Facts about bridging loans and bridging finance
Recently updated on January 11th, 2023 at 10:33 am
Buying a new home is a massive consideration. But, what if you are moving in between two homes where one has to be sold first before you can afford to buy a new one?
The good news is that you may not need to wait to sell the first property before purchasing the next. Increasingly, Australian borrowers are choosing loans that can bridge this financial gap and let you buy a new property even before your previous home has been sold. An example of this type of finance is a bridging loan.
What is a bridging loan?
A bridging loan (also known as bridging finance) is a short-term loan that is used to cover the gap between selling an asset and buying a new one. A bridging loan can be used for a variety of reasons, but it is most commonly used for homebuyers who want to purchase their new home before the previous property has been sold.
Bridging loans typically have a term of up to two years, and have varying interest rates depending on the lender. For the current Mango Mortgages and Mango Credit interest rates, please click here.
What are the benefits of a bridging loan?
Getting a bridging loan can be advantageous when there’s a time-sensitive opportunity, but a cashflow gap. Here are some of the benefits of a bridging loan.
Traditional loans can take weeks, or even months, to settle depending on the lender. In comparison, the process to acquire bridging loans is much faster. It’s common for loan approvals to take days, with funds often released within a week.
Relatively easier process
Short-term bridging loans are renowned for their relatively easier approval process compared to traditional loans. This is especially the case for ‘secured’ bridging loans (where the loan is backed with an asset). For lenders, this structure minimizes the risk involved and therefore, lenders usually require minimal documentation to approve the loan.
Avoid having to move to a rental property
A common stressor for homebuyers is needing to rent in between selling their home and purchasing a new property. A bridging loan can remove the need to rent by enabling borrowers to purchase their new home – even if their current home hasn’t been sold.
Don’t miss out on a good deal
Sometimes, you can’t proceed with a great property deal because your cash is tied up in your unsold property. A bridging loan gives you the flexibility to purchase your next home without the burden of having not sold your previous home just yet.
Take advantage of market opportunities
Property investors keep a close eye on market conditions and often will use a bridging loan to secure an investment property ahead of a rising market.
How hard is it to get bridging finance?
Bridging loans are available from a broad spectrum of financial services institutions, including banks, private lenders, specialist lenders and fintechs. Each lender will have different terms, interest rates, application and approval processes. It’s common for the lender to request evidence of the borrower’s financial position, such as bank statements and salary slips. The amount of documentation required is usually less in the non-bank sector. Similarly, the process is generally easier and faster than the conventional loan providers.
At Mango Mortgages, you will need to present a copy of your most recent council rates notice and most recent mortgage statement.
What is the maximum amount that you can borrow with a bridging loan?
The maximum amount you can borrow with a bridging loan largely depends on the equity you have accumulated, and it varies from lender to lender. Other factors that can affect this amount commonly include your:
- Debt-to-income ratio (DTI)
- Sources of income
- Credit score/ credit history
- Exit strategy (ability to repay the loan).
A bridging loan provides borrowers an alternative to ‘bridge’ a financial shortfall and is commonly used to secure real estate. The application process is usually relatively quick, easy and requires minimal documentation – particularly in the non-bank sector.
If you are looking for a great bridging loan in Australia, you’ve come to the right place! At Mango Mortgages, you can get a bridging loan for $25,000 – $500,000+ with very minimal documentation. There’s no need for a credit check or income assessment as long as you back it up with real estate.