All about bridge financing as a home owner

Are you in the process of buying a new home, while also selling your current one? This is a fairly common position to find yourself in as you move through the housing market. In many cases, home buyers are relocating from one property to another, which means they are taking on the role of both the buyer and the seller. Understandably, this jugging act can feel a bit stressful as you try to make all the pieces fall into place. This is especially true if your new home purchase depends on the sale of your current house. Luckily, this is where something called bridge financing comes into play!

First things first, what is bridge financing?

Bridge financing can be a huge aid to home buyers who are also playing the role of home seller. It’s common to plan on using the sale of one home to support the purchase of another. However, if the timing does not work out, you may need to complete the purchase of your new house before the sale closes on your current one. This means you do not yet have access to the money that will come from selling your house. 

This is where bridge financing comes in. This is a short-term loan that is designed to cover you during this transition period between properties. You can use this loan to complete the purchase of your new home, with the idea that you will repay the loan once your other home sells. Bridge financing is not a long-term solution, but a temporary crutch to “bridge” the gap between these two milestone events. 

Who can provide bridge financing?

Since bridge financing is a unique type of loan, do you need to go to a private lender for this service? It depends on your situation. Both traditional and private lenders offer bridge financing, but with certain conditions. Conventional lenders, such as a bank, will want to be sure the sale of both properties will go through. They will often ask for proof that you have signed a firm agreement to buy your new home, and that you have a confirmed closing date on your current home. If you cannot meet either of these requirements, that is when you may need to turn to an alternative lender. Private lenders are often more flexible in terms of granting loans, but keep in mind that this will likely come with a higher interest rate.

The key advantages

A bridge loan offers some undeniable benefits for home owners and buyers. The most important advantage is the flexibility this type of financing offers. The timing of your two home sales do not need to perfectly align, because you have this extra assurance and coverage! This is a huge relief, and takes away a large amount of stress during an already busy time. It also gives you more flexibility in terms of planning your moving date. In general, securing a bridge loan is also a straightforward process. This is especially true when you have a firm agreement in place and can work with a conventional lender. 

The potential risks

Of course, there are also some risks to be aware of when considering this financing option. The first drawback is the cost. Since this is a short-term solution, and is a bit riskier for the lender, the interest rate will be higher than that of a traditional mortgage. Exact costs will vary, but you can expect an interest rate that is close to 10 per cent. You are also risking the possibility that your current home does not sell as quickly as you expect, or for as much. Whether or not you receive the money you expect from the sale, you will still need to repay this loan.

How should you start your journey?

If you think bridge financing is the right path for you, where should you begin? Of course, your first step should be to consult a mortgage broker! We will help you determine if this is a good option for you, how much you should expect to pay, and answer any questions you may have. Since every home owner and buyer is different, it’s best to get expert advice customized to your individual needs! We are here to ensure your journey between buying and selling is smooth and stress-free.

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.