Should I buy or should I sell first?
That's where you might want a bridging loan.
So today, we're going to discuss what a bridging loan is and how it might help you
with buying and selling at the same time.
So traditionally, most people will sell a house first, take that deposit, move into a rental property,
find another house, buy another house, and do it really slowly
and have to move a bunch of times. It's just pain in the neck.
That's where bridging loan comes in.
So Nathan, how's a bridging loan work and how can it help me buy a house
before I've sold my old one?
In the most basic and fundamental form, a bridging loan will allow you to buy that new house
you want, as well as keep your existing home without necessarily make more payments on
that total loan, so that you can sell your home that you own within a six-month period.
So I guess, we back it up.
So I guess in other words, you're saying for a time, I owned two homes.
Correct and you've got a set period of time to sell your existing home.
The good thing is you'll have a new home, which you can move all your things in, get all set up,
and then you've got ample time and usually, a six to 12-month period to sell your old home.
So for example, I'm living in my existing house, having a great life, and it's all good.
Then I suddenly find a new home that I want to buy, I've got the deposit but I haven't sold my existing one.
Now, typically what happens in this situation is my income might not be enough
to technically support both of the loans. That's where a bridging loan comes in.
It means that I can still have my existing home, I can get a loan on the new ones, I get to put on
the new home, then the bank will give me six months to sell my old home while I move in to the new one.
So what are some pros of bridging loans, Nathan?
The first one is you don't need to be able to afford the two properties and the loan associated with it.
So what that allows you to do is get that next property provided you have enough equity
in your home without having to sell, pay rent, have fees associated
with waiting around, paying you know, rent --
So really, the benefit is that you don't need to move twice but like Nathan said,
the banks will look at your capacity to pay for that loan in a bit of a different light.
You still need to make interest repayments on the total loan.
Sometimes, some banks will actually add the interest to the loan.
There's a few different ways they can look at it, depends on the bank.
But like Nathan said, they won't look at it in the lens that you're going to have both of those properties
for 30 years, so it means you can potentially have a bit more debt than you normally would have
but depending on the bank, yeah. Some will give you six months to sell,
some will give you up to 12 months to sell the original home
while you've already moved into the new one. So any other advantages, Nathan?
The last one is you have time to sell your home.
So as we mentioned before, the bank will usually give you anywhere from six to 12 months to sell your home.
What that allows you to do is if you want to get that small renovations done once you've moved out,
you want to tidy things up, get it ready to be market-ready.
You can do that in the comfort of knowing that you've got a bit of time.
Now, one small thing to remember is before the bridging loan is approved,
the bank will want to see that your property is on the market for sale.
So you can get on the market, potentially give yourself a little bit more time to clean it up and get it ready.
Yes, all that means is it needs to be listed with a real estate agent.
They take their photos, they do their normal thing, it's not that hard to do.
But the good thing is it doesn't need to be sold, it doesn't need to have the money
in your account to be able to apply for a bridging loan.
So Nathan, what are some disadvantages of bridging loans?
So interest is being calculated on the total debt of the two properties.
What that means is interest will be calculated added on top of the loan or you can pay for it
and over that six-month period, sometimes it can be a little bit more costly
because banks won't give you any discount off their standard variable rates,
so your rates are usually higher over the bridging period.
One thing to keep in mind is if you can get in and out of the market quickly, you buy then you sell,
you might not find that that's going to be much of an issue.
Yes, I think the trade-off there is while you might not get say 1% or 1.5% discount of
standard variable rate, you might be able to give yourself a bit more time to sell your original home,
so you can actually market it a little bit better, you won't be in a rush,
and you won't have to jump at the first offer that hits you.
The second kind is the bank definitely wants a property sold within 12 months.
So once you go over that 12-month mark, they're going to get really quite stressed,
they're going to put a lot of pressure on you to sell.
So one thing you want to make sure is your property is in a position to sell.
Don't get too picky on the offers.
Usually, your first offer is your best offer, so try and take those so that you're not in a position
where the bank's going to start to put a little pressure on you.
And lastly, we've got a bonus tip for you.
When bridging loan isn't available, Jayden what are some other options?
Yeah, so you can look at Number 1, extending the settlement period of your home.
So you can stick your property on the market, you could try and get it under offer,
then you could negotiate -- I've seen six months settlement period to get another property.
So you put that property on six months and then you go out and start shopping
for a new home and then you try and get the settlement days to match up.
We call that a simultaneous settlement where both properties -- the purchase and the sale --
happen on the same day. You can also put things like sunset clause.
So if you find the right property, you can put a clause in there to let the vendor know that if they get
a better offer between now and when you buy the property, they can take that offer,
so it gives them more options as well. - You can also look at renting out your home.
So it's going to come down to your borrowing capacity but if it potentially works, you can look at renting
at your existing home and keeping it as an investment loan, combined the new home
as an owner-occupied house, so it's a good little alternate to actually using bridging finance.
And finally, good old mum and dad come to the rescue.
As per usual, you can move in with the family. - Yeah, use the couch.
So brothers, sisters, mothers, fathers, grandfathers, whoever you know, you can ask them
if you can borrow their couch, sleep there, stay there for a few months whilst you make
that transition between selling and buying your next property
Yeah, it's usually a few days, weeks, or months in that case.
Anyway, if you've got any other questions, hit us up at HunterGalloway.com.au.
We'd love to hear from you or leave a comment below. Until next time. Catch you.