Bridging the Gap Financing
Bridge financing may be an option for that classic real estate conundrum: my new purchase closes before my home is sold and I don’t have the down payment. Or, I do not want to move twice! What to do, what to do …
Bridge Financing assists the customer(s) with the sale and purchase of their residence. Bridge Financing may be necessary when the closing date for the purchase is before the closing date for the sale of the current residence.
The equity from the current residence is therefore not available on the closing date for the new mortgage. A Bridge Loan provides the customer(s) with short-term assistance to meet this shortfall. Once the sale on their current residence closes, the loan is paid off with proceeds from the sale.
How it works
- A bridge loan “bridges” the gap between the sale of one home and the purchase of another.
- The equity from the current home can be used as a down payment on the new home when the current home is firmly sold.
- Or, private lenders may consider a bridge loan even when the current home is not firmly sold, if equity allows and other criteria is met.
- The bridge loan is paid off when the current home sells.
Benefits
- Bridge loans may be useful in competitive real estate markets.
- They may provide flexibility to buy a new home without worrying about the closing dates of the current home.
- They may provide time to move and/or make upgrades to the new home.
- They offer short-term solution for time- sensitive investment opportunities and/or when you may need quick cash.
Drawbacks
- Bridge loans may be more expensive than other types of financing.
Term
- Bridge loan terms are usually from 1-day to 1-month. The maximum is 90-days with most lenders (up to 12 months with a specific private lender).
Costs
- Bridge loan interest is calculated daily or monthly, generally at a variable rate of Prime +TBD%.
- Some lenders charge administrative and/ or commitment fees, added to the net bridge loan.
Funding
- A Bridge Loan Financing Agreement is to be signed by customer(s) with the solicitor handling the sale and/or purchase transactions.
- Solicitor must conduct a title search to confirm the encumbrances on title are as disclosed by the customer(s).
- Bridge loan proceeds are advanced ‘in trust’ to the solicitor, subject to the terms and conditions of the Bridge Loan Financing Agreement and may not be advanced until the new mortgage is advanced.
Applying for a bridge loan
- Your favourite mortgage broker can assist with a bridge loan application. Ask for all options for a current property firmly sold or not.
Candace Perko,
Mortgage Broker
