Buying your new home before you sell
Many of my clients need to sell their existing home to purchase a new one, so I'm familiar with the different finance options. The sale of a property doesn’t always align with the purchase of a new property so I often use a bridging loan to ease financial strain during the transition.
A bridging home loan, also referred to as a relocation home loan, bridges the financial gap between having to pay for a new property and receiving the proceeds from the sale of an existing one. Bridging loans can also provide finance to build a new home while you live in your current home.
How does a bridging loan work?
Generally the lender will take security over both properties and lends against these properties until the sale and purchase process for both is complete. The bridging amount or ‘peak debt’ will not be above two thirds of the value of both properties and, like any loan product, it pays to have me shop around. Rates are often slightly higher than standard home loans however bridging or relocation loans are shorter term, generally offering a solution for no longer than 12 months.
Some lenders allow the borrower to capitalise the interest so loan repayments aren’t required during the bridging period. This will result in a slightly higher home loan for the new property but can reduce financial stress during the transition period.
When the existing property is sold, the proceeds from the sale are taken off the balance on the bridging loan, and the remainder will form the new home loan.
Is a bridging loan the right move?
There are a number of factors to consider when determining if a bridging loan is suitable. One important consideration is how long the funds are expected to be needed for. This requires factoring in how motivated you are to sell the property and if you're looking to buy an established property or build a new one. It’s important you're is aware that the longer the bridging loan is required for, the more interest you will be paying.
It’s also important that you understand the demand in your property market and how much the existing property will realistically sell for. I will work with you to ensure that both the bridging loan works for you in the short term and the new home loan suits your medium to long term needs.