How Long Does It Take To Get A Bridging Loan?

Written by Shannon Wong on May 3, 2024

Key Takeaways

The time to obtain a bridging loan in Singapore varies by lender. Traditional banks may take 3 days to 3 weeks due to complex processes, while licensed money lenders can approve loans within 24 hours. Quick approval, repayment flexibility, and access to funds make bridging loans useful for managing property purchases. Proper documentation and understanding loan details are crucial for expedited processing.

Bridging loans are a crucial financial tool for individuals aiming to manage the gap in financing when transitioning between properties. Particularly in Singapore’s fast-paced real estate market, understanding how to efficiently secure a bridging loan in Singapore can make a significant difference. This article will guide you through the process, from application to approval, and highlight the key considerations to ensure you are well-prepared.

Understanding Bridging Loan In Singapore

What is a Bridging Loan?

A bridging loan is a short-term financing option designed specifically to help bridge the gap for borrowers transitioning between selling one property and purchasing another. Basically, it enables you to purchase a new property before selling your existing one.

It’s particularly useful in the fast-paced real estate market of Singapore, where timely financial flexibility can be crucial.

Types of Bridging Loans

There are two main types of bridging loans available in Singapore:

Capitalised Interest Bridging Loan

This loan type is ideal for those who do not wish to make any repayments until their current property is sold. The interest accumulates and is paid off along with the principal amount after the sale.

Simultaneous Repayment Bridging Loan

This option requires borrowers to begin making repayments on the bridging loan immediately. This means you might have to repay two loans together if you have taken a home loan to make a partial payment for your next property.

It’s suitable for individuals who can handle the financial commitment of simultaneous loans.

Key Features and Considerations

  • Duration: Typically, bridging loans are short-term, often ranging from a few weeks to a few months.
  • Interest Rates: The interest rates on bridging loans can vary and are generally higher (4% – 6%) than those on conventional home loans due to the short-term nature and increased risk.
  • Loan Amount: Usually, the amount can go up to a percentage of the purchase price of the new property or the sale price of the existing property.

How Does A Bridging Loan Work?

The bridging loan is paid back with interest once your financial goal is achieved, allowing the borrower to then secure more permanent funding options like a mortgage. The loan is secured by using an asset, such as property, as collateral, which means the lender can seize this asset if the loan isn’t repaid.

These loans are generally meant to be paid off within six months to a year, and they are favoured for their quick approval times, flexible repayment conditions, and the immediate availability of funds.

Rates for bridging loans can vary depending on the loan amount and the expected repayment period. Bridging loans are particularly useful for covering immediate costs while waiting for more stable financial arrangements, facilitating smooth transitions between significant financial stages.

Application Process

Securing a bridging loan in Singapore involves a clear process that applicants must follow to ensure a smooth transaction. Here’s a detailed walkthrough of the application steps:

  1. Consultation and Loan Type Selection: Initially, the borrower consults with the lender to determine the most suitable type of bridging loan based on their financial situation and needs related to the property transaction.
  2. Submission of Necessary Documents: The borrower submits the required documents, which is a critical step as it influences the approval process.
  3. Loan Assessment: The lender assesses the loan application, focusing on the borrower’s credit history, loan amount, property value, and other risk factors. This stage determines the feasibility and terms of the loan.
  4. Approval and Loan Disbursement: If the application is successful, the loan gets approved, and the funds are disbursed. The timing of the disbursement is crucial and is usually aligned with the property purchase timeline.

But how long does it take to get a bridging loan? Let’s find out.

How Long Does It Take To Get A Bridging Loan?

The duration required to obtain a bridging loan can differ significantly based on the lender.

Traditional banks typically involve more complex processes and extensive paperwork, which means acquiring a bridging loan could take anywhere from three days to three weeks.

Conversely, if you opt for a loan from a licensed money lender, the process can be much faster, potentially taking as little as 24 hours for loan approval.

Therefore, if you need funds quickly, particularly for purchasing a new property, seeking a bridging loan from a money lender is the more efficient option.

Factors Influencing the Timeline

The time it takes to secure a bridging loan can be influenced by a variety of factors. Understanding these can help you manage expectations and plan effectively.

  1. Borrower’s Financial Profile: The clearer and stronger your financial history, the faster the approval process tends to be. A good credit score and solid proof of income can expedite the loan processing.
  2. Complexity of the Transaction: More complex property deals or those involving multiple parties can lead to longer processing times. Straightforward transactions, on the other hand, are typically quicker to process.
  3. Accuracy and Completeness of Documentation: Submitting complete and accurate documentation in the initial application can significantly reduce delays. Missing or incorrect information can lead to additional reviews and extended processing times.
  4. Lender’s Workload and Efficiency: The speed with which a lender processes applications can vary based on their current workload and operational efficiency. Times of high demand might slow down the process.

