Smart tips to use bridging loans for apartment purchases

As a plasterer looking to upgrade your living situation, you've probably faced the classic dilemma: should you buy or sell first? This timing challenge affects many tradies in the local property market, particularly when you've found the perfect apartment but haven't sold your current home yet.

Bridging finance offers a practical solution to bridge the gap between these two transactions. Let's explore how bridging loans work specifically for apartment purchases and why they might be the right fit for your financial situation.

What exactly is bridging finance?

A bridging loan is a short-term loan designed to help you purchase a new property before selling your existing one. Think of it as a financial bridge that connects your current property to your new apartment. These loans typically run for 6 to 12 months, giving you time to sell your existing property.

The loan term usually extends to 12 months if your new property is being built, which is particularly relevant for off-the-plan apartment purchases that plasterers often consider.

How bridging loans work for apartment purchases

When applying for a bridging loan, lenders calculate two key figures:

• Peak Debt: This includes the outstanding balance on your current home loan plus the contract purchase price of the new home
• End Debt: This is what you'll owe after selling your existing property

For apartment purchases, lenders also consider factors like:

• Body corporate fees and strata levies
• Apartment-specific valuations
• Off-the-plan purchase contracts
• Settlement timing differences

Understanding the costs involved

Bridging loans come with specific costs that plasterers need to factor into their calculations:

Interest rates: Bridging loan rates are typically higher than standard home loans. You might encounter variable interest rates or fixed interest rate options, depending on the lender.

Interest capitalisation: Many lenders offer this option, meaning you don't make monthly repayments. Instead, interest gets added to your loan balance until you sell your existing property.

Lenders mortgage insurance (LMI): If your loan to value ratio (LVR) exceeds 80%, you'll likely need to pay LMI on the bridging loan amount.

Stamp duty: You'll need to pay stamp duty on your new apartment purchase upfront, which affects your cash flow during the bridging period.

The application process explained

Applying for a bridging loan involves a more complex assessment than standard home loans. Lenders need to evaluate:

1. Your borrowing capacity: This includes your ability to service both loans if needed
2. Bank statements: Recent financial records showing your income and expenses
3. Property valuations: For both your existing property and the new apartment
4. Sale evidence: Proof that your current property is actively being marketed

Many lenders now offer a streamlined application process for bridging finance, particularly for established tradies with solid income histories.

Calculating bridging loan repayments

Understanding your repayment obligations is crucial. During the bridging period, you might:

• Make interest-only payments on both loans
• Capitalise interest on the bridging portion
• Use an offset account to reduce interest charges
• Benefit from any interest rate discounts you've negotiated

For plasterers with variable income patterns, discussing repayment flexibility with your broker is essential.

Getting pre-approved for bridging finance

Loan pre-approval for bridging finance works differently than standard pre-approvals. The process involves:

• Assessment of both properties
• Confirmation of your exit strategy (selling timeline)
• Verification of your capacity to service peak debt
• Review of your overall financial position

Getting loan pre-approval can give you confidence when making offers on apartments, knowing your finance is already arranged.

When bridging loans make sense for plasterers

Bridging finance particularly suits plasterers when:

• You've found the perfect apartment in a competitive market
• Your current property needs minor renovations before sale
• You want to avoid temporary rental costs
• Settlement dates don't align between purchase and sale
• You're buying your next home in a different area for work opportunities

For plasterers considering expanding your property portfolio, bridging loans can also facilitate investment property purchases.

Access bridging loan options from banks and lenders across Australia

Different lenders offer varying bridging loan options, including:

• Major banks with comprehensive bridging products
• Specialist non-bank lenders with flexible criteria
• Credit unions offering competitive rates
• Private lenders for unique situations

As specialists in home loans for plasterers, we understand which lenders work well with tradies and can access bridging finance options across Australia.

Whether you're looking at a new apartment as your primary residence or as an investment property, bridging finance can provide the flexibility you need to secure the right property at the right time.

If you're considering a bridging loan for your apartment purchase, call one of our team or book an appointment at a time that works for you. We'll help you understand your options and find the right bridging finance solution for your situation.