TL;DR: if you're selling and buying at the same time and the dates overlap, and you plan to use your existing equity in your property as your down payment on the new one, bridge financing will let you access that money so you can complete your purchase a few days before you actually get the money from your sale.

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Even if you love the home you bought, it is not likely that you will stay there for the rest of your life. At some point, you will want – or need – to move. Whether it is for a job, downsizing or another reason, getting a new home can be easy after you have built up some equity. However, sometimes you are unable to access that equity to use as a down payment on your new property. If the closing date for the home you want to buy is sooner than the closing date on the home you are selling, you could be stuck for money. That is where bridge financing comes in. It is money that can be used to help fix this problem. 

How to get bridge financing

Simply mention to us that you would like to be able to have an overlap in your closing dates, and we will arrange the bridge financing. Generally a bridge loan of up to $200,000 is readily available for up to 120 days. Bridge loans for more than $200,000 are available on an exception basis. 

Calculating the bridge financing loan amount needed

To figure out how long you will need the loan, you would work out how many days are between the closing date of the home you want to buy and the one you are selling. For example, if your sale will be closing in 45 days but you need to close on your new home in 35 days, you will need to come up with the down payment on the new place 10 days before you will have that money from your sale.

The amount of the bridge loan itself is equal to the total down payment amount, minus the deposit paid with the offer to purchase. Sometimes, the real estate commissions are also excluded from the bridge loan.

Total Down Payment = $50,000
Deposit With Offer: $10,000
Bridge Loan: $40,000
Additional cash needed at closing: $0

If real estate commissions are excluded:
Total Down Payment = $50,000
Deposit With Offer: $10,000
Real Estate Commissions: $15,000
Bridge Loan: $25,000
Additional cash needed at closing: $15,000 (+$10,000 deposit and $25,000 bridge loan = $50,000 required down payment).

Fees and interest expenses

Bridge loans are like any other loan and you can expect to pay interest. Usually, the rate will be comparable to an open mortgage. You will find that the bridge loan interest rate is higher than your mortgage rate but keep in mind it is for a short time. When your equity is freed from your current property you can pay the loan off in full, and no fees or charges apply, other than the interest rate paid and the application fee.

You can also expect to pay an application fee in addition to the interest. This is usually no more than $500.

If you need a bridge loan of $50,000 and the interest rate is 6%, the daily interest rate charge is ($50,000 x 8% / 365 days)  about $11. If you need bridge financing for 10 days, your total cost would be the $500 application fee, plus $88 in interest costs, for a total of $588.

Qualifying for a bridge loan

A firm sale agreement must be in place before bridge financing can be applied for. This means the buyer of the home you are selling must have waived all conditions on their offer. Once that has occurred, the sale agreement and the future proceeds from that firm sale are used as assurance to allow for bridge financing.

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