How to buy a new home before selling. Bridging finance explained.

Often, clients need to sell their existing home to purchase a new one so it helps to understand the finance options available. The sale of a property doesn’t always align with the purchase of a new property so I often recommend 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 the owner lives in their 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’ is restricted to no more than 80% on the first property and 65% on the second and, like any loan product, it pays to have a professional finance broker who will 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.

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 of the bridging loan, and the remainder will form the new home loan.

Is a bridging loan the right move for me?

There are a number of factors I consider when determining if a bridging loan is suitable for a client. 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 that you are 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 your existing property will realistically sell for. Naturally, I 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.

If you’ve got any questions about bridging finance or simply want to know what your options are when it comes to finance for a new home purchase, simply give us a call at the office on 07 3899 2866 or Daniel Green direct on 0457 883 700.