Have you recently made an offer on a house but are yet to sell your own? You’re in the dreaded bridge period where you need to make a down payment but all your equity is in a house that has not sold.
This happens in real estate and it’s nothing to be frightened of. Banks have devised bridge financing to cover this period of time—typically between 90 days to 180 days—when you need short-term financing. We can get you a fast bridge loan even if you don’t qualify for a mortgage with the bank. The approvals are mainly on equity.
So what is bridge financing?
A bridge loan provides you the money needed for your down payment that you would typically get from the equity in your unsold home. Get a quote on a bridge mortgage today to see if you can smooth out your home buying process.
Having cash in hand is one of the best things you can do for yourself in tough real estate markets. You don’t want to be the buyer who can only purchase contingent on the sale of your own existing home.
Give yourself some leverage by getting temporary financing for a bridge mortgage. Sellers like to see someone with financing ready.
Having cash in hand to house shop gives you the peace of mind you need to make decisive decisions in a fast-moving market.
Given the way the market can go, it’s only right that you prepare yourself with the most appropriate financing options. Don’t miss out on the right house because you could not line up a few calendar dates with perfect precision.
Bridge financing works like many other mortgages. You have to prove you can pay off a limited sum of money before you will be given this amount.
In typical mortgages, you prove this by saving a down payment and having continued qualifying income. In this type of financing for a bridge loan typically the repayment proof is the equity in the sale property.
Bridge financing can get approved quickly, unlike other financing options including a line of credit.
Bridge financing is also available for companies in need of working capital. Lending here may be based on assets or inventory. Either way, the bank feels confident that you will be able to repay this short-term financing option in the long-term.
Let’s review some basic mortgage terminology to help clarify how bridge mortgages are calculated.
When you sell your house, the cost you sell it for is your total sale price. Your mortgage balance is how much is left on your mortgage at the time of sale.
Your closing costs are the administration fee and legal fees associated with closing the sale of the home. You may pay these for your buyer.
Your profit on the sale is: Sale Price – Mortgage Balance – Closing Costs = Profit.
Frequently, the money you would earn in profit would be used for a down payment on the house you wish to buy. The down payment is the amount you can pay now in full while mortgaging the rest of the purchase price.
The amount of the bridge loan is calculated by subtracting the deposit you made in cash from the profit you will eventually use to make the rest of the down payment. If you paid $10,000 as a deposit and want to use $140,000, based on the sale property’s equity, as a downpayment, you would qualify for a $130,000 bridge loan.
When the money you need for your down payment is tied up in your unsold home, you can negotiate with a bank to get a short-term loan that bridges the gap up to the closing date on your home.
You can only qualify for what you need to bridge down payment costs based on your soon-to-be profit from your home. You will not be able to request more than the value you will get from your home (minus your mortgage and closing costs).
For some banks, they will need you to have an agreed-upon sale for your existing home. Even if the closing date is in the distance, they need to know the home will definitely sell.
Other banks may require that your primary mortgage come from them. In these cases, the second mortgage of a bridge loan is an add-on to the mortgage you are already undertaking.
If you already own a home, getting a bridge loan can be a very simple process. Verify that you have enough profit left over from the sale to meet your down payment needs on the new home.
The cost associated with bridge loans comes purely from the interest rate. This rate only applies to the days you hold the money from the loan.
The shorter the period of time you carry the bridge, the less interest will amount. You may also face an application charge at the time you submit your application for the bridge loan.
You’ll notice a slightly higher rate when you take a bridge mortgage, compared to your regular mortgage. But don’t worry, this applies only for the days you have the mortgage.
To understand how the interest rates are applied, first understand they will be higher by around 3% than your average interest rate.
Then calculate this interest as applied for only the days you possess the bridge loan. If the gap between your home sale and your home purchase is only two weeks, then you will only pay interest on the balance during those fourteen days.
Banks put the rate a little higher just to make it worth their while and ensure they make money back since so frequently these mortgages are repaid quickly. So don’t worry, it will be a small expense for you in the grand scheme of home buying.
Another alternative is using a second mortgage calculator to determine the interest rate for a short term bridge loan
Most likely your mortgage lender offers a bridge mortgage along with your regular mortgage. Larger banks may have more availability to offer bridge financing.
Luckily for you, there are many financial companies that offer bridge mortgage options to Canadian homebuyers. Bridge financing doesn’t have to necessarily be done through your mortgage lender.
