Bridge financing occurs when selling your home to buy another and your closing dates don't align perfectly. Ideally, the closing dates of the sale and purchase would be the same day - however, this rarely happens.
When the dates don't line up, two things happen: either your current home sells first, which leaves you without a home until the close date of the home you're purchasing, or the sale of the home you've purchased closes first. When this occurs, you require a bridge financing loan while between the two deals.
So, What Exactly Is Bridge Financing?
Technically, bridge financing is a loan, although you don't have to qualify for one - all you need to do is prove you have an unconditional offer to purchase your current home. It also doesn't have any effect on whether you qualify for a mortgage.
Bridge loans are typically priced at 3% above prime. While this is a steep increase, the time frame for this loan is relatively short. Typically home buyers in the bridge see costs under $1,000.
Applying For The Loan
If during the selling process you need a bridge loan, the first step is to get in touch with your mortgage broker or representative. You'll need to explain the situation that you're in and they will assist you in securing the loan for the amount you need.
During this process you will have to disclose any available funds on any lines of credit. The lender you go through will need to exhaust those first, and then the loan will be for what's required after that.
How To Repay The Loan
When your new home purchase closes you will need to meet with your lawyer. At that meeting you will sign a Letter of Direction and Irrevocable Assignment of Funds. This document will ensure that from the sale of your home, the necessary proceeds go to repaying your loan - plus interest. Then, the rest of the balance goes to you.
Looking For More Information?
If you're selling your Niagara home and are still confused about the sale process, download our free Home Seller's Guide. This guide has everything you need to help you navigate this process.