How does bridge financing help home buyers?

You have likely heard about bridge financing before. Have you ever wondered whether it is a product that could help you in the housing market? Bridge loans are a common type of financing for a specific group of home buyers. They can make the process much easier and less stressful, and can help buyers ensure they secure the home they deserve. Here are the big points to know about bridge financing, and whether it is suitable for you.

What is bridge financing?

Bridge financing targets home buyers who are also home owners. Specifically, it helps those who are in the process of selling their home and purchasing another. Most home owners will sell and relocate at some point in their lives. It is rare to stay in one location forever, due to your changing lifestyle and needs. It makes sense to use the money from the sale of your current home to support the purchase of your new home. However, the issue is the closing dates may not line up perfectly. If you have to close on your new home before you seal the deal on your current property, how can you access that equity?

This is where bridge financing comes in. A bridge loan covers the gap between closing dates when the financing of your next home occurs before the sale of your current one. This loan allows you to complete your new home purchase without having to wait for your old property to sell. This is especially important in busy housing markets, where buyers must jump on their desired property quickly.

Who offers it, and how much can you access?

When it comes to actually accessing bridge financing, home buyers have a couple options. If you have firm closing dates for both your current and new property, securing a bridge loan is a fairly simple process. Major banking lenders such as TD or Scotiabank can provide bridge financing for borrowers who can show proof of these closing dates. This means bringing in copies of the sale agreement and purchase agreement for both properties. However, if you have not finalized the sale of your current home, things get a bit trickier. Most traditional lenders require a proof of sale, and a firm closing date. If you cannot provide this, it might mean turning to a private lender. Be sure to chat about your options with your mortgage broker!

Different lenders will provide different financing amounts, depending on the situation. The average lender will offer up to $200,000 for a 120 day period. This means your closing dates may be up to 120 days apart in order for most lenders to finance the required equity. Of course, every circumstance is unique. If you have a longer gap, or need a higher amount of financing, this is also something to discuss with your broker. They can help you find the lender who can best meet your needs.

Are there disadvantages?

As with any mortgage product, there are some risks that come with bridge loans. This type of financing essentially means taking on a new loan with a higher interest rate. Bridge loans tend to have higher interest rates than traditional mortgages, for example. This is because if there is no guarantee your current home will sell, lenders are taking on more risk. Plus, you may not know for sure what price your home will sell for, or how much equity you will end up accessing for the purchase of your new property. Of course, working with mortgage professionals will give you a fair estimate of your property’s value and selling price, but nothing is for certain. If you end up having to lower your asking price, this will reduce the money you can use to repay your loan. Another thing to keep in mind are the administrative fees that come with setting up a bridge loan. Every loan comes with lender fees, including bridge financing. This is just another cost to remember!

Where do you start?

If you feel like bridge financing is the right path for you, you should always begin your journey by reaching out to your mortgage broker. Your unique needs will not be the same as someone else’s, so your ideal loan set-up will be different too. Brokers can evaluate your situation and determine whether bridge financing is right for you, and how to proceed. This is a special type of product that requires professional assistance and guidance. We are here to make sure you choose the path that best serves your needs!

Bridge loans are excellent products for people who are between buying and selling homes. They provide much more flexibility in terms of closing dates and financing options, and many people would not be able to complete their home purchase without these loans. As always, if you are curious about bridge financing, or any other type of mortgage service, you should reach out to your local broker. This will ensure you take the best route and secure the best product.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.