If you’re in the market to purchase a new property, you’re probably wondering how long does it take to get a bridging loan.
Unfortunately, there’s no one-size-fits-all answer, as the time it takes to get a bridging loan will vary depending on your specific situation. However, by understanding the basics of how bridging loans work, you’ll be able to better estimate how long it will take to secure one.
Let’s take a closer look at what goes into getting a bridging loan and how long the process usually takes.
How Does A Bridging Loan Work?
A bridging loan is a short-term loan that helps “bridge the gap” between purchasing a new property and selling your old property. Essentially, it allows you to buy a new property before your old property has sold.
This loan has a very short repayment period, usually six months. Because of its large amount and short tenure, it comes at higher interest rates than traditional loans.
Generally, banks and money lenders charge 4-6% interest per annum on bridging loans.
Although a bridging loan is typically used as a tool to buy and move into your new home sooner, some also tend to take advantage of its short life by using it as an investment opportunity.
Types Of Bridging Loans
You’ll come across two types of bridging loans in Singapore if you’re borrowing from banks.
Capitalised Interest Bridging Loan
If you take a capitalised interest bridging loan, the bank will pay the entire price of your new home. Your repayments will start once you are able to sell your home.
This is probably the most sought-after bridging loan because it saves you from servicing two loans at a time. However, it is only offered to individuals with high credit scores.
Simultaneous Repayment Bridging Loan
With a simultaneous repayment bridging loan, you’ll have to pay off the home loan for your new home at the same time as the bridging loan.
This type of bridging loan is more common because it is open to people with different credit scores. It’s also a lot easier to qualify for.
Important: The Temporary Bridging Loan Programme (TBLP) is not a type of bridging loan. It is, in fact, a government scheme for business loans with a different structure.
How Long Does It Take To Get A Bridging Loan?
The answer to this question varies depending on who you are taking a loan from.
Banks usually have somewhat complicated procedures and require extensive paperwork. The entire process could take anywhere from three days to three weeks.
The process will be much quicker if you’re taking a bridging loan from a licensed money lender. It could take as little as 24 hours to get approval for your loan.
So going through a money lender is your best bet if you need money urgently to buy a new property.
That said, let’s look at how you can get a bridging loan from a licensed money lender in Singapore.
How To Apply
Here is a step-by-step process of how you can apply for a bridging loan from a money lender:
Find A Licensed Money Lender
The first step is to find a licensed money lender that offers bridging loans. You can either ask around for recommendations or look for one online.
Be sure to do your research before deciding on a money lender. Make sure it is licensed and has a good reputation.
Fulfil The Requirements
While banks would need an excellent credit score, licensed money lenders will ask for the following:
- Proof that you’re 21 years old (or 18, in some cases)
- Singapore citizenship, permanent residency, or legal foreign resident status in Singapore
- An Option to Purchase (OTP) document indicating you have the exclusive right to purchase the said property
- Proof of income
Gather The Required Documents
Once you’ve ensured your eligibility, the next step is to prepare everything required. This includes your NRIC, payslips, bank statements, Singpass, and a copy of OTP.
Submit The Documents And Wait For Approval
After you’ve gathered all the required documents, the next step is to submit them to the money lender. It will then assess your application and get back to you with an approval or rejection.
This could take one to two days at most.
Sign The Loan Agreement And Get The Money
If your application is approved, the next step is to sign the loan agreement. Once that is done, you will get the money you need within 24 hours.
Now, let’s see how you can use a bridging loan to lower your LTV ratio.
How To Lower Your LTV Ratio Using A Bridging Loan
A bridging loan can help bring down your loan-to-value (LTV) ratio. But first, let’s understand why the LTV ratio is important.
Money lenders and banks use the LTV ratio, or how much they should lend for your property, to decide if your home loan should be approved or not.
The higher your LTV ratio, the riskier it is for lenders, and the less likely it is for your loan to get approved. How?
A high LTV ratio shows you have less money to make the downpayment, which is why you need to borrow more.
If you default in this situation, your home loan lender could potentially bear a considerable loss. This is why banks and money lenders prefer a low LTV ratio when giving out home loans.
Most lenders are comfortable with an LTV ratio of 80% or below. However, a money lender might agree to lend you a loan with 90% LTV if it is backed by a solid credit history and stable income.
So how does a bridging loan help lower LTV?
It’s simple – you take out a larger bridging loan and increase your downpayment. This will ultimately lower your home loan amount and make it less risky for your lender.
Alternatively, you could also choose to get a less expensive home so you can make a bigger downpayment with your own money.
But make sure you’ve considered everything before you move forward with your bridging loan.
What To Consider Before Getting A Bridging Loan
Bridging loans can be useful if you’re looking to buy a new property quickly. But there are certain things you need to consider before you take the plunge.
The interest rate: Bridging loans come with a higher interest rate (5-6%) as compared to a home loan. So, you need to make sure you can afford the monthly repayments.
However, licensed money lenders can’t and don’t charge more than 4%, making them more favourable than banks.
The tenure: Bridging loans have a shorter term than home loans. The tenure is usually six months, and you must repay the loan within the given time frame.
So as soon as you get the sale proceeds from your old property, pay off the loan immediately to avoid penalties or late fees.
Loan amount: Since a bridging loan is meant to cover your new home’s downpayment, it can get you 20-25% of the property value.
However, just because you’re allowed to borrow more doesn’t mean you should. If you have some savings you can use for the downpayment, borrow only as much as you require.
Prepare for the worst: Even if you have a stable income, anything could happen in life. So before you take out a bridging loan, ensure you have some buffer amount saved.
The buffer amount or emergency fund could come in handy if you’re unable to make the monthly repayments on time for some reason.
Now that we’ve seen what to consider before taking out a bridging loan, let’s look at some pros and cons of the loan.
Pros And Cons Of A Bridging Loan
- A bridging loan can help you buy a property quickly, as the approval process is faster as compared to a home loan.
- It can help lower your LTV ratio, making it easier to get a home loan.
- Bridging loans are usually flexible; some lenders allow you to repay the principal amount first and the interest amount later.
- You can use your CPF savings to pay for a bridging loan (provided you do a refund after selling your property).
- Bridging loans can be beneficial when buying profitable property at auctions.
- Bridging loans come with a high interest rate.
- The tenure is shorter than home loans, so you must be sure you can repay the loan within six months.
- There is a risk of defaulting on the loan if you cannot sell your old property on time.
These are some things you need to consider before taking out a bridging loan. Make sure you carefully weigh the pros and cons to decide if a bridging loan is right for you.
Do you need a loan for your next home’s downpayment? We can help.