Key Points:
Purpose: Used when buying a new home before selling the current one.
How It Helps: Bridges the gap in down payments until the sale closes.
Firm Sale Required: Most lenders require a firm sale on the current property to consider bridge financing.Expert Guidance: Different lenders offer varying rates and terms. Expert advice can save or cost clients significantly.
Bridge financing, also known as an interim mortgage, is a short-term loan that helps buyers bridge the gap between selling their current home and purchasing a new one. It allows the buyer to use the equity in their current home as a down payment on their new home.
Bridge financing is most common in competitive real estate markets, and is often used when the buyer needs to make a quick decision on a new home. The loan is typically paid off when the buyer sells their current home.
Loan term
Bridge loans are usually for a maximum of 90 days, but can range up to 12 months or longer.
Interest rates
Bridge loans usually have higher interest rates than mortgages because they are short-term. The rate is often between the prime rate + 2% and the prime rate + 3%.
Collateral
Bridge loans are secured against the current property.
Lenders
The lender that provides the new mortgage typically also provides the bridge loan, but a second lender may be used if the primary lender doesn't offer bridge financing.
Documents
To qualify for bridge financing, you'll usually need a copy of the sale agreement for your current home and the purchase agreement for your new home.
If you have questions please reach out to your mortgage broker.