Bridging loans are short-term funding solutions providing quick funding and are usually used to fill the financial gap when you want to purchase a property before selling an existing one. However, you can use it for any legal purpose. Due to several benefits and flexibility, bridging finance has become popular across the UK. You can find a number of specialist bridging lenders and many p2p lending platforms offering these types of loans. Bridging lenders are less rigid in terms of eligibility criteria, but there are some requirements that you have to meet in order to take out a loan.
In this article, we are going to explain how you can apply and get approved for a bridging loan.
What Is The Criteria For Bridging Loan?
When you explore the market, you will see that offer and eligibility criteria vary from lender to lender. However, the following are some general requirements that can satisfy most lenders. If you want to get approval for bridging finance, you must meet these criteria.
Loan Security
Bridging loans are secured loans, meaning you have to put down any of your valuable assets, usually a property, as a security against the loan. The security usually depends on the loan amount you want to take out. If you need to secure a large amount of money, you may have to use more than one property as a security. In addition, you need to remember that if you cannot repay the loan amount, the lender has a right to repossess your property and sell it to get the money back. To ensure you don’t overextend yourself, it’s advisable to calculate the maximum loan amount you can qualify for using a secured loan calculator. This takes into account the value of your collateral and other factors making the process easier. Taking this route can allow you to understand the amount you can borrow while mitigating the risk of defaulting and losing your secured assets.
Loan Size
The loan size also differs from lender to lender. Most lenders offer a minimum loan size of £10,000, while others may ask for more. There is no upper limit when you are securing a bridging loan. But you can not take out an amount more than the value of your security property.
Exit Strategy
An exit strategy is the most important thing that lenders look for when assessing your loan application. The plan shows how and when you will repay the loan amount. A strong exit strategy can play an important role in getting quick approval and the best affordable rates.
You can use any of the following exit strategies:
Sale Of A property: you can sell a property and use this amount to repay your bridging loan amount.
Refinancing: you can switch to a traditional mortgage or a specialist property loan and use some of the cash to pay off the bridging loan.
Property Flipping: It is when you buy a property to renovate it and sell it at a better price.
Development: you can purchase a large piece of land and develop it into small units to rent out. Then this rent amount is used to repay the bridging loan.
Other than that, you can use future funds to pay off bridging finance.
Credit History
Although bridging lenders do not consider credit history as a main factor in approving or rejecting the loan, a good credit history always helps you to get more suitable interest rates and quick approval. Most bridging loans only consider the security you offer and your exit strategy.
Age Of The Borrower
Typically you must be 18 years or over to take out a bridging loan. However, the maximum age limit varies from lender to lender. Some lenders have maximum age requirements, while others do not have any limit on the maximum age of the borrower.
How To Apply For a Bridging Loan?
The application process for bridging loans is simple and easy. You have to choose a bridging lender or p2p lending platform offering bridging finance. Once you choose a lender, make an online application and provide all the necessary information.
The lender assesses your application and offers a quote. If you agree to the lender’s offer, you have to provide the required documents. After verification of these documents, the lender will transfer the loan amount to your bank account as soon as possible.
How To Improve Chances Of Your Approval?
Here are some steps you can follow to increase your chances of bridging loan approval:
Build a Strong Credit Score
A strong credit score will show that you are responsible and have the ability to manage loans and make timely payments. You can improve your credit score by paying all your bills on time and reducing your debt-income ratio.
Create A Viable Exit Strategy
Bridging lenders always want to see your plan on how you will manage the bridging loan’s repayment. Your exit strategy will include a detailed budget and a clear timeline to complete the sale of the property.
Make a Large Down Payment
A larger down payment can help you secure a bridge loan as it reduces the risk to the lender. If you have a large down payment, you will be able to negotiate better terms with the lender.
Have a solid Income history
Lenders also want to see that you have a stable job and income. A long and stable job history can help show your ability to make timely loan payments.
Work with Specialized Bridging Lenders
Some lenders specialize in bridge loans and may be more familiar with the specific requirements associated with these types of loans. Working with an experienced lender can increase your chances of getting approved.
Be upfront about potential issues.
If you have any potential roadblocks to getting approved for a loan, such as a recent bankruptcy or low income, it is important to be upfront about these issues with the lender. They may be able to work with you to find a solution or offer alternative financing options.
Conclusion
Bridging finance is a beneficial option for borrowers providing quick access to cash. However, you meet the eligibility criteria to get quick approval and better rates. Follow the steps mentioned in the article. You can increase your chances of getting approved for a bridge loan and successfully purchasing a new home before selling your current property.
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