So, you have bought your beautiful new home and sold your existing home first, but it closes after your new home. What to do because your down payment is stuck in your existing home. This is where you need a Bridge Loan.
A Bridge Loan is most often, an unsecured loan where the lender for the new mortgage lends the borrower the down payment and closing costs for the new property purchase. Bridge Loans are high risk loans, because the lender would be exposed if the existing house does not sell. Here are a few important things to note about Bridge Loans:
• There is always an application fee of approximately $300
• The interest rate for Bridge Loans are higher and range from Prime + 2% to Prime + 4%
• Not all lenders offer Bridge Loans, so make sure that this is a feature in the new mortgage. There are other options for lenders who do not offer Bridge Loans
• If the Bridge Loan amount is above a certain amount or longer than a month, the lender might register a mortgage for the Bridge Loan so that the borrower will incur additional legal fees.
• Both homes have to be sold firm for a Bridge Loan to apply, not just be listed. Thus the existing property does not have to be closed, but a sale agreement has to be firm approximately 15 business days before the closing date of the new house.
• Your mortgage provider should have a ‘Plan B’ in place for you in case you don’t sell your existing home in time for the closing of the new house.
Risks of a Bridge Loan
1. The sale of your existing loan falls through or your existing home does not sell, which will mean that you do not qualify for a Bridge Loan.
2. During the bridge period the borrower is responsible for both mortgage payments, so plan and budget well.
Benefits of a Bridge Loan
1. The sale and purchase dates of the properties do not have to be on the same date.
2. Most people bridge deliberately and by choice because it takes the pressure off of them on moving day and it allows them to do renovations or prepare their new home before they move in.
3. Bridge Loands are fairly inexpensive for the benefit that the borrower gets. Have a look at our Bridge Loans Calculator.
Contact us for help with your Bridge Loan needs.