for bridging loans
Many lenders allow borrowers to apply for a bridging loan online. The application criteria and processing times vary from lender to lender (fintechs, non-bank and specialist lenders tend to require less paperwork and have faster processing).
Key takeaway
A bridging loan is a useful facility if you need extra cash to buy a new home before the current home is sold. It’s wise to speak with a mortgage broker to ensure you’re obtaining the most suitable loan for your requirements.