Bridge Financing, the other kind...

First, did you know that the Ambassador Bridge that links Detroit to Windsor and vice versa is privately owned?
Nothing to do with mortgages, it's just something I never considered. There is currently some very large drama going on over there as the US and Canadian governments wish to create a second crossing between the two countries to ease congestion and well, stop paying an American billionaire the privilege of using it. He, of course, is opposed to that idea because that apparently goes against every ideal of free enterprise that his family and bank account holds dear.

But I'm supposed to be writing about the other type of bridge financing as it relates to the mortgage business.

Bridge financing is the term used when the purchase of your new home is tied up (or subject to) the sale of your old home. Many homeowners today, whether upsizing or downsizing their homes lack in having the necessary 5% downpayment for a new purchase. A $300,000 home would still require a minimum of $15,000 down. So instead of draining RRSP's or holding out a hat on a major pedestrian thoroughfare, lenders will allow that down-payment to come from the sale of their old home.

you don't have to be honest about your needs but it helps

So now you've committed to buying a house and the sellers have agreed to a 'subject to the sale of your house' and accepted your offer. However they want the sale to be finalized by X date or your offer is considered void.

Now a bit of panic might set in, you have 30 days to sell your house. You cross your fingers and wait. Someone offers to buy your house on the 20th day. You accept! You've sold your home and that subject to can be removed. You can start planning your move-in date.

But... your buyers need 15 days to arrange financing. You have no choice really but to agree to that or keep your house open to other offers, thereby delaying the official switching of the keys ceremony.

Hopefully, the seller won't be a giant...

So, the sellers are expecting some money from you in ten days. You are expecting some money from your buyers in 15 days.

This is where Bridge Financing comes in.

Some lenders (not all, check with your broker) will allow bridge financing, in which they will loan you the money to pay for your house in that short term. There may be an administration fee of anywhere from $200-$500. That loan is paid out upon the finalized sale of your current home. Because the loan is for a very short period of time, the interest rate is negligible in the big picture.

We're going to need a bigger mattress.

All you need is a copy of your firm sales agreement and your firm purchase agreement. If you don't have a firm sales agreement, you won't be able to attain a bridge loan through usual channels and may have to seek out a private lender.

Ideally, you would want to sell your house first; most lenders will offer a grace period of transporting your current mortgage to a new residence, allowing you to keep the current terms of your mortgage and not have to pay out closing costs. Again, your broker can explain that in better detail for you.