Buying before selling: could a bridging loan help?
Recently updated on January 10th, 2023 at 06:06 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.’
A bridging loan, also known as a home bridge loan, is a short-term property loan that funds the new property purchase before selling your existing property.
This article provides an overview of how bridging loans in Australia act to ‘bridge the (financial) gap’ between buying and selling property.
Can I get a loan to buy a house?
Yes, you can apply for a home loan (mortgage) when purchasing a house. Mortgages are usually long term (up to 30 years) and paid back to the lender with interest. Mortgages may be fixed or variable. Each lender differs in its requirements, credit assessment and terms.
If you are planning to use a bridging loan to transition from your current residence to a new one, your existing home loan and remaining mortgage should be taken into consideration.
What is a bridging loan?
A bridging loan, otherwise known as bridging finance, 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.
In Australia, a home bridge loan has a short term (usually less than 12 months, or until the property has been sold).
Bridging loans are popular as they immediately relieve the stress and the burden of selling your current home in a particular period. It also prevents the need to lower the selling price of your property to attract a buyer immediately.
How does a bridging loan work in Australia?
You can typically get a bridging loan from your home loan lender in Australia. When the existing home loan balance and the home bridge loan and other fees are combined, the total amount borrowed from that same lender becomes your peak debt. Your peak debt increases every month due to the added interests during the bridge loan term.
The amount you can borrow for a bridging loan will depend on your lender and the equity of your current home loan. Once your current home is sold, you can use either the portion of the selling price or the total amount to pay off debt.
How long does it take to get a bridge loan?
The time to process a bridging loan application, as well as the rates, term and lending criteria, varies from lender to lender. Short-term bridging loan lenders like Mango Mortgages process an application and release the funds within a few days. Click here to apply for a short-term bridging loan.
Key takeaway
A bridging loan helps buy a new home while selling an existing home. It provides the money needed to cover the purchase price or the advance payment for your prospective property. The more equity you have in your existing property, the more you can typically borrow. Bridging loan rates, terms and lending criteria differ from lender to lender.
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