How to Apply For Bridging Loans in Australia
Recently updated on January 11th, 2023 at 11:27 am
Have you heard of a bridging loan?
Bridging loans are commonly used to cover short-term cash needs. Common uses of funding include renovating or preparing a property for sale, getting a deposit for a new property or helping to pay large and often unexpected bills, such as tax or medical costs.
In this blog, we’ll explain a bit more about bridging loans, how the finance facility works, what should be considered and how to apply for a bridging loan. So, whether you’re considering taking out a bridging loan or just want to learn, read on to find out more.
What is a bridging loan?
Bridging loans are a type of short-term finance (up to twelve months). The loan facility is increasing to many borrowers as it can be used for a variety of purposes, can be accessed quickly compared to other types of finance and has flexible loan terms. Bridging loans are usually secured (meaning property is used to back the loan).
Bridging loans can also be used for business purposes. The typical uses include buying a new commercial property or obtaining a deposit (or topping up a deposit) for an investment property. Another common example is where a company needs cash to purchase a new property whilst the sale of the current property is being sold. Bridging finance is also commonly used by homeowners seeking to purchase new homes whilst they wait for their current property to sell. In both instances, the loan and interest are repaid when the existing property is sold.
When applying for bridging finance, you will need to meet the lender’s eligibility criteria and have a clear ‘exit’ plan in place (demonstrating how you will comfortably repay the loan). Each lender will have different criteria. Typically, private lenders, specialist lenders, non-bank lenders and fintechs have more flexible lending criteria compared to traditional lenders.
How does a bridging loan work?
A bridging loan is a short-term loan that can be taken out on top of your current loan until the property is sold. Areas to consider include the purchase price for the new property, the amount left in the current mortgage, as well as any other costs, such as stamp duty or legal fees, that may come up during the sale process.
Factors to consider before applying for a bridging loan
Here’s an overview of a few areas that should be on your radar before applying for a bridging loan.
The more equity you have, the better (meaning the proportion of the home you own vs the mortgage on the loan).
Maximum end debt
Where there’s an end debt, it’s important to note that this amount cannot be higher than the value of your new property. It’s wise to assess all debt, including credit card bills, school fees, ATO or other bills when reviewing your entire debt-to-income ratio.
Sale contract of existing property
You may be required to provide proof that the sale of your property has actually occurred, or is occurring (i.e. a copy from when it went under contract).
With or without end debt
Loans are often offered with the condition that there will be an end debt. Again, lenders will vary with their policies around end debt. A mortgage broker is in an ideal position to help navigate all aspects of the loan, including its suitability for your requirements.
How to apply for a bridging loan?
At Mango Mortgages, you can apply for a bridging loan with the following steps:
- You submit your inquiry via phone, email or online application form.
- We email you an indicative quote detailing the interest rate, loan structure and costs. We will also send over a document that contains all requirements needed for this process.
- If you are satisfied with the above mentioned, we will send you a formal letter that details the proposed loan specifics and security.
- When you’re ready to proceed, just return the offer signed letter and dated together with all of your requested documents.
- We inform our solicitors to provide the security documents as soon as possible, usually by the next day. We also order a valuation if one is necessary.
- After our solicitors have obtained the security documents, the loan is settled on the same day or the next through electronic transfer as cleared funds.
How long does bridging finance take?
The approval process for a bridging loan varies from lender to lender. For Mango Mortgages, funds for bridging finances can be released within days of the approved application.
Bridging loans are an increasingly popular alternative for personal or business borrowers seeking access to cashflow quickly to ‘bridge the gap’ between buying and selling property, to finance time-sensitive opportunities, or to help cover sudden expenses. The application requirements and process differ from lender to lender. For a fast and easy application process, apply here.