If you want to sell your current home and have plans to move to a new property, be prepared to be patient.
In Singapore, the property transaction process takes time. This may stress you out as you wait to complete your property sale. Fortunately, you can consider taking a bridging loan to ease your finances under such circumstances.
So how long does it take to get a bridging loan? This depends on various factors, such as the bank or the money lender you choose.
What Is A Bridging Loan?
A bridging loan is a short-term loan (about six months) you can use to bridge the gap between selling your old property and buying a new one. If you are wondering how long does it take to get a bridging loan, we’ll tell you how it works.
Generally, bridging loans are complex. Your loan may take hours or a couple of days for the approval process to be complete. Lenders, especially banks, may take time, but with licensed money lenders, you only need a few requirements for your loan to be approved.
Most licensed money lenders consider applications on a case-by-case basis and tend to be more lenient than banks.
How Does A Bridging Loan Work?
As the name suggests, a bridging loan refers to funds that bridge the gap between waiting for the proceeds from the sale of your old property and your new property downpayment.
In other words, you will benefit from a bridging loan if you don’t have enough cash and/or CPF savings for your downpayment, and yet you have not received your sales proceeds from your old property.
Are Bridging Loans A Good Idea?
Yes, bridging loans help property buyers to get short-term loans faster to address a shortfall in funds.
They come in handy and assist you in having a more sustainable plan as you finance your new purchase downpayment while concluding the sale of your old property.
Types Of Bridging Loans
There are two types of bridging loans in Singapore, which mainly apply to banks:
Capitalised Interest Bridging Loans
This loan will have your repayment plan activated once you sell your old property. It covers the full amount of the purchase of your new home.
With this, you will not have to pay for two loans simultaneously – which is a better way to reduce your financial obligations during the financial transaction process.
Simultaneous Repayment Bridging Loans
For this loan, you have to repay the home loan and the bridging loan simultaneously. This could be quite stressful and strain you financially.
You will have 12 months to complete your property sale and commence loan repayment. It’s a good option if you want to pay less interest.
Though this may not apply to licensed money lenders, you can consider the above when applying for your bridging loan.
But before you apply for a bridging loan, it would help to know the advantages and disadvantages of a bridging loan.
Pros And Cons Of A Bridging Loan
Pros
- Bridging loans are much faster and easier to obtain. In times of emergency, waiting for weeks to get your funds can be challenging. They come in handy when you need immediate funding, such as to pay for a new property’s downpayment.
- The approval is done within a week, which will help you tide over the funds you need for your new property purchase until you receive the funds you anticipate from the property you are selling.
- The repayment terms are flexible and shorter than regular loans. You will not have the repayment plan stretched over a year, which may be daunting. Once you pay off the loan, you can focus on other things.
- The repayment schedule can be weekly, bi-weekly, or per month, which you can agree on with your lender depending on your financial situation.
Cons
- If you don’t have an exit strategy lined up, this is one of the most expensive loans to get. So make sure you draw up a plan on how to pay back a bridging loan. Discuss this with your lender to understand better.
- Bridging loans have high interest rates. Due to their short-term nature, you’re likely to pay a high bridging loan interest rate. But if you work with licensed money lenders, the interest rate will not exceed 4% per month.
- They are riskier. Perhaps the most serious risk would be the failure to repay your loan. Lenders require collateral, which could be your current home. If you default, your property will be at a high risk of repossession. Most lenders have many legal options to protect them from defaulters.
- They have a shorter repayment period. This will mean you have to pay your loan faster, which could put you under financial strain. If you’re unable to meet your repayment schedule, this could affect your credit score.
What To Consider Before Getting A Bridging Loan
A bridging loan will give you a chance to grab a good opportunity if you experience a delay in selling your old property. However, there are a few points you have to consider before applying for the loan:
Your Property Will Be Used As Collateral
Make sure you can pay your bridging loan within the agreed time. In case of defaults, your property will be sold.
Here, you need to consider the risk involved. The worst scenario will be if your old property sale backfires. This is when your exit strategy comes in handy. It would be better to agree with your lender on what exit strategy is best for you.
You Will Have To Make Monthly Repayments
The short-term nature of bridging loans calls for monthly repayments. Make sure that you have enough money to tide you through every month.
The Maximum Amount To Borrow
In Singapore, your bridging loan is meant to cover any remaining amount you require beyond your loan-to-value (LTV) ratio. You can only borrow up to 25% of your new property purchase price. But this is if you make enough from your old property sales proceeds.
Lenders may approve your application if your sale proceeds from your old property can cover the loan amount. You can also use a bridging loan to lower your LTV, as we will see later.
A licensed money lender will offer a maximum amount depending on your income. You can borrow up to six times your monthly income.
Interest Rates
Typically, bridging loans have higher interest rates ranging from 5-6% per annum, depending on the bank or financial institution. Licensed money lenders’ interest rates cannot exceed 4% per month.
Loan Tenure
If you took a bridging loan from a bank, you must settle it within six months. Licensed money lenders may be able to wait until the sale of your old property is complete.
Note that there are no early repayment charges. For instance, if you receive the sales proceeds for your old property and have your CPF savings refunded, you can use the funds to repay your bridging loan. But any interest has to be paid in cash.
How To Lower Your LTV Ratio Using A Bridging Loan
Besides your income, how much you can borrow depends on your LTV ratio. Lenders use the ratio to know the risk of issuing a loan.
Banks offer a maximum LTV of 75% of the property value or purchase price. For the remaining 25%, 5% must be paid in cash, while the other 20% must be paid using cash and/or your CPF Ordinary Account (OA) savings.
The lower the LTV ratio, the better. Your lender is likely to offer you a loan with a reasonable interest rate.
A bridging loan can lower your LTV by providing the funds required for your new property downpayment. Borrowing less makes it more affordable to have your dream home.
It also lowers your LTV. This helps as lenders see you as a less risky borrower and will likely result in a fast bridging loan approval.
If you have a low credit score, you can use your bridging loan to lower your LTV ratio. If your LTV ratio is high, you can lower it by purchasing a less expensive home or making a huge downpayment.
How To Apply
Banks and licensed money lenders have various criteria during the application process. For the latter, the requirements are more straightforward and less cumbersome. You can opt to have a licensed money lender offer you the bridging loan.
Here is how to apply for the loan:
- Make an online application by completing and submitting the enquiry form.
- Your lender will run a credit check to confirm your creditworthiness.
- The lender accepts or declines your loan application.
- Upon application approval, visit the lender’s office for a face-to-face verification with the required documents.
- Sign the loan agreement.
- Have your loan processed and receive the funds.
Note that you will be required to have the following:
- NRIC
- Proof of employment
- Proof of residency
- CPF withdrawal statements
- Recent payslips
- Singpass to access websites such as CPF, IRAS, etc
- A copy of the Option To Purchase (OTP)
How To Make A Successful Bridging Loan Application
Unsurprisingly, most Singaporeans use bridging loans to purchase their dream homes.
Due to issues such as market conditions, some may wonder how long does it take to get a bridging loan. The answer to this question depends on many factors. But with good financial advice from a trustworthy licensed money lender, you’re sure to get it right.
If you need a bridging loan, contact licensed money lender CreditMaster today or apply for a loan. We will walk you through the process to help you get the best loan for your needs.
