Tips on getting a Bridging Loan to Build a Home
Building a new property is an exciting experience, but securing financing can be a challenging process.
Many people believe that getting a bridging loan is difficult, and that certainly can be true in some cases. However, with the correct approach and expertise, you can quickly get approved for a construction loan. It’s usually only a matter of proper planning and matching the right project to the right lender.
HOW BRIDGING LOANS WORK
A bridging loan for property building is a short-term loan used to pay for the cost of building a property. It is typically secured against a property.
It’s important for developers to learn the facts about bridging lending. Developers need to understand the process and be comfortable with it. Property developers can think of a bridging loan as a large line of credit that only lasts until the property is built.
If the loan is secured against the borrower’s residence it is classed as a regulated bridging loan. Regulated by the (FCA) Financial Conduct Authority and carries further protection for the consumer.
The borrower periodically draws from the loan during the construction process and only pays interest on the outstanding balance. When the building process is complete, the borrower must secure permanent financing to pay off the bridging loan.
- Short term 3 to 12 months
- interest rate of 0.40% to 1.5% per month
- Interest can be rolled to pay at the end of the loan
- Access to fast capital
- Borrow 70% Loan to Value (LTV)
DEVELOPING YOUR CONSTRUCTION BUDGET
Before starting a home construction project, it’s a good idea to establish a budget plan to help maintain costs.
Calculating your spending limits and developing a preliminary budget estimate will go a long way towards facilitating the entire process as you prepare your plans and specifications.
With information about your monthly income and debt obligations, a qualified lender can help you work backwards to determine out how much you can afford to borrow.
PREQUALIFYING FOR PERMANENT FINANCING
While a bridging loan isn’t necessarily more difficult to obtain than a traditional loan, it can be a more complicated process. From the lender’s perspective, a bridging loan is a short-term, high-risk investment.
The lender is lending money for something that will be constructed, with the assumption that it will have a certain value when it’s finished.
To help offset this risk, most bridging lenders have strict qualification criteria for bridging loans. That’s why pre-qualification is an important step in the process.
Getting pre-approved for permanent financing (traditional mortgage) is a great way to start the bridging loan process. A mortgage lender can help you determine the amount you qualify for, what your costs will be, and what payments you can expect.
As you go through the process, you’ll need to provide information about your income, cash, and assets. You’ll also need to report any debts or liabilities, including credit card payments, car loans, and student debt.
Most lenders also want to see your two most recent paystubs, bank statements, and tax returns.
SELECTING A BUILDER
Constructing a property could be one of the largest financial decisions you’ll ever make. With a lot at stake, you certainly don’t want to run into problems that could have been avoided by properly investigating the builder. That’s why selecting a builder is a critical consideration.
It’s important to hire an accomplished builder with the right expertise. At the beginning of the process, be sure to ask for references and verify their licensing and qualification claims.
You can also check with the Home Owners Alliance if any charges have been registered against the builder. Find out the builders experience and how long the builder has been constructing custom homes. It is useful to ask him for his profile of previous work.
Longevity is an important indicator of work quality and customer service. Find a thorough design checklist and use it when meeting with prospective builders.
Asking about locations, price ranges, and materials they specialize in will help you evaluate the builder’s expertise with regard to your needs.
Be sure to look for a builder who builds the specific type of home you want to build. Builders have different areas of competency, so it’s important to choose someone with the proper experience. Personal references can be one of the best ways to identify good builders. Ask satisfied homeowners in the area for recommendations.
Talk to recent customers of the contractor you are considering because getting feedback from actual customers is very important.
APPLYING FOR A BRIDGING LOAN
Choosing a bridgingt finance lender is a very important part of making your dream a reality.
It’s critical to choose a bridging lender that has experience in construction lending and an excellent reputation among it’s customers.
After applying for a bridging loan, waiting for a decision is usually very fast. Typically 2 to 4 weeks.
It is important to find an experienced broker who can access the whole market and get you ready for the application,
Property Finance Partners are an experienced company to help you with bridging loans and other types of property finance. You can access their website Property Finance Partners.