Bridging Loan: Easy Finance to Buy a Property
Recently updated on January 10th, 2023 at 06:16 pm
How do you satisfy an urgent need for money when purchasing a new house whilst the old one is not yet sold?
Whilst a regular mortgage may be an acceptable alternative, it might take lenders a long time to process the loan and until that point, your preferred property may no longer be for sale. Fortunately, there are other loan options that you may consider, one of which is a bridging loan.
Bridging loan explained
A bridging loan is a short-term loan that helps borrowers buy a property before their current one is sold. It ‘bridges the gap’ between the purchase of a new home and the sale of an old home. This means that you won’t have to worry about finding alternative accommodation, giving you the peace of mind and flexibility to move at your own pace.
If you’re considering taking out a short term bridging loan, choosing the right lender is crucial. You need a lender with a range of options to ensure you find the right loan for your needs. At Mango Mortgages, we understand that taking out a loan is a big decision. That’s why we provide our customers with access to a great range of loan products, including bridging loans.
How do you qualify for bridging finance?
Although lenders often have criteria of their own, there are a few key requirements you’ll need to meet to qualify for a bridging loan.
The main criteria that bridging finance lenders will look at are:
The value of your property
To be able to apply for a bridging loan, you must have equity in your current property. Lenders will always assess the value of your property to make sure that it’s worth the amount you’re borrowing. This is because bridging finance is essentially a second mortgage on your home. As such, most lenders in Australia will require you to have at least 20%–30% equity in your property. With this, you will need to have a firm sale contract on your current home. This is to ensure that the loan will be paid back within the agreed time frame.
Your exit strategy
Your exit strategy is how you plan to repay the bridging loan. This could be through the sale of your property, refinancing or even selling other investments. No matter what your exit strategy is, you will need to have a solid plan in place to ensure that you can repay the loan on time. Some lenders will also look into the sale contract of your new property to make sure that it’s a feasible exit strategy.
Your affordability
Another important factor that lenders will consider is your affordability. This assessment will take into account your current income, outgoing expenses and any other financial commitments you may have. This is to ensure that you can comfortably make the repayments on the loan.
Bridging loan application process
Applying for and securing a bridging loan usually follows a four-part process—borrower, property (asset), loan purpose and exit strategy.
Borrower
The lender will always consider the borrower’s trustworthiness. The first step for the lender is to submit identification, address and bank statements. Lenders typically review the borrower’s prior three months of banking records, but this may vary depending on their needs.
Property
The lender will want to know more about the property; they may do a valuation report on the property as security. They could also want to see your property portfolio to demonstrate that you have experience in this area. The paperwork needed will be determined by the purpose of the property, such as commercial, leased or new build.
Loan purpose
Lenders will want to know what you plan to use the money for. You may utilise your bridging loan to pay for a home at auction, bridge the gap between buying and selling property or use it for property development.
Exit strategy
Lenders will want to see how you plan on repaying the loan. The most frequent exit plans include:
- Refinancing the home
- Paying off a loan from the proceeds of a property sale
- Remodelling and reselling for a profit.
How much equity do you need for a bridging loan?
The equity in your property is used as security for the bridging loan. In general, the higher your equity is, the larger amount you can borrow.
How quickly can I get bridging finance?
Bridging finance can be a quick and easy way to raise money, especially if you need the funds urgently. The application process is usually much quicker than a traditional home loan, and you can often get access to the funds within a few days.
However, it’s important to note that not all lenders offer fast approval times. It varies from lender to lender. To ensure that you will get the funds on time, consider Mango Mortgages. Our process is fast and simple, and we require minimal documentation. We also offer competitive rates and flexible repayment options, so you can tailor your loan to suit your needs. You can apply online here.
Key takeaway
A bridging loan is a short-term loan that can be used to finance the purchase of a property. It is often used when you need to raise money quickly or when you are waiting for a traditional home loan to be approved. To qualify for a bridging loan, you will need a substantial amount of equity in your property.
Mango Credit
Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management