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Purchased Before Selling? Bridge Financing Explained

What is a bridge loan, or commonly known as a mortgage bridge financing? The typical need for a bridge loan is when you have purchased a property in and sold your current property, but the closing date of the purchase is earlier than the sale.  Since you cannot access your equity until your current home sells, the lender is advancing to you funds for the downpayment and closing costs so that you can close on the purchase.  Once your current home closes, the bridge loan will be repaid.

This is often done either by design (buyer wants to close sooner on the purchase so that they can do some planned renovations and/or be able to move in a more relaxed manner rather than in the “day of closing” because that can be more than hectic to say the least.

But in a very fast paced seller’s market where the competition to purchase is very high – buyers are often faced to make a decision to make a Firm Offer (no conditions) without having sold their home.  Occasionally, selling the current home can hit some snags (cooling market, unreasonable ask price, unmarketable home, etc), and if it finally sells, the buyers may need or request a closing date that is much later than the date you have to close on the purchase you made.  Therefore, a bridge loan is now required.  In order to get a mortgage bridge financing, a lender would require a firm offer on the sale of your home. That means absolutely all conditions on the sale of your home have to be satisfied.

For a bridge loan, you can expect rates from Chartered Bank Prime Rate +2% to Prime +4%, plus administration fee of $200-$500. These type of transactions do not make a lot of interest, therefore lenders charge administration fees. Lenders typically do not register a mortgage for a mortgage bridge loan, however there are some that do in situations where the bridge loan exceeds a certain amount.  This will be disclosed during the approval process of the bridge loan and you will be signing off.

There is a misconception that you can get a bridge loan for your purchase without an accepted sale offer on your current home. That is completely not true.  If this unfortunate situation were to occur, then other means of raising the required down payment can be investigated (through refinancing of current property, etc.).  This is where you may need the help and advice of a qualified and resourceful mortgage broker at Homefund.