• Need a mortgage bridge loan?

    If you are selling your home and using the proceeds of the sale towards the down payment on the purchase of another home, and the purchase closes before the sale closes, then you probably need a bridge loan. A bridge loan is a kind of short term mortgage that bridges the gap between the purchase of a home in the sale of another. When you purchase a home you usually have a mortgage and a down payment, and the two of those some up to the purchase price. If the down payment is coming from the sale of a home that happens after the purchase, then you are short the down payment amount and sometimes closing costs as well. In other words, you need to come up with the balance to pay the seller.

    Why would you want to bridge?

    Sometimes you don’t have a choice but to bridge if the closing dates are already set and cannot be adjusted. Other times, people deliberately choose to close the sale after the purchase because it is too stressful to move out and in on the same day.

    How much does a bridge cost?

    If your mortgage is with a conventional institutional lender like one of the big banks, they will usually do the bridge for a small fee of a few hundred dollars and a rate of prime + 5% or something around that. It sounds like it might be expensive, but it’s actually not because that rate is an annual rate so depending on the size of the bridge loan, it might cost $50/day +/- and bridge loans are usually pretty short term. There are really good lenders that don’t offer bridge loans. In those cases, we would need to find a private lender and it might be a little more expensive but still reasonable. It might cost you $1000 in that case.

    How do you qualify for a bridge?

    Well, again if we are talking about a conventional lender, they will not even consider offering a bridge without a FIRM agreement of purchase & sale on the home you are purchasing AND the home you are selling. If you have both of those, then they will only offer to bridge if they determine that the net proceeds of the sale will cover the bridge. In other words, they need to be sure that you will walk away with enough money from the sale to pay out the bridge.

    Who gets the bridge money and who pays it out?

    Short answer: your lawyer.

    All of the money passes through your lawyer’s trust account. When you buy the house, your lawyer receives the mortgage funds and the bridge money and pays the seller’s lawyer. When your house sells, the lawyer receives the money, pays everyone who needs to be paid, and then you receive the balance.

    This is to prevent gambling it away at the casino! 😉

    

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