Property bridging loans are perfect for those clients that have recently sold their homes and have found their dream property that they would like to purchase, but they don’t have sufficient capital to put down a deposit on the new property.
The time it takes between the sale and the transfer of the funds to your bank account can sometimes be very long and this means that your capital is tied up and you won’t have extra cash on hand to put down a deposit on your new dream home.
A bridging loan allows you to borrow money against your tied up funds. This is a short-term financial solution that allows our clients to have access to the funds they need when they need them.
What is bridging finance?
A bridging finance loan allows clients access to the funds they will receive from the sale of their property before the registration and transfer process has been completed. This loan can be used to help pay for the transfer costs or to put a deposit on a new property.
Most bridging loans allow you to borrow up to 80% of the property you will receive when you sell your property.
A bridging finance loan is a short-term loan normally taken over 3 to 4 weeks while you are waiting for the money from the sale of your property to reflect in your bank account. The loan gets its clever name because in a sense it creates a bridge for the client by helping them with their cash flow for the time that the funds are held up. It can take 6 weeks or more to receive the cash from the sale of your home, so a bridging loan is perfect to bridge that gap in between.
Who is eligible to apply?
You will need to meet certain criteria in order to apply for bridging finance. You may apply if you are a real estate agent or an estate agency that is waiting for commission on a property that you have sold. You may apply if you are a property owner that has sold their property and they are waiting for the money to be released.
This loan can also be applied for by those clients wishing to take out a further mortgage or bond on your existing property.
How much money may I borrow?
If you are an estate agent you can apply for a loan of up to 85% of your net commissions. Clients that have sold their properties may apply for up to 80% of the net sale.
A bridging loan is a form of a secured short-term loan. The lender will have to ensure that you will be receiving the money in question in order for you to borrow against it.
What are the costs involved?
The costs involved will vary from loan to loan, but the repayments are usually calculated on interest only during the bridging period.
Benefits of bridging loans include:
- You can use this loan to put down a deposit on your new property
- Increase cash flow
- There is no need to wait for the money from the sale of your property before you can start looking for your new home
- Great option for those building a new property while they are still living in their current house
Risks involved include:
- If the sale of your home falls through you will still be held responsible for the bridging loan
- If you don’t sell your home during the bridging period
- If your home suddenly sells for much less than you predicted
Things to consider when applying for a bridging finance loan
- How long will you need the money for before you receive your cash? This will determine how much interest you will be charged
- Look at the properties for sale in your area. How long do they take on average to sell?
- How quickly do you think it will take to sell your home?
- Are you thinking of buying or building your next property?
- Do you have any other loans currently against your name? Will you be able to afford the payments on both loans?
Applying for a bridging loan with bad credit
If you have a bad credit score and you have had your loan application declined in the past, you will be very happy to know that a bad credit score won’t necessarily mean that your bridging finance loan may be declined. Each case is judged on its own merits and your broker will decide accordingly.
As a bridging loan is essentially a short-term secured loan. The funds are secured by the money that you will be receiving from the sale of your home; this gives your loan a good chance of being approved.
Other types of bridging loans available
There are many different types of bridging loans available. You can apply for a bridging loan if you are waiting for money that you are going to receive soon.
Your funds could be from the following:
- Your provident fund payout
- The money you receive from your retirement
- Money owing to you from a divorce
- Or from being retrenched or dismissed
How long before I receive my bridging loan?
Having your bridging loan approved can take between 72 hours and up to a couple of weeks, the period of time that it takes will depend on a number of different factors. The lender will need to verify all the details with the broker to ensure that you will be receiving the funding soon.
Documents needed to apply for a bridging finance loan
- A copy of your valid South African ID
- Proof of address not older than 3 months old in the form of a municipal account
- Your last 3 months bank statements
- Your validation certificate
- The signed offer to buy your property (signed by the owner and the buyer)