Are you hoping to purchase a new property while you are waiting for your current property to be sold off? If that is the case, you should check out a bridging loan. As the name implies, it will help you “bridge” the gap between securing your new home and the sale of your old one.
Bridging Loans 101
Bridging loans are short-term loans or funding option that many banks and moneylenders offer alongside their home loan offers. It is also a secured type of loan. Applying for a bridging loan can be done while you are waiting for your old home to be sold so you can buy the home you wish to purchase. Both private property and HDB flats can be purchased with the help of bridging loans in Singapore.
If you are short of funds, getting a bridging loan is good as a temporary solution. However, they should not be used as home loans because their loan terms are not very long. Moneylenders and banks also do not offer high quantum for these loans.
How Can Bridging Loans Help
If you want to know how bridging loans work, here’s a good example.
You own a 4-bedroom HDB flat with an estimated value of $500,000 and you now want to sell it. To replace your flat, you are looking in a 2-bedroom condominium unit worth $1.2 million. Unfortunately, the condominium is up for sale for a short period of time and it is possible that someone else might buy it before you.
Because of this fact, you need to do the following:
– Make a deposit for the unit at once.
– Sell the flat within 6 months before you are charged with the Additional Buyer’s Stamp Duty
– Make enough money to make the downpayment for the condo unit.
However, before you make a 1% deposit so the condo unit can be bought, you need to have the home loan ready. Since you still have the HDB flat, you need to get an experienced mortgage broker to help you secure your loan to get the best loan value. Meanwhile, your ABSD remission can be handled by your conveyancing lawyer.
When the deposit is given, you now have 3 weeks to ensure you can secure the unit for your purchase. You should immediately work in selling your HDB flat and you must also ensure you can qualify for the ABSD exemption. It should be done before your new condo unit’s exercise date. Considering the time frame, it is not easy to sell off the HDB flat if you have no prospect buyers ready. In order to prepare properly, you need to speak to your mortgage broker in sorting out a good timeline that would enable you to avoid any extra fees and ensure everything goes well.
Once this is done, you need to prepare the money needed to pay the 5% downpayment and ensure you pay the stamp duty. Usually, the amount charged for stamp duty is the 3% of the purchase price or the valuation, whichever one is higher, then you deduct $5400.
If we will consider the $1.2 million condo unit, you will need to make a $60,000 downpayment and pay a $30,600 stamp duty fee. However, if you only have enough money for the stamp duty and not the downpayment, you will need to determine where you can get the money. You also need to prepare the $180,000 additional downpayment within the next few weeks. If you add it all up, you will need to make a total of $240,000 to secure the new home.
Bridging loans can now enter this picture as you can use it to pay the $240,000 you still haven’t gotten from the sale of your old home. Although the amount is more than 15% of the purchase price, you may be able to get a good loan-to-value deal for your home loan with the help of your mortgage broker.
Bridging Loan Vs. Home Equity Loan
When you apply for bridging loans, you are still waiting for your current home to be sold. You can pay it off when you successfully sold off your home and received the money for it. However, a home equity loan would require you to put some funds aside for the loan before you list the unit for sale. A home equity loan entails the fact the money you can borrow is more than the value of your current home. You will be unable to sell your house while the loan is active.
Home equity loans can be used for a variety of uses aside from house-related expenses. However, when you say bridging loans, you will only use it for a short period of time while you are waiting for your existing house to be sold off and secure the new home you want. You cannot use it for other things.
What Will Lenders Check During Loan Applications?
For moneylenders offering bridging loans, they will check the usual loan requirements if you match their criteria. They will check if you have a stable income, aside from the house sale, which can help you pay the loan in its prescribed deadline. They will check your other income sources if the house remains unsold due to unseen circumstances.
What to Remember?
Before you apply for a bridging loan, it is important you check if the moneylender you are looking at is a licensed one to ensure they offer loan rates approved by the government. You must also ensure that you have the capacity to pay off your loans on time should the sale of your home take a while than expected.
If you are planning to move from your old home and into a new one, a bridging loan will help you get the funds you need to secure the home you always dreamed of having without all the stress that comes with it. Once you sell off your home, you can easily pay it full and not give you any problems in the future.