• A bridge loan is a type of short term mortgage that is necessary when someone takes ownership of a new home prior to selling their old home.

    Not all institutional banks offer a bridge loan, but the ones that do have one strict criterion in common: the borrower must have a firm offer of purchase and sale on the home they are selling. Why is this? It’s because without a firm offer, nobody knows how long it will take for a home to sell. Often, people will expect their homes to sell in two weeks but then it ends up taking two months or more!

    A private bridge loan may be necessary when there is no firm offer of purchase and sale on the home that is being sold. Since this is an absolute showstopper for institutional banks, only private lenders or investors will entertain such a loan. These are usually expensive, and usually these types of loans are collateralized across two properties: both the purchased home and the home that is being sold. This protects the private investment.

    When there is no firm offer of purchase and sale on the home that is for sale, this type of bridge loan can last for an extended period of time and become very expensive. This situation should be avoided. It is best to have a firm offer on the home you are selling prior to firming up a purchase!

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