Bridging finance - pros and cons

[Frezzinghot]

We have seen a house we like in the same neighbourhood. We want to make an offer, issue is we still have our house to sell. Ideally we usually like to sell before finding a new house but in this instance we have found what we like. Question is could we use bridging finance to purchase the new house while we wait for our house to sell. We have about 50% equity in our PPOR. What are the pitfalls of doing this?

also as we have rental property will the banks we those loans look to grab money on selling our PPOR?

FH

[Rosco]

Talk to your bank and ask them!
- how would it work?
- will they do it?

What is your plan if your personal house won't sell? This is the biggest risk. If you can't sell quickly, then you are probably forced to keep dropping the price until it sells. So a risk could be that your sell your personal house for less than you would really want.

Ross

[Frezzinghot]

Talk to your bank and ask them!
- how would it work?
- will they do it?

What is your plan if your personal house won't sell? This is the biggest risk. If you can't sell quickly, then you are probably forced to keep dropping the price until it sells. So a risk could be that your sell your personal house for less than you would really want.

Ross

Thanks Ross, the other scenario I see is that we use the bridge finance, get the new house under contract, ask for a longer settlement say 2 months, actively try and sell the our 1st house before or on settlement of the new house, sort of like a double settlement where we are not having to pay for 2 mortgages. Win/win.

[DaveW]

If you are the only offer then put in a clause conditional on selling your house. Include a provision if the seller has someone else come with an unconditional offer then to give you 14 days to go unconditional first option. That buys you time to sell your house and means the seller doesn't lose your offer, win/win.

If there are multiple offers then make your offer lower to factor any bridging costs you might need, or include the same condition above and make your offer more attractive with a higher offer.

Get a valuation for your house and show the seller you are serious to sell as you already have it on the market.

[Frezzinghot]

If you are the only offer then put in a clause conditional on selling your house. Include a provision if the seller has someone else come with an unconditional offer then to give you 14 days to go unconditional first option. That buys you time to sell your house and means the seller doesn't lose your offer, win/win.

If there are multiple offers then make your offer lower to factor any bridging costs you might need, or include the same condition above and make your offer more attractive with a higher offer.

Get a valuation for your house and show the seller you are serious to sell as you already have it on the market.

Thanks, that makes perfect sense.

[Beano]

Talk to your bank and ask them!
- how would it work?
- will they do it?

What is your plan if your personal house won't sell? This is the biggest risk. If you can't sell quickly, then you are probably forced to keep dropping the price until it sells. So a risk could be that your sell your personal house for less than you would really want.

Ross

Generally what do the banks look at when they supply bridging finance (for investment property rather than personal residence) and do they charge a higher interest ? (I referring to exceeding the LVR for brief (hopefully) rather than double interest as there would be income on both properties.
(I have not done this in the past )

[Frezzinghot]

Bridging finance was going to be charged out at a rate of 6% IO for up to a year, was going to cost us 9k a month on IO. Too much of a risk so we are just going to put in a contract subject to sellling our PPOR 1st, ideally we want to do a double settlement so trying to line up a buyer now so that we can settle on the same day.

[DaveW]

Bridging finance was going to be charged out at a rate of 6% IO for up to a year, was going to cost us 9k a month on IO. Too much of a risk so we are just going to put in a contract subject to sellling our PPOR 1st, ideally we want to do a double settlement so trying to line up a buyer now so that we can settle on the same day.

Good call. You always have the option to pursue the bridging finance if you feel you're close to selling your property.
You also have the option to renegotiate the price before going unconditional on the house you're buying.

[Frezzinghot]

Good call. You always have the option to pursue the bridging finance if you feel you're close to selling your property.
You also have the option to renegotiate the price before going unconditional on the house you're buying.

yes that’s true, signing a contract tonight, conditions are finance, subject to selling PPOR and lim. Can’t think of anything else. What about settlement, should we make this longer to enable time to sell our PPOR?

[DaveW]

yes that’s true, signing a contract tonight, conditions are finance, subject to selling PPOR and lim. Can’t think of anything else. What about settlement, should we make this longer to enable time to sell our PPOR?

You could add a condition subject to a building inspection if you haven't had a builder through already.

It's more beneficial for you to make it a longer settlement because the seller may not agree to an extension later on in case you need it.

Are you using the same agent in both transactions ?

[Frezzinghot]

You could add a condition subject to a building inspection if you haven't had a builder through already.

It's more beneficial for you to make it a longer settlement because the seller may not agree to an extension later on in case you need it.

Are you using the same agent in both transactions ?

yes the obvious one was a building inspection which we added. Can be a costly mistake otherwise. Offer was lower than they were expecting I think but having talked to a few agents the market is flat in Auckland.

[Frezzinghot]

Are you using the same agent in both transactions ?

Yes I think we will use her to sell as well because that will give her some fat in the game, both homes are over a mil so would be a substantial commission for her she can pull it off, if she has control of both we think she will work harder for us than other buyers as she stands to gain more from having sole agency over both properties. Effectively if she sells ours she also sells the other.

[Frezzinghot]

Vendor has not countered and wants us to sell our home first, I said no deal as we make a commitment to sell and the vendor just waits for another cleaner offer.