Selling Your Home and Buying a New One? Here’s Why a Bridging Loan Might Be Your Solution

For many Australians, buying a new home while selling an existing one can be a daunting experience. This is because the settlement dates of both properties can often fall at different times, leading to the need for temporary financing. If you are facing a similar situation, a bridging loan may be the solution you need.

What is a bridging loan?

A bridging loan is a short-term loan that helps you cover the financial gap between buying a new property and selling their current one. This type of loan ‘bridges’ the finance gap by providing the borrower with the funds they need to purchase their new home before they sell their existing property. Once the existing property is sold, the proceeds are used to pay off the bridging loan.

Why choose a bridging loan?

A bridging loan can be an excellent option for those who are unable to access the equity in their current home for the purchase of a new property. A bridging loan can help you:

Secure your dream home: With a bridging loan, you can buy a new property without having to wait for the sale of your existing home. This means you can secure your dream home before someone else buys it.
Avoid the stress of moving twice: A bridging loan helps you avoid the stress of having to move twice by providing you with the funds you need to buy a new property while still living in your existing home.
Keep your existing home on the market: With a bridging loan, you can keep your existing home on the market until you find a buyer who is willing to pay the price you are looking for. This can help you avoid having to accept a lower price just to get a quick sale.

How does a bridging loan work?

Bridging loans are short-term loans, usually with terms ranging from 6 to 12 months. The loan amount is usually calculated based on the value of your existing property, the value of the new property, and your ability to repay the loan. Interest rates for bridging loans can vary, but they are usually higher than standard home loans.

Once you have secured a bridging loan, you can use the funds to purchase your new property while your existing property is still on the market. After selling your current property, you can use the earnings to settle the bridging loan.

What are the eligibility criteria for a bridging loan?

To be eligible for a bridging loan, you must typically meet the following criteria:

Equity

You must have enough equity in their existing property to secure the bridging loan. Generally, lenders will require the borrower to have at least 20% equity in their existing property, which can be used as collateral for the loan.

Repayment capacity

You must be able to service the loan, meaning you must have sufficient income to make the repayments on both the bridging loan and your existing mortgage.

Property purchase

You must have a contract of sale for the property you wish to purchase, and the purchase price of the new property must be higher than the outstanding balance of your existing mortgage.

Sale of existing property

You must have a contract of sale for your existing property, which must be due to settle within the loan term of the bridging loan.

How to apply for a bridging loan

The application process for a bridging loan is similar to that of a standard home loan, and each lender has their own set of requirements and procedures.

At Mango Mortgages, the process is simple. You can easily submit an enquiry by phone, email or through our online platform. After receiving your enquiry or application, we will promptly send an indicative quote via email that outlines the interest rates, costs, loan structure and document requirements.

If you are satisfied with the proposal, we will then provide you with a more detailed letter of offer. You will need to sign the proposal and provide all required documents, after which we will request our solicitors to prepare the security documents or order a valuation if necessary.

Once we receive the security documents, we will settle the loan by transferring the funds electronically. If you’re interested in applying for a short-term bridging loan with us, please click here.

Key takeaway

If you are considering selling your home and buying a new one, a bridging loan can help you bridge the financial gap between the two transactions. It can be a great option if you need temporary financing to secure your dream home without having to wait for the sale of your existing property. However, it is essential to do your research and work with a reputable lender to ensure that you are getting the best deal possible.

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