Buying a new home and selling your existing one can be a stressful scheduling process. You need to think about the logistics of moving, the upheaval to your life, as well as your finances and whether your timing works. If the closing dates between the home you’re selling and the home you’re purchasing don’t line up, you might need to arrange financing to cover the period when you own two properties. This is called Bridge Financing.
How does Bridge Financing work?
Like most of us, you’ll have a mortgage on your current property. You’ve then found a new house to buy, and have committed to buying it. But in the case when you can’t close both real estate transactions on the same date – maybe this is by your choice, or because of the other parties involved, you find yourself having to carry two mortgages at one time.
In this case, you’ll need to arrange Bridge Financing to borrow the money you need to close on the new property. Bridge Financing is a temporary, short term loan to allow you the flexibility to close. This period can be as short as a day or three, but generally, the bridge financing will be 90 days or less to accommodate the sale of your current property.
If you qualify for this kind of financing, as security, the bank will look at the additional equity from your current home. The equity you have in your current home will allow or limit how much you’re able to borrow. This is an ideal time to speak to One80 Law about your situation so we can help you sort the timing of your real estate sale and purchase.
What are the pros and cons of Bridge Financing?
The primary benefit is that the bank will lend you the additional money you need to buy your dream home. The bridge financing gives you the flexibility to schedule closing and possession dates as your purchase agreement may require.
The drawbacks include the additional interest you’ll have to pay. A bridge loan will have a higher interest rate than your primary mortgage. There will be other costs too, such as the application fees, lawyers fees and mortgage registration fees.
From a short term perspective you will be over-leveraged, so securing the sale of your current house is really important. You’ll need to be confident that you can close within the time limit otherwise a bridge loan might not be the right option for you. Keep in mind that a bridging loan generally won’t be available to you unless you have enough equity built up, as well as a purchase and sale agreement on both properties.
While bridge financing can be a good option seeking to align sale and purchase dates, it can also be a complex situation. Speak to One80 Law today and we’ll walk you through your options.