What is Bridge Financing?

A bridge loan is a form of short-term lending intended to help homeowners bridge the gap between selling their current home and buying a new one. As you wait for your current house to sell, you will use the equity of your current home to fund the down payment for the new home. A bridge loan is a form of short-term lending used before 0an individual or business can obtain permanent financing or pay off a debt. Bridge loans are short-term loans that last up usually 90 days. These loans are often used in the real estate industry.

In what situation would you require bridge financing?

You do not have enough funds for a down payment if you buy a new house until your current home sells so the money will be locked up in the equity of your current home. A lender will provide you with bridge loans to help you get by before the cash from the selling of your home arrives. For example, if you sell your house in 90 days and buy a home that would be paid for in 60 days.

What is required to arrange a bridge loan?

Your lender would need a copy of your firm purchasing agreement and firm selling agreement to set up a bridge loan, a loan with a current title search and mortgage statement.

What happens if I do not sell my home?

If you have not sold your home, you will not get the bridge financing, because there is no concrete way for a lender to calculate how much equity you have available and if you can afford your new home.

For most people, unless you can qualify and pay for two mortgages, you should always sell your existing home before purchasing a new one. The reasons are written below:

  • You will not know how much money you have when you sell your house and house prices are always changing. Your house is just worth as much as anyone can pay for it right now! Past revenues and predictions for the future are not considered!
  • You will use the proceeds from your current house to deal with the down payment for your new home, repairs, moving expenses, and determining how much mortgage you qualify for.  

If you have sold your existing home but your closing date is after the closing date of the new property you just purchased, then bridge financing is your best option:

  • Since not all banks do bridge lending, you will need to check with your new lender to see if they do. Your mortgage broker will help you locate a lender who can have bridge funding.
  • Typically bridge loans are restricted to 90 days.

Since a bridge loan cannot be open-ended, banks can not provide you with one until you have a definite selling deal on your house. If you do not have a firm selling date in mind, a bridge loan from a private lender might be necessary.   

Call us: (204) 987-5620

Email id: dabrunet@shaw.ca