If your lender doesn’t offer bridge financing, we can get you a fast bridge mortgage from a private lender. A private mortgage can be a fast and simple solution for bridging your down payment from one property to another.
Bridge financing can come in handy in fast-paced seller’s markets. If you wish to be able to buy your next home without waiting for your current property sale to close, taking out a bridge mortgage is your best option.
Here are three examples of when using interim financing may benefit you the most during the home buying process.
You’ve gone through the process of putting your home on the market. Whether fast or slow, you’ve managed to procure a sale contract on your home.
You’ve scheduled the close date, which is an exciting and momentous time, while you still shop for a home for yourself.
And then you find it, the perfect home. You make an offer and it gets accepted, but the seller needs to close fast—two weeks faster than the close date on your own.
You had planned to purchase this dream home with the equity you had in your own home. You don’t want to extend. your traditional mortgage as it will make your offer look weaker. So what do you do?
You opt for bridge financing. For two weeks, you are granted a loan of the difference for your down payment based on the amount of equity you would have put towards a new house.
During the time you hold this loan, you pay a slightly higher interest rate on it compared to your new mortgage, but two weeks is so short the interest payment will hardly be noticeable.
Another time you might need to take out bridge financing is when you have not gotten a sale offer on your home. Your mortgage broker or bank may not be willing to offer this kind of loan, but it is something to consider.
You have your house on the market but things are going slowly. Meanwhile, you need to move to another province in the next few months and can’t put off house shopping any longer. You need to purchase a new home, fast.
To strengthen your offer, you’d prefer to use the equity you already have in your home rather than take a much larger mortgage on the new house.
So you apply for a bridge loan. Now that you have increased your cash flow and have money in your pocket, home shopping becomes a bit easier.
For however long you hold the loan, you will pay the high-interest rate that bridge financing carries, so be mindful of any accumulating interest as you work to sell your own home.
This is the rough one, and also the one where a bridge loan can really save you. You have a sale contract on your home and are making an offer on another.
You have procured a bridge loan to cover the disparity in the sale dates between both properties. You expect to only need the bridge loan for a few weeks between closings.
You close on your new home first and begin the moving process as inspections continue on your old home. You believe everything to be going well until you get some bad news: the inspection turned up a huge problem, and the buyers are wavering.
Whether your buyers bail and you need to return to the market to look for new buyers or you agree to take some time for repairs, it could now be months before your home officially sells and you can put the equity from it against your new house.
That’s why bridge loans are flexible in length, with some going up to six months to a year. Real estate markets are unpredictable and you may encounter challenges during the sale process.
But when you have taken out a bridge loan, your equity will be available to you even as you cope with obstacles to closing on your home.
This is a step-by-step buying process with a bridge mortgage. Your personal experience may vary, but in most situations, you will follow a similar path.
Mortgage Commitment was founded to help Canadian homebuyers understand the market better and get quick and simple access to information about the financing they could qualify for.
That’s why we put together useful quote packages that can help you compare and contrast the financing available from many different banks all at once.
You can choose the bank that offers you the best rate and terms. Or find one that accompanies the mortgage you already have.
To cope with higher interest rates, look for the best ones on the market and explore lenders you may have been unfamiliar with previously.
Mortgage Commitment can help you find information about each of these things.
If you are looking for bridge financing while buying your next house, get a quote from Mortgage Commitment. We are committed to providing up-to-date, unique-to-you information that can help you choose the right lender for your bridge loan.
Fill out our information form today to find out what kind of offers are available for you!
Low bridge financing rates, with fully open terms. (no penalty)
Bridge mortgage can be funded in just 24 to 48 hours
Bridge your down payment regardless of your credit score.
No income verification required for bridge financing.
Homebuyers approved with equity from home you're selling.
The Bridge Mortgage Process is Fast & Simple. Private Mortgage Lenders Offer Bridge Financing Based On The Sale Price & Equity From The Home You’re Selling.
We take pride in taking the time and effort to match up every individual homeowner and homebuyer with the best mortgage financing options and rates. With access to more than 200 participating mortgage lenders, there are mortgage solutions for all types of borrowers. We listen and understand your mortgage and real estate goals, and find the best mortgage terms tailored to your specific goals to save you thousands of dollars on your new mortgage.