You've found the right home. Your current home is sold. But the new place closes before your sale does, and your down payment is tied up in the home you haven't handed over yet. That gap is exactly what bridge financing is for.
What bridge financing is
A bridge loan is a short-term loan that covers your down payment (and sometimes closing costs) for the time between your purchase closing and your sale closing. When your sale closes, the money from it pays off the bridge loan.
It's usually arranged through the same lender that's giving you the mortgage on your new home.
When lenders usually offer it
Every lender has its own rules, so always confirm with yours, but these are common conditions:
Your current home must be sold firm. Most lenders want an accepted offer with all subjects removed before they approve a bridge loan.
The gap is short. Bridge loans are meant for weeks, typically up to 90 days.
The numbers work. The lender will check that the equity from your sale covers the bridge amount.
If your home isn't sold yet, a bridge loan is usually not available. In that case, the options are different: a home equity line of credit, a "subject to sale" offer, or timing the closings differently.
What it costs
Bridge financing is convenient, not free. Expect:
Interest for the days the loan is open, usually at a rate above the prime rate.
An administration or setup fee from the lender.
Possible extra legal fees, because your lawyer or notary handles one more piece of paperwork.
For a short bridge of a few weeks, the total cost is often small compared to moving twice or renting in between. I always ask families to get the exact numbers from their lender before we write offers. The rate is about 8%-9%.
A simple example
Say your townhouse purchase closes on March 1 and your condo sale closes on March 20. You need your down payment on March 1, but the money from your condo arrives on March 20.
A bridge loan covers the down payment for those 19 days. On March 20, your condo sale closes, and the proceeds pay off the bridge loan. You move once, on the day that suits you.
When bridge financing is a good fit
You found the right home and don't want to lose it.
Your current home is already sold firm.
The gap between the two closings is short.
You'd rather pay a little interest than move twice.
When to think twice
Your current home isn't sold yet.
The gap is long, so the interest adds up.
Your sale has conditions that could still fall through.
Questions to ask your lender
Do you offer bridge financing, and what are your conditions?
What's the interest rate and the setup fee?
What's the longest gap you'll cover?
What documents do you need from me, and when?
Your next step
Timing a sale and a purchase is the part of upsizing I spend the most time planning. My free Richmond upsizing plan includes the timeline I'd recommend for your move, and I'm happy to connect you with mortgage professionals I trust. Call or text me at (778) 909-8639.
Katerina Zemlia, REALTOR® with RE/MAX Westcoast. General information only, not mortgage or financial advice. Confirm terms with your lender.
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