Bridging Loan: An Effective Tool for Selling in a Stagnant Real Estate Market
Recently updated on January 10th, 2023 at 06:18 pm
Buying and selling houses is the most important part of the real estate market. However, there are times when although you have found a new house you want, you still lack the budget to purchase it because your old one is still in the selling process. Time is ticking, especially if you have many competitors who also want to buy your target house. If you want to secure it as soon as possible, why not try using a bridging loan?
What is a bridging loan in real estate?
A bridging loan is a short-term property loan (usually 6-12 months) that serves as a literal bridge, helping you cross the gap between selling and buying a new home. It gives you funds so you can purchase your new home or at least be able to give a downpayment while you are still looking for a way to get more secure and permanent financing.
A bridging loan is very helpful if your property is still being advertised in the real estate market or if you are waiting for the payment of your buyer. You can also use this if you need to cover closing costs for a new mortgage.
Types of bridging loans
- Closed bridge loan: only available for a fixed time frame. This is ideal for those who already have a buyer for their old house and just waiting for payment.
- Open bridge loan: there is no specific deadline for repayment but has higher interest rates than closed bridge loans. This is perfect for those who are still looking for potential buyers of their old property.
- First charge bridge loan: this authorises the bank or lender to be the priority of being repaid in case the borrower can no longer repay the debt.
- Second charge bridge loan: this is the opposite of the first charge bridge loan where there is a principal lender who has the highest priority over the one who provided the bridge loan.
How does a bridging loan work when building a house?
Aside from down payments, you can also use a bridging loan to fund other necessary expenses for your new home. You can use it for repairs or for buying furniture.
Benefits of using a bridging loan
Applying for a bridging loan is a strategic move if you need help in completing your transactions for your new home. You do not have to wait for too long to get it approved.
Bridging loans tend to get faster approvals from lenders than the other types of loans. It would be beneficial to use it if you need immediate cash as it will become available as soon as possible, allowing you to secure real estate market opportunities.
This type of loan is also more flexible and can have a shorter period of repayment than those of others. The repayment usually only lasts for months rather than years.
However, while a bridging loan is convenient, it requires higher interest rates and other fees in return. This can be an issue if you have a tight monthly budget. It can also add up to your existing loans so be sure to double-check if you really need the loan or if you can afford it to avoid a default.
How to apply for a bridging loan
Banks or lenders will usually look into information providing security that you would be able to pay your debt. This includes credit score, debt-to-income ratio (DTI), assets and sources of income.
If you are currently in a tight spot and need to apply for a bridging loan, Mango Credit can assist you in achieving your goals. Aside from bridging loans, we also offer caveat loans, first mortgage loans, second mortgage loans and home equity loans. You can quickly and easily apply online.
Since 2001, we have helped thousands of Australians get out of a bind and explore great opportunities through short-term property loans. We have a team of qualified, licensed and experienced lending experts that specialise in credit, mortgage and fund management, which allow us to give tailored lending solutions to our clients.
We offer flexible underwriting, no credit check or income assessment and services that are open even for those with complicated income streams or affected credit history. We also provide full transparency when it comes to fees, interest rates, costs and charges. Any additional costs like late payments are all discussed upfront.
A bridging loan can help make a real estate transaction smoother by providing immediate cash to those who want to purchase a residential or commercial property as soon as possible. It enables you to offer your home without contingencies, which raises the chances of it striking a deal with potential buyers. However, although a bridging loan sounds promising, it could have higher interest rates, as well as other fees. Consider consulting your financial adviser before applying for one.