Can You Use a Bridging Loan for Renovations?

A bridging loan is typically used by those selling an existing property while buying a new one at the same time. But did you know that you can also use bridging loans for renovations and to cover construction costs? Read on to learn more about what you can do with bridging finance for property renovations. 

How to use bridging loans for renovations 

Bridging loans are great because they can cover the cost of your existing loan while providing you with funds for your renovation, so you can take full advantage of real estate opportunities as they arise without worrying about a lack of funds.  

Here are two ways you can make the most out of a bridging loan: 

Renovating your existing property for sale 

You could use a portion of the funds from the bridging loan to renovate your existing property and turn it into an investment. Flipping your current home by making renovations and adding key features or amenities could attract more buyers and notably increase its value. 

When it comes to property sales, timing is everything, especially if you’re selling in a competitive market. Making a few minor upgrades could make a significant impact, and depending on what changes you make, it could also shorten the days spent on the market and improve profits by a good margin. 

Take note, the more you get out of your property sale, the more your peak debt decreases. Your peak debt amount combines your existing mortgage and the bridging loan. So, if your current property sells for more than expected, you could lessen your peak debt considerably. This may save you more on your loan in the long run. 

Renovating your new property 

Another way you could use your bridging loan is by renovating the property you plan to purchase. For example, you’ve found a property within your price range and in your dream suburb. However, the house itself doesn’t quite meet your standards. Instead of going on another exhausting round of house hunting, you can start renovating the property using the funds from your bridging loan. 

Once you’ve purchased the new home, you can start renovations sooner. You’ll already have the funds you need, saving you time and effort. You don’t have to take out yet another loan to cover construction costs. 

Another great thing about this method is that you don’t have to live in the new property while it’s being renovated. You don’t have to worry about where to stay or spend extra money looking for a temporary apartment until the renovations are through. And when the renovations are complete, you can start selling your previous property, given that it’s all within the bridging loan term timeline. 

Benefits of using bridging loans for renovations 

Bridging loans offer borrowers various benefits, which include the following: 

• Flexible financing option – With a bridging loan, you can use the funds for both property purchase and renovation. You can customise the loan in a way that suits your discerning needs. 
• Receive access to funds quickly – Bridging loans usually have a quick turnaround time when it comes to releasing funds. You can start your renovations immediately so you can expedite your moving date.  
• Opportunity to increase property value – Renovating your property before a sale gives you the chance to garner a better deal. You can renovate the home by expanding it, adding amenities, or upgrading certain features to net a higher profit. 
• Create a better living space – You can renovate your new home exactly how you want it, even before you move in, with the help of a bridging loan. Often, when moving houses, there are still some improvements you need to make, but with bridging finance, you can make them as soon as possible. 
• Easily manage finances – One of the most difficult parts of buying and selling a property is managing the finances. Bridging loans save you the hassle of juggling multiple debts all at once. This type of loan consolidates your debt and makes it much easier to keep up with. 

Factors to consider before applying for a bridging loan 

The main factors you need to consider before applying for a bridging loan are your financial situation and the timeline. 

Bridging loans, though convenient, do have a lot of fees associated with them. It’s best to look at your finances carefully to see if this is the right financial option for you. If unsure, speak with a financial advisor.

You should also look at the payment scheme. See whether you’ll make interest-only payments during the bridging term or if they can be accrued and added to the peak debt. 

You must also consider the timeline of sale, purchase, and renovation of the properties involved. Bridging finance is a short-term loan, which means you only have six to 12 months to sell or renovate the properties. You need to make sure that the timeline of your renovation is aligned with the loan term. 

It’s important to note that using bridging loans for renovations also comes with limitations. Your loan-to-value ratio must be enough to allow additional cash out. Bridging loan rules still apply, meaning it must be used for the purchase of a new property before the sale of an old one. You’re not allowed to use bridging loan finance for the sole purpose of renovating a property.

Need a good bridging loan? 

Get in touch with our friendly lending specialists today. Call 13 10 90 and we’ll help you find a loan that fits your financial situation perfectly. Or if you’re ready to sell, buy, and renovate your home, you can apply online to start your bridging loan journey right now! 

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