Bridging Loan: How It May Help You Buy Your Next Home
Recently updated on January 10th, 2023 at 06:14 pm
A lot of people find themselves in the situation where they’ve found their new perfect home before selling their existing residence. 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 utilised to ‘bridge the gap.’ Though a common misconception is that a bridging loan is only used for this purpose. Wrong! Read on to find out more about what a bridging loan is, some common scenarios and some of its benefits.
What is a bridging loan?
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.
When can a bridging loan be used?
In addition to ‘bridging the gap’ between selling and buying property, a bridging loan can be used for many different purposes. Some common scenarios include when:
- You need additional funds to close on a property
- You need a deposit for a new property (investment or principal place of residence)Your bank won’t provide a loan based on your circumstance or within the time you need funds
- You don’t have financials in order, but you do have equity in your home or another real estate
- You need funds to renovate or prepare your property prior to the sale
- You’re seeking to complete a small land subdivision or duplex intended for sale
- You need help with moving, living, legal or medical costs
- You want to pay a personal bill or debt that can’t wait until the property is sold
- You’re looking to downsize
Some benefits of a bridging loan
1. 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.
2. 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.
3. 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.
4. Apply online
Many lenders allow borrowers to apply for a bridging loan online.
5. Broad application of fund uses
As identified above, there are many different reasons borrowers seek bridging loans.
How to find a bridging loan lender
The good news is that bridging loans can be accessed through traditional lenders, such as banks, as well as non-bank, specialist and private lenders, like Mango Mortgages.
Are bridging loans the right fit for you?
This is a tough question as there are many factors to consider, including why you need the funds, for how long, and what your ‘exit strategy is (i.e. how you’re going to repay the loan). It’s wise to consult with a finance broker to determine which lender and loan type suits your circumstances.
Key takeaway
Bridging loans are attractive to borrowers seeking fast, flexible, straightforward access 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 – and you can often apply online.
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