Common Delays and How to Avoid Them

  • Incomplete Applications: Ensure all sections of your application are filled out correctly, and all required documents are included.
  • Pending Documentation: Prepare all documents, such as proof of income, existing property sales contracts, and the OTP for the new property in advance.
  • Legal and Compliance Checks: Delays can occur during legal reviews if discrepancies or unusual circumstances are found. Having a lawyer review your documentation beforehand can help streamline this process.

Strategies to Improve Efficiency

  • Engage with Experienced Professionals: Working with knowledgeable brokers or financial advisors who understand the intricacies of bridging loans can help navigate the process smoothly.
  • Follow Up Proactively: Regular follow-ups with the lender can keep your application at the forefront and help address any issues promptly.

Understanding these factors and preparing your application accordingly can help reduce the time it takes to secure a bridging loan, ensuring you have the funds when you need them.

Looking to effortlessly manage your real estate transactions in Singapore? At 1AP Capital, we provide efficient and reliable loan services, including bridging loans tailored to your specific needs. Whether you are purchasing a new home or selling your current one, our financial support is designed just for you. Start your loan application today by visiting 1AP Capital’s application page and make a significant move towards securing your financial future.

Documentation Needed

Proper documentation is crucial in the application process for a bridging loan. Here’s what you typically need:

If the existing property to be sold is a HDB

  1. Option to purchase (OTP) for existing property
  2. Latest CPF withdrawal statement for existing property
  3. Account statement from existing bank/HDB showing latest loan balance
  4. 1st appointment letter from HDB
  5. In-principle approval letter from HDB
  6. Letter of authorization to HDB
  7. Letter of undertaking by law firm acting in the sale
  8. Caveat lodged on existing property

 

If the existing property to be sold is a private property

  1. Duly exercised option to purchase for existing property
  2. Latest CPF withdrawal statement for existing property
  3. Account statement from existing bank/HDB showing latest loan balance
  4. Exercise letter from the buyer’s lawyer
  5. Letter of undertaking by law firm acting in the sale
  6. Caveat lodged on existing property

The exact documents needed for a bridging loan can differ between lenders, but there are several common items that are typically required. It’s important to contact your lender beforehand to understand exactly what you need to provide.

Moreover, you will be required to bring these documents in person for face-to-face verification.

Having all the necessary documentation prepared in advance can make the loan application process smoother and improve your likelihood of getting approved for a bridging loan. By being well-prepared and aware of the requirements, you can expedite the approval process.

How To Lower Your LTV Ratio Using A Bridging Loan?

A bridging loan can be a strategic tool for reducing your Loan-to-Value (LTV) ratio, which is crucial when applying for a home loan. Here’s why the LTV ratio matters:

Banks and money lenders assess the LTV ratio to determine the risk involved in approving your home loan. A higher LTV ratio indicates a smaller down payment, which increases the risk for lenders because if you default, they stand to lose more. Consequently, lenders generally prefer a lower LTV ratio, often 80% or below, though some might accept up to 90% with strong financial backing from the borrower.

How does a bridging loan help in this scenario? By taking out a larger bridging loan, you can boost your initial down payment, thereby reducing the principal of your home loan. This decrease in principal lowers the LTV ratio, making the loan less risky for lenders.

Another approach could be purchasing a less costly property, which would allow you to increase your down payment significantly using your funds.

However, it’s important to thoroughly evaluate all aspects before deciding to proceed with a bridging loan to ensure it aligns with your financial goals.

Pros and Cons of a Bridging Loan

Obtaining a bridging loan comes with its own set of benefits and drawbacks. Here are some of the positives:

  • They can lower your Loan-to-Value (LTV) ratio, potentially reducing your interest rates.
  • They offer quick access to funds.
  • They can act as an effective temporary financial solution.

However, bridging loans also have several disadvantages:

  • They are usually more costly compared to other loan types.
  • They often require a quicker repayment.
  • There is a risk associated with using your property as collateral; you might lose it if you fail to repay the loan.

It’s important to carefully consider both the advantages and disadvantages of a bridging loan to determine if it aligns with your financial needs and goals.

The Strategic Use of Bridging Loans in Singapore

Bridging loans are an invaluable resource in Singapore’s dynamic real estate market, offering timely financial solutions for buyers navigating the gap between selling and buying properties. This guide has detailed the steps to understanding, applying for, and managing a bridging loan effectively, to ensure you are well-equipped for your property transactions.

If you’re considering a bridging loan to facilitate your next property purchase, 1AP Capital is here to help. We offer tailored loan solutions that fit your individual needs.

Take the first step towards securing your new property today and apply for a bridging loan with 1AP Capital.

 

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