Bridging Loans Explained: How to Buy Your Next Home Before Selling
Buying a new home before selling your current property can be an exciting opportunity, but it can also create a financial gap between the two transactions.
This is where bridging finance can help.
A bridging loan is a short-term finance solution designed to help you purchase your next property before the sale of your existing home has settled. It can provide the flexibility to move when the right property becomes available, rather than having to wait for your current home to sell first.
What is a bridging loan?
A bridging loan provides temporary finance to help fund the purchase of a new property while you arrange the sale of your existing property.
Instead of needing to sell your current home first, bridging finance can allow you to secure your next property and then repay the bridging facility once your existing property is sold.
The structure and lending criteria can vary between lenders, so it’s important to understand how the finance will work for your individual circumstances.
When might bridging finance be useful?
Bridging finance can be particularly useful if you’re:
Upgrading your home
You’ve found the perfect larger home but don’t want to miss out while waiting for your current property to sell.
Downsizing
You’re looking to move into a smaller or more suitable property and want to secure your new home before selling your existing one.
Buying in a competitive market
You may want to make an offer on a property without making the purchase conditional on the sale of your existing home.
Moving for lifestyle or personal reasons
Sometimes the timing of buying and selling simply doesn’t line up. Bridging finance can provide a temporary solution to help manage the transition.
How does bridging finance work?
The exact structure depends on the lender and your circumstances, but generally, the lender considers both your existing property and the property you’re purchasing when assessing the overall lending position.
Once your current property is sold, the proceeds can then be used to reduce or repay the bridging facility.
For example, you may own a home valued at $900,000 with an existing home loan and want to purchase your next property for $1.2 million. Rather than waiting for your existing property to sell before purchasing, bridging finance may help cover the gap between the two transactions.
Your broker can help you understand how the numbers work, including your existing loan, the new purchase, expected sale proceeds and the overall lending position.
What are the benefits of a bridging loan?
One of the biggest benefits is flexibility.
Rather than trying to perfectly coordinate the sale of your current home with the purchase of your next one, bridging finance may give you more time and flexibility to manage the transition.
It can also allow you to:
- Purchase your next home before your existing property settles.
- Avoid rushing the sale of your current home.
- Take advantage of an opportunity when the right property comes along.
- Make the transition between properties more manageable.
- Potentially upgrade or downsize without having to coordinate both transactions on the same day.
What should you consider?
Bridging finance isn’t suitable for everyone. Because it is generally a short-term lending solution, it’s important to have a clear understanding of your overall position and your strategy for selling your existing property.
Things to consider may include the expected sale price of your current home, the length of time it may take to sell, interest costs, lender requirements and your ability to service the loan.
Every situation is different, which is why getting the right advice before committing to a bridging loan is important.
How we can help
Bridging finance can make an otherwise complicated property transition much simpler when structured correctly.
We can assess your circumstances, work through the numbers and compare suitable lender options to help determine whether bridging finance could be appropriate for you.
Whether you’re upgrading, downsizing or simply looking to buy your next home before selling your current one, we can help you understand your options and guide you through the process.
Ready to explore your options? Get in touch with us today to discuss your bridging finance needs.
