Each year, many Aussies seek to get a bridging home loan from one of the big banks, building society or a private lender for personal or business use. While we’re lucky to have a lot of options through many loan providers, it can get a little confusing.
In this article, we’ll take a look at bridging loans, as well as some tips to greatly improve your chances of being approved for a bridging loan so you can achieve your homeownership goals.
What is a bridging loan?
When you’re currently selling your home and wish to purchase another home before your house is sold, one way of being able to accomplish this is with a bridging home loan.
As the name suggests, a bridging loan essentially ‘bridges the gap’ between the sale of the original home and the purchase of the new house. As such, a bridging loan can be a good alternative when you need to act quickly to secure a new property and the settlement dates for purchasing and selling don’t match, which is often the case.
Bridging loans are taken out on top of your current home loan and are often interest-only loans. Bridging loans are also designed to be short-term loans that can be repaid relatively quickly.
Let’s now look at some tips to boost your chances of being approved for a bridging loan.
Always make your mortgage repayments on time
Whether you wish to apply for a bridging loan from the lender that originally gave you your home loan, or are considering a bridging home loan from another financier, if your track record of repaying your current home loan on time is not the greatest, it can affect your chances of being approved for new finance. The same can be said for being tardy in paying any of your debts or bills by their due dates, as it’s all recorded in your credit report and will affect your overall credit score.
To improve your chances of being approved for bridging finance, make sure to repay your current mortgage on time every month, as well as all your other bills.
Pay more than the minimum repayment rate
Another effective way you can improve your chances of approval for a bridging home loan is to have some equity built up in your current home loan. You can achieve this by repaying more than the minimum monthly payment. This is because the more equity you have accumulated, the less risky it looks to the lender to offer you bridging loan finance as it proves you have a track record of not only making your payments on time, but striving to reduce your debt more quickly.
Check your credit history and current credit score
There are several websites where you can gain access to your credit history and credit score. If you monitor this, you’ll always be able to stay on top of things and keep your credit score healthy.
When you check your history, you might discover a mistake that’s adversely affecting your credit score. Perhaps there’s an unpaid bill on your history ledger that you did actually pay. It’s wise to contact the institution and seek to rectify and have this corrected ASAP. Alternatively, maybe there is a bill that you did forget to pay. Once paid, it’ll be removed from your credit history and your score will improve in time.
Develop a savings pattern
Lenders want to see a pattern of responsibility when it comes to money, and this includes paying bills and debts on time, as well as striving to save. Therefore, a savings pattern, where you’re regularly putting money away, will help you get approved for all types of finance, including a bridging loan.
If you stay on top of your finances, pay everything on time, build up equity in your current home loan and can prove a pattern of savings, then you’ll boost your chances of being approved for a bridging home loan (as well as other forms of finance).