How to qualify for Ninja finance

THE QUESTION

Is bridging finance calculated on a deal-to-deal basis, rather than an individual’s mortgageability?  What would I have to demonstrate to be successful in getting a bridging loan?

THE ANSWER

Bridging has a completely different underwriting process to mortgages.  Mortgages are income-based lending for the medium to long term; whilst bridging is asset based lending for the short term.

The actual terms are determined on a deal-to-deal basis, as is the bridgers decision to lend or not to lend on a specific property, regardless of the fact that they are happy to lend to you as a person.

Invariably, bridgers will deduct the monthly interest at the drawdown of the loan (Retained Interest), so making monthly payments is rarely a consideration.

If you can demonstrate more than one exit route that will play well with bridgers.

Getting the term right is important as you want to be in a position to repay your bridging loan early, or at least on time. I assist all my clients with analysing how long they need the loan for realistically.

Loan-to-value is a key consideration, too.  Most bridgers lend against purchase price, but a few lend against value.  If you are buying below current value, you can significantly reduce the deposit you need to put down by using one of the bridgers who are happy to use the latter method.

To obtain bridging you should NOT

1. Be a current bankrupt
2. Have current mortgage arrears

If neither of those apply to you bridgers will lend to you.

Your track record certainly helps, but is not essential with all bridgers.

Another key fact about bridging that is invariably ignored and thus makes bridging more expensive to use is how you negotiate to buy a property that you intend to use bridging on.

Do you negotiate like a mortgage or a cash buyer?

Most investors, certainly newer and less experienced ones, negotiate with what I call a Mortgage Buyer mind-set; because they need a mortgage to be able to purchase and mortgages invariably have a three-month completion cycle.

A smarter, more savvy investor will know, or have been taught (perhaps by me), that bridging allow you to complete fast, certainly within 28 days or less; just like cash buyers do. This means they negotiate with a Cash Buyer mind-set, so they buy cheaper. Often they get the purchase price reduced by at least the cost of the bridging finance.

No prizes for working out bridging isn’t really that expensive if you have just got the vendor to effectively pay for it!  This is what I call Ninja finance.