When Closing Dates Don’t Jive, Bridge Loans May Help You Get Into Your New Home

July 2, 2014

For many, the new home you just bought and the home you just sold would close on the same day ideally. That way the money from the sale of your old home, can be used towards the purchase of your new one. But sometimes, Canadian home buyers find themselves in a much different situation.

Imagine you’ve found your dream house. It’s in the school district you’ve been eyeing, is priced right and has everything you want in a home. The problem is, the current owner is looking to close the sale in 30 days, but you’ve just agreed to a 90 day closing date on the home you just sold. How will you get the money together, since you were relying on the sale of your home to pay towards your new home? More and more, people are looking to a bridge loan as the answer.

What Is A Bridge Loan?


A bridge loan is a short-term loan that “bridges” the gap between the time you buy your new home—and have to fork over the money—until the sale of your old home, when you’ll finally get the money from the person who bought from you.

Bridge loans are typically more expensive than your regular mortgage; they often come at a higher interest rate (about prime plus 2 – 4 per cent), along with set-up fees which will run you a few hundred dollars. There may be additional fees too from your real estate lawyer. But in the end, it’s worth it for many people.

That said, not everyone will qualify for a bridge loan. You typically need to have a firm purchase and sale agreement for the home you’re selling as well as the home you’re buying, and you need to apply for the bridge loan, just like you would any other time you want to borrow money. Typically, your mortgage lender will also be the lender you go to for a bridge loan. If you’re already stretched too thin, however, you may not qualify. Furthermore, bridge loans don’t typically extend beyond 90 days; if you need a longer time frame then a bridge loan is not likely the route to go. At this stage you may have to explore a line of credit or private financing.

Bridge Loans: Not Just For People In A Pickle

While bridge loans are common for people who are stressed to find the closing date of the house they want to buy and the house they want to sell don’t jive, it’s also becoming popular with people who specifically want to take possession of the new house before they’ve given up their old residence. Whether it’s to do home renovations on the new abode, clean, or to simply take their time while moving, some people actually look to bridge loans to minimize the stress of the day. You don’t have to (if you don’t want to) move out and move in on the same day, or wait around for the old homeowners to leave.

Stress-free moving; for some it is well be worth the cost of a bridge loan.



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