bridging loan for property development- explained - part 3 of 6
A key use of finance is to use a bridging loan for property development Bridging loans or development finance loans for builders, as they are sometimes known, can also allow you to buy land or develop a commercial property while you wait for another type of funding. Property Bridging loans help many people finance property sales transactions that might otherwise be impossible for them to complete.
7) Will I Qualify for a bridging loan for property development?
Property Bridging loans
By speaking with a bridging finance broker, you can find out whether or not you are a good candidate for bridging finance approval. Your broker can evaluate your current financial status and guide you in choosing a lender who is likely to approve your bridge loan. The broker can also determine the approximate level of funding that this lender is most likely to approve for you.
Overall the general procedure for obtaining a bridging loan has the following steps:
- Contact your loan provider finder or a lender directly.
- Provide an outline and the proposed costs of your buying or building project.
- Have proof of planning permission from the appropriate local authorities or intent to purchase property.
- Have accurate information about the future value of property GDV.
- Inquire about a loan equaling from 60 to 70 percent of your overall final property value.
- Apply for your bridging loan.
- The lender values your property and appraises the details of your plans to buy property or build.
- The lender approves and issues your loan funds.
- Building or improvement work begins on the property site or you purchase the property.
- Building or renovation work is completed or the repayment of funds for your property purchase is due. If necessary, you may refinance the loan to carry your mortgage and/or to repay the bridge loan.
8) Do I Have to Prove Income for a Bridging Loan?
In most instances, no income proof is required for acquiring a bridging loan. Since bridging finance is a type of asset-based lending, your acceptance for funding is based on the end value of your property project or transaction. If your plans are solid financially and the lender is assured of your loan repayment at the end of the term, no proof of income is needed. Your loan will be approved and issued based solely on the final property value.
Across the UK, lenders issue loan funds based on the value of such assets as houses, bungalows, flats, maisonettes and plots of land. Bridging loans are also approved based on valuations of such property as warehouses, factories, retail stores, hotels, restaurants, hospitals and nursing homes. Many other types of property are also acceptable as assets on which bridge financing can be based. This avoids any need to submit your income for loan approval. Now you can answer with accurate information when other people ask, “Do I have to prove income for a bridging loan?”
9) How Much Bridging Finance Could I Borrow?
The majority of bridging loans are issued for amounts ranging from £150k to £750k. However, this type of funding is available in funding amounts of from £50k to £10m. Thinking in cash terms, a bridging lender may issue loans of total amounts ranging from £25k to more than £25m. Yet, the ceiling on borrowing amounts is usually equal to an LTV (loan to value) ratio of 75 percent of your property value. If you are requesting a first-charge loan, you can generally borrow more money than you can obtain on a second-charge loan.
Of course, the amount of your loan depends on the value of the land or property that you present as an asset for security. Bridging lenders typically quote a top loan to value (LTV) of from 65 to 80 percent. In general, the LTV for first-charge loans is greater than on second-charge loans. This is due to the fact that on first- charge loans, there is only one claim on your property as the security asset. The LTV on second-charge loans is usually based on the amount of equity that you hold following the deduction of any other mortgages and loans. Now you can more easily estimate the answer to, “How much bridging finance could I borrow?”
bridging loan for property development - part 4....>>
Some lenders may advance funding on the purchasing price of property. Others may also lend funds on the gross development value (GDV). As you know, the GDV equals an estimate of the property value when it is ready for sale on the real estate market. This, of course, is after the completion of any planned development or improvements. For this reason, you need to know whether you need funding based on the GDV or property price before seeking loan approval. Then you will have a better understanding of the answer to the question, “Will I qualify for bridging finance?”