When Is Bridge Financing Required?
When homeowners move from one home to another, sometimes the closing date for the purchase of the new home and the sale of the existing home do not fall on the same day.
For example, if the purchase of the new home closes on July 1 and the sale of the existing home closes on September 1 where the proceeds from the sale are needed for the downpayment, a bridge loan is provided by the lender to cover the shortfall in downpayment for the two months period.
Bridge Financing Conditions
The bridge financing loan is provided based on the following conditions:
- There must be a firm sale agreement on the existing home
- Bridge financing loan is provided for up to 120 days
Bridge Financing Costs
The bridge financing loan is provided at prime plus 2% to 5% depending on the lender. Some lenders have a bridge finance loan set up fee of a few hundred dollars. There are some additional legal fees to account for since the lawyer has to do additional work.
It is important to review your options with a mortgage professional and run worst case scenarios if:
- The existing home is sold for a less than expected price
- The existing home sale closing date is past 120 days
- The existing home is not sold
To review your personal mortgage situation and plan your next move, please contact me.