Why Should You Consider Bridging Loans Between Sales?

What Is a Bridging Loan?

If you've found your dream home but haven't sold your current property yet, you're facing a common challenge. Do you miss out on the perfect place, or do you rush to sell your existing home? For Western Australia FIFO workers, there's another option: bridging finance.

A bridging loan is a short term loan that helps you buy before you sell. It's temporary finance that covers the gap - or bridging period - between purchasing your new property and selling your existing one. Think of it as a bridge loan buying solution that gives you breathing room to avoid selling first and make the move on your timeline.

This type of short term property finance typically runs for a bridging loan term of between 6 month bridging and 12 month bridging periods, giving you enough time to sell your current property without the pressure of a rushed sale.

How Does Bridging Finance Work?

The mechanics of bridging finance are straightforward. When you submit a bridging finance application, lenders assess both your current property and the new property you want to purchase. They'll look at:

• The combined value of both properties
• Your ability to service both loans during the bridging period
• Your exit strategy for repaying the bridge loan
• The loan to value ratio (LVR) across both properties

Most lenders will provide a bridging loan amount based on the equity in your current home plus your borrowing capacity. The bridging loan security typically includes both your existing property and the new property you're purchasing.

For FIFO workers, this can work particularly well. Your roster patterns mean you might need more time to prepare your home for sale, and bridging finance gives you that flexibility without missing opportunities in the property market.

The Process of Buying Before You Sell

When you choose to buy before sell, here's what typically happens:

1. You find your new property and make an offer
2. You apply for bridging finance to cover the purchase
3. The lender approves your bridging loan application based on both properties
4. You proceed to exchange contract on the new property
5. At bridging loan settlement, you purchase your new home
6. You list and sell your existing property
7. When you sell property exit occurs, you repay the bridging loan

This approach to selling after buying means you can move into your new home, settle in, and then prepare your old property for sale properly. There's no rush to sell under pressure, which often results in receiving better offers.

Understanding Bridging Finance Costs

Like any financial product, bridging loans come with costs you need to understand. The bridging loan interest rate is typically higher than standard home loan rates - usually between 0.5% to 2% above a standard variable interest rate.

Key bridging finance costs include:

• Higher interest rates compared to traditional mortgages
• Bridging loan fees for application and establishment
• Valuation fees for both properties
• Legal fees for settlement
• Ongoing interest during the temporary finance period

Many lenders offer interest capitalisation, meaning you don't need to make repayments during the bridging period. Instead, the interest gets added to the loan amount and is repaid when you complete bridging loan repayment through the sale of your original property.

For FIFO workers managing finances across roster cycles, capitalised interest can make cash flow management more straightforward during the transition period.

Bridging Loan Benefits for FIFO Workers

As a FIFO worker in WA, bridging loans offer several advantages:

• Timing flexibility: Your roster doesn't always align with settlement dates. Bridging finance removes the pressure of coordinating both sales perfectly
• Seamless property upgrade: Move when it suits you, not when the market demands
• Access loan options from banks and lenders across Australia: Specialist mortgage brokers can help you find suitable products
• Auction finance capability: Bid at auctions with confidence, knowing you have funding secured
• No rushed sales: Prepare your property properly and potentially achieve better sale prices

The ability to secure your buy dream home without the anxiety of simultaneous settlements is particularly valuable when you're working on-site and can't always be available for inspections or settlements.

Bridging Loan Risks to Consider

While bridging finance offers significant advantages, you should be aware of bridging loan risks:

• Higher costs: The bridging loan interest rate and bridging loan fees mean this urgent finance comes at a premium
• Time pressure: If your property doesn't sell within the bridging loan term, you may need to extend (with additional costs) or consider alternatives
• Market fluctuations: Property values can change during the bridging period
• Increased debt: You're temporarily servicing a higher loan amount

Your exit strategy is crucial. Lenders want to see a realistic plan for selling your existing property within the bridging period. This might include engaging a real estate agent before bridging loan approval or having your property market-ready.

Bridging Loan LVR and Approval Requirements

Lenders typically offer bridging finance up to 80% bridging loan LVR across both properties combined. This means if you have:

• Current property valued at $500,000 with $200,000 owing
• New property purchase price of $650,000
• Combined value: $1,150,000
• Maximum lending (80% LVR): $920,000
• Current debt plus new purchase: $850,000

In this scenario, you'd be within acceptable LVR limits. However, you'll also need to demonstrate you can service the temporary higher debt load during the bridging period.

For fast approval, having your finances organised and working with brokers who specialise in mortgages for FIFO workers makes a significant difference. They understand how to present FIFO income to lenders for quick bridging finance approval.

Bridging Loan Alternatives

If bridging finance doesn't suit your situation, consider these bridging loan alternative options:

• Equity release: Access equity from your current property to fund the deposit on your new home, then refinance after selling
• Quick sale with rent-back: Sell your current property quickly but negotiate to rent it back short-term
• Construction loans: If building, timing can sometimes be more flexible
• Family guarantor support: Using guarantor loans for FIFO workers can sometimes provide alternative solutions

You might also explore whether home loan refinancing for FIFO workers could unlock enough equity to avoid bridging finance altogether.

Is Bridging Finance Right for You?

Bridging loans work particularly well when:

• You've found your ideal property and don't want to miss out
• You have significant equity in your current home
• Your existing property is market-ready or close to it
• You can afford the temporary increased costs
• Your FIFO roster makes coordinating simultaneous settlements challenging

They're less suitable if you're stretching your finances, your property needs major work before selling, or you're uncertain about achieving a sale within the bridging loan term.

For WA FIFO workers juggling work rosters, family commitments, and property decisions, bridging finance can be the tool that makes your property upgrade achievable without the usual pressure. Whether you need a 6 month bridging loan or longer-term temporary finance, understanding your options puts you in control of your property journey.

Working with specialists who understand FIFO circumstances means you'll get tailored advice on whether bridging finance or another solution suits your specific situation. They can help you compare interest rate discounts, understand the true bridging finance costs, and structure a bridging loan application that positions you for approval.

Call one of our team or book an appointment at a time that works for you. We'll help you explore whether bridging finance is the right solution for your property purchase and guide you through the entire process.