• Why would I need a private bridge loan?

    Before answering this question, first we will discuss what is a bridge loan? A bridge loan is a type of short term open mortgage that is necessary when the proceeds of the sale of a home are not available until after the purchase closes. In other words, if you are selling one home to purchase another, and the sale closes after the purchase date, you will be short on funds for that period of time. A bridge loan will be necessary.

    Who does bridge loans?

    Many banks will do bridge loans but there is one key factor that could be a showstopper. Every bank that does a bridge loan will ask for a copy of the firm purchase and sale agreement of the home you are selling. That means, in order to qualify for a bridge loan you need to have a firm closing date on the sale home. If you do not have a firm closing date, for example you have listed your home and you are just waiting for the right offer, the bank will not provide you with a bridge loan. The reasoning behind this is that your home that you are selling may not sell as quickly as you think. Obviously it is best and cheapest to have a firm sale first, before committing to purchase. If not, you may need a private bridge loan.

    A private bridge loan comes from a private individual or investor. they won’t necessarily require a firm sale agreement but this comes with some risk, hence you are approaching a private lender. The Private Lender has generally less strict criteria than a bank. But with this extra risk also comes extra cost. On the open market, generally a private bridge would cost you somewhere in the vicinity of 1 to 2% of the loan amount as a set up fee (lender fee) and they would charge interest for the amount of time that you hold the loan. The interest rate will vary depending on the risk. The danger here is that if your home does not sell as quickly as you had hoped, it can get very expensive. So be very careful when purchasing a home before your other home has already sold!

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