{"id":283282,"date":"2023-05-05T20:25:56","date_gmt":"2023-05-05T20:25:56","guid":{"rendered":"https:\/\/wahi.com\/ca\/en\/?p=283282"},"modified":"2023-10-12T20:44:13","modified_gmt":"2023-10-12T20:44:13","slug":"the-pros-and-cons-of-bridge-financing","status":"publish","type":"post","link":"https:\/\/wahi.com\/ca\/en\/learning-centre\/real-estate-101\/buy\/pros-cons-bridge-financing\/","title":{"rendered":"The Pros and Cons of Bridge Financing"},"content":{"rendered":"\n\n\n[et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”||3px|||” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” width=”95%” max_width=”100%” custom_margin=”||||false|false” custom_padding=”55px||15px||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_breadcrumb _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_breadcrumb-link title=”Real Estate 101″ _builder_version=”4.18.0″ _dynamic_attributes=”link_option_url” _module_preset=”default” link_option_url=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9saW5rX3VybF9wYWdlIiwic2V0dGluZ3MiOnsicG9zdF9pZCI6IjcyMiJ9fQ==@” global_colors_info=”{}”][\/wahi_breadcrumb-link][wahi_breadcrumb-link title=”Buy” _builder_version=”4.18.0″ _dynamic_attributes=”link_option_url” _module_preset=”default” link_option_url=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9saW5rX3VybF9wYWdlIiwic2V0dGluZ3MiOnsicG9zdF9pZCI6IjE2MzIifX0=@” global_colors_info=”{}”][\/wahi_breadcrumb-link][wahi_breadcrumb-link title=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF90aXRsZSIsInNldHRpbmdzIjp7ImJlZm9yZSI6IiIsImFmdGVyIjoiIn19@” _builder_version=”4.18.0″ _dynamic_attributes=”title” _module_preset=”default” module_text_color=”#686E6E” global_colors_info=”{}”][\/wahi_breadcrumb-link][\/wahi_breadcrumb][\/et_pb_column][\/et_pb_row][et_pb_row custom_padding_last_edited=”on|phone” _builder_version=”4.18.0″ _module_preset=”default” custom_margin=”-7px|auto||auto||” custom_margin_tablet=”-7px|auto||auto||” custom_margin_phone=”-15px|auto||auto|false|false” custom_margin_last_edited=”on|phone” custom_padding=”14px||16px|||” custom_padding_tablet=”14px||16px|||” custom_padding_phone=”0px||16px||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _dynamic_attributes=”content” _module_preset=”default” header_font_size=”3.5rem” header_line_height=”4.5rem” custom_margin=”16px|||||” header_font_size_tablet=”42px” header_font_size_phone=”2rem” header_font_size_last_edited=”on|phone” header_line_height_tablet=”4.5rem” header_line_height_phone=”2.75rem” header_line_height_last_edited=”on|desktop” global_colors_info=”{}”]@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF90aXRsZSIsInNldHRpbmdzIjp7ImJlZm9yZSI6IjxoMT4iLCJhZnRlciI6IjwvaDE+In19@[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_margin=”-10px|auto||auto||” custom_padding=”1px||1px|||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_socialsharing _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][\/wahi_socialsharing][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”13px||21px|||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.2″ _module_preset=”default” text_font_size=”24px” text_line_height=”1.75rem” min_height=”73px” custom_margin=”||25px||false|false” text_font_size_tablet=”24px” text_font_size_phone=”1.1rem” text_font_size_last_edited=”on|phone” global_colors_info=”{}”]
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If you\u2019re buying and selling a home at the same time, here\u2019s everything you need to know about bridge loans<\/span>.
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By Emily Southey<\/a> | 8 minute read<\/p>[\/et_pb_text][et_pb_post_title title=”off” author=”off” date_format=”M j” categories=”off” comments=”off” featured_image=”off” _builder_version=”4.18.0″ _module_preset=”default” custom_margin=”||1px|||” global_colors_info=”{}”][\/et_pb_post_title][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”0px||3px|||” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” width_tablet=”” width_phone=”100%” width_last_edited=”on|phone” custom_padding=”6px||3px|||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_image src=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9mZWF0dXJlZF9pbWFnZSIsInNldHRpbmdzIjp7fX0=@” align=”center” force_fullwidth=”on” _builder_version=”4.18.0″ _dynamic_attributes=”src” _module_preset=”default” custom_margin=”||-1px|||” border_radii=”on|32px|32px|32px|32px” border_radii_tablet=”on|32px|32px|32px|32px” border_radii_phone=”on|0px|0px|0px|0px” border_radii_last_edited=”on|phone” global_colors_info=”{}”][\/et_pb_image][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”34px|||||” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”0px|||||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.2″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” text_font_size_tablet=”21px” text_font_size_phone=”16px” text_font_size_last_edited=”on|phone” header_2_font_size_tablet=”36px” header_2_font_size_phone=”25px” header_2_font_size_last_edited=”on|phone” global_colors_info=”{}”]

Bridge financing is a short-term loan that can be used to purchase a new home before your existing home is sold. Many mortgage lenders offer bridge loans in Canada as a means of helping borrowers fund their down payments on new homes. So if you are planning on selling your current home and buying a new one, a bridge loan may be necessary to keep you afloat until your sale is confirmed and you receive the money. Please note that bridge financing is dependent on your current home\u2019s equity. Therefore, these types of loans can only be used when a borrower has enough home equity built up to repay it in a short period. As mentioned, bridge loans are short term and typically do not need to be paid off before the borrower’s current home is sold (this can be as short as six months or up to 36 months). Bridge loans ultimately give buyers an opportunity to purchase a new home without worrying about selling their existing home fast. This may translate to a better offer for the seller.\u00a0<\/span><\/p>\n

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Please note that bridge financing and home equity lines of credit (HELOCs) are not the same. While the former requires borrowers to pay back their loan when their existing property sells, the latter requires borrowers to make monthly interest payments. Although HELOCs are generally a less costly alