Flexible bridging loan: buying property at your convenience
Recently updated on January 10th, 2023 at 05:46 pm
When you are in the market for a new home, it is important to find the right financing. A bridging loan can be an option worthwhile considering that provides the flexibility to get into your new home whilst either waiting for the sale of your existing home to settle – or alternatively if you’re still waiting for your traditional mortgage loan to go through.
Here is a brief overview of what bridging loans are, and how they may be of benefit:
What is a bridging loan and how does it work?
A bridging loan is a type of short-term financing that helps borrowers ‘bridge the gap’ between two financial transactions. For example, a borrower might use a bridging loan to buy a new home before their old home has sold.That said, while bridging loans are typically used for property purchases, they can also be used for other purposes for personal or business use.
Bridging loans are typically short-term loans (i.e. repaid within 12 months), although longer terms may be available. A secured short-term bridging loan means that the loan is secured against the property being purchased or another asset, such as an investment property. This structure means that usually, less paperwork is required to obtain funding (which also means that finance can be obtained quickly). For this reason, bridging loans can be a convenient way to finance a short-term need. In addition, non-bank, private and specialist lenders often provide bridging loan finance to borrowers with less-than-perfect credit histories.
Benefits of bridging loans
Bridging loans can be worthwhile considering due to their:
Borrowers can usually choose the term that best suits their needs (typically from a few months up to two years). This flexibility is often preferred by borrowers that need quick access to funding for personal or business use.
In many cases, bridging loans can be arranged within a matter of days, which can be vital if you are trying to meet a tight deadline. For example, a bridging loan can provide the funds required to complete a property transaction quickly.
Bridging loans are renowned for being able to be tailored to your specific circumstances. In addition, bridging loans through a non-bank, specialist, or private lender may be a useful alternative if you are struggling to obtain funding from a traditional lender.
Steps in applying for a bridging loan
Here are a few things to keep in mind if considering a bridging loan:
- Loan documentation: Lenders will vary in terms of the documentation required to secure a loan. Some lenders will require detailed information about your current financial situation, whereas other lenders will need only minimal documentation. Typically speaking, the lender will want to know how much equity you have in your current property, as well as your income and debts. Other areas a lender will be interested in usually include the loan purpose and your exit strategy (i.e. how you’re going to repay the loan).
- Home equity: The lender will assess the value of your current property to determine your ‘home equity.’ This is usually done through a professional appraisal.
- Funding turnaround: Again, the speed to funding will largely depend on the type of financial institution, as well as their risk assessment. This ranges from a few days to a few weeks or months, depending on the institution. Typically, non-bank, private and specialist lenders will charge higher interest rates, though have a quicker turnaround compared to traditional lenders.
How hard is it to get bridging finance?
The answer to this question depends on several factors, including your credit score, financial history, the amount of money you want to borrow, the equity you have in your home and what your exit plan is. In general, it’s usually easier to qualify for finance with a good credit score and a solid financial history. That said, non-bank, private and specialist lenders tend to accept a more diverse range of borrowers.
Is there an alternative to a bridging loan?
There are scores of different types of finance available. A finance broker is in an ideal position to recommend different options to suit your circumstances. That said, borrower’s often consider a personal loan or a second mortgage as alternative options.
A personal loan can be used for various purposes, including home improvement or buying a new car.
Another alternative is to apply for a second mortgage on your current property. This can give you the extra funds you need to buy a new home, but it will also increase your monthly mortgage payments.
A short-term bridging loan can be used for various purposes (personal or business use). Commonly, a short-term bridging loan is used to finance the purchase of a property before the borrower has sold their existing home.
At Mango Mortgages, we have competitive rates on bridging loans. We also offer a range of flexible repayment options, so you can choose a repayment schedule that suits your needs.
Whether you are looking to buy a new home, or investment property, Mango Mortgages can help. Apply online here.