The only thing is that we haven't put our own house on the market yet so we will effectively have two loans at the same time for a while.
I THINK that should be OK. The house we own is worth around three times our current mortgage and the house we're looking to buy is approximately the gap (ie. what our current house is worth minus our mortgage).
We have savings that would cover the loan on both for about six months so that's fine but then we wouldn't have money for the deposit.
I'm sure this should all be fine. Just a very cautious person and I can't call the bank till Monday.
Never had bridging finance before so how does it work?
We're going to be doing this soon, when we subdivide our block. Here's some of the main points I understood -
*You don't have to make mortgage payments AT ALL for the first 12 months - on the bridging loan - but when you're calculating how much you need to borrow, it'll be cost of property + stamp duty + 12 months repayments.
So, that gives you 12 months to sell your house. Once the house is sold, the money pays off the original mortgage, with any surplus going into the bridging loan, which then automatically becomes a normal mortgage.
Bridging Finance is a short-term loan to provide funds for an asset purchase pending a subsequent cash inflow. The source of clearance is usually the sale of another asset (eg, a house). When used for property transactions the amount of Bridging Finance is usually the same as the net cash to be received from the sale.
Most banks only provide Bridging Finance when the source of clearance is assured - typically a loan application would only be approved when supported by a Contract of Sale for an existing property. In other words you have to sell before you buy and use the Bridging Finance simply to 'bridge' the period between the two settlements (that is, of course, unless you can demonstrate to the lender that you can afford the repayments on both loans from regular cash flow; simply having the savings set aside for meet several months' worth of repayments generally doesn't cut it).
An example:
- Buy house for $500,000 plus acquisition costs $25,000 = total outlay $525,000 to be funded by:
30-year Home Loan $200,000
Sale of existing home $325,000 (net equity)
Total funding $525,000
- Settlement is scheduled for 1 March
- You sell your house for $325,000 with settlement scheduled for 30 April
- You would need to apply for two loans; one being the ongoing long-term Home Loan you will pay-off from regular income, the other for 60 days to be cleared from the sale of your own place.
Hope this helps. I have worked for two of the four majors providing mortgage loan finance and am happy to offer assistance if required (in a personal capacity of course, not as a 'salesperson')
I'm a little confuzzled. There seems to be two school of thoughts a) that bridging finance is quite easy to get and b) that it's not easy to get.
But in terms of whether we could demonstrate to a bank that we could service both loans - it would take 60% of our regular income on interest only loans so in theory, we could afford it (though in reality we'd probably use our savings as a top-up). But I'm only expecting to have to do that for three months. I guess some people use 60% of their income to service one loan these days so the bank shouldn't be too difficult about it.
I hope I get this right (DH is out ATM)... There are lots of tricks to the trade if you know them but especially since the GFC the climate has changed somewhat and lots of these loop holes have been closed eg the "Low Doc" and even "No Doc" loans. 60% of gross income is too high unless you are have a private banker which means you are a high net worth customer. DH mentioned that 30% - %40 is the figure most banks work with. DH is a fairly "aggressive" lender ie he will really go in to bat for his clients... most lenders take a very conservative approach especially since the GFC like I mentioned. Of course DH works as a private banker now and things may be different in branch-land. Please don't hesitate to give us a call or even drop over for a cuppa, and DH will give you the low down from the perspective of lending through the "Big Four".
No worries Bath. I've put in an offer (it's sale by negotiation) subject to building inspection and finance and will give the bank a call tomorrow to discuss.
If it's looking like a problem, I'll definitely take up your offer of your DH's advice over a cuppa.
Bridging Finance: Please Explain
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