If you currently own a home and are considering selling and moving to a new home, then you should pay attention.
In a perfect world you would pay “cash” for everything. Buy a house, pay cash. Buy another house, sell the first house then use the “cash” to buy a new house. Well, as you know, life is not that simple, at least not for most of us.
Typically, you would have a mortgage on your current home. Upon selling your home you would have to pay off the existing mortgage balance, then the remaining funds can be used as your down payment towards buying the new home.
So, now you find a home that you want to buy, your real estate agent has negotiated a great price for you and you have an accepted offer, conditional on financing and selling your home. You call your Grimsby mortgage broker and let them know and they assure you that financing won’t be an issue.
You now list your existing home with your realtor, you receive a great offer on your home, but there is one problem. The home that you’re are buying is scheduled to close one month after the date that the person wants to buy your current house, and neither party is willing to change the closing date. You need the money from the sale of your home for the down payment for the purchase, now what?
This is where bridge financing comes in.
You’re mortgage broker will now arrange a bridge loan, to loan you the down payment until your home sells, allowing you to purchase your new home, even though your current home hasn’t sold yet. The bridge loan is typically provided by the mortgage lender that your mortgage broker arranged your mortgage through. In order to qualify for the bridge loan, you will have to have a “Firm” accepted offer on your home, with no outstanding conditions. The amount of the “Bridge Loan” cannot exceed the equity in your home. This will allow you to close on your new purchase and once your existing home closes the bridge loan will be paid off with the proceeds from the sale.
Another example of when a bridge loan can be utilized is when you are purchasing a new home but want time to do some improvements, such as painting, flooring, etc. before you move in. WIth a bridge loan you can stay in the comfort of your existing home until the new home improvements have been completed. Then once everything is done and ready, you can close your existing house, pay off the bridge loan and move right in.
Even seniors with no mortgage who are down-sizing can utilize the same concept when purchase dates and sale dates don’t coincide.
As always, if you have any question or would like additional information, please reach out to your Grimsby Mortgage Broker.
Mark