Helping Client With A Bridge Loan
When your dream home appears on the market, you may wish to put in an offer immediately before selling your existing home. If the purchase of your new home closes before the sale of your current home, you may not have the funds to put a down payment on your new home. In this instance, bridge financing, also known as interim financing or a bridge loan, may be a solution. The bridge financing lawyers at Kahane Law Office are happy to help. Keep reading to find out what bridge financing is and how it may help you.
What Is Bridge Financing?
Bridge financing, also known as interim financing, is a short-term unsecured loan that helps buyers “bridge” the gap between the closing of the purchase of a new home and the sale of an existing home. It allows buyers to utilize the equity in their current home as a down payment on their new one. In other words, buyers simultaneously own two properties until the sale of their home closes. Most often, lenders require a firm sale of an existing property before approving bridge financing. Other times these loans are not just about when you are buying or selling a home. Our bridge financing lawyers are happy to help with your interim financing loan whether it is a part of a immediate real estate transaction or not.
Advantages Of A Bridge Loan?
There are varies advantages when obtaining a bridge loan, namely:
- flexibility by giving you extra time to sell your current home;
- reduced stress by not trying to move your whole home in one day;
- increased chance of on time possession of your new home;
- allowing you to buy a new home before your current home sells;
- giving you additional funds to renovate or upgrade your new home before moving in; and
- enabling you to use the equity in your current home as a down payment on your new home.
Disadvantages Of A Bridge Loan?
While bridge loans can be useful, there are certain disadvantages, including:
- wide variations in terms, conditions and costs depending on the lender;
- higher interest rates than conventional mortgages; and
- higher risk as you are liable for a loan with a higher interest rate without a guarantee that the sale of your home will close during the life of the loan.
How Much Should I Borrow?
The amount of a bridge loan is calculated by subtracting the initial deposit and value of mortgage from the purchase price of your new home. The remaining amount is the sum that needs to be financed until the sale of your home closes.
How Long Can I Use Bridge Financing For?
The length of time allowed to utilize bridge financing varies among lenders. Typically, lenders state that the bridging period should be between 30 days and six months. Notably, because bridge loans are typically unsecured, lenders tend to charge higher interest rates than traditional mortgages. If bridge financing is required for an extended period of time, some lenders require you to register a second mortgage on the home you are selling.
What Is The Cost Of Bridge Financing Lawyers
The cost for securing a lender bridge loan is nominal, it conducted as a part of a purchase and sale in which we are acting for both the purchase of one home and the sale of another. The cost increases nominally if we are only acting on one side of the equation. Meaning only acting as real estate lawyers on your purchase or your sale but not both. Last, the cost of bridge financing lawyers goes up more so, if your bridge lender requires our firm to register the security of your bridge financing. The extra costs go into both drafting the additional paperwork as well as the actual cost of registering the bridge loan against title to your home at the Alberta Land Titles Office.
How Do I Obtain Bridge Financing?
Before buying your new home, you should speak with your mortgage specialist to clarify the fees, interest rates, and conditions that apply to bridge financing. Additionally, you should confirm whether you have the equity or ability to service the debt to qualify for bridge financing. Bridge financing lawyers are usually not a part of the process in getting the financing in place. Occasionally, lenders ask us to confirm that enough equity exists in your current home to support the loan. Bridge financing lawyers start helping, with regards to the loan, once approved.
When applying for bridge financing, you will be required to submit the following documents:
- signed sale and purchase agreements for both properties you are selling and buying;
- MLS listings for both properties involved in the sale and purchase;
- a copy of your mortgage statement; and
- other documents requested by your lender.
What If I Fail To Qualify for Bridge Financing?
If you do not qualify for bridge financing, you may also consider private lender bridge financing. However, this option is often much more expensive and should only be considered as a last resort. To learn more about your options, speak with your mortgage specialist.
What Else Is Bridge Financing Used For?
Apart from real estate transactions, bridge financing may also be available for
- small businesses;
- large business ventures;
- business expansions, mergers or acquisitions; and
- investment opportunities.
Legal Help with Bridge Financing
Bridge financing can be a useful temporary financing solution that can provide peace of mind by allowing you to borrow against the value of your current home in securing your new home. Bridge financing is not just for residential homeowners. Investors looking to finance a flip or rehabilitate a property should consider a bridge loan to finance construction. The real estate group at Kahane Law Office understand advising clients on bridge financing. Connect with our bridge financing lawyers today at 403-225-8810, or email us directly here. If easier, call us toll-free at 1-877-225-8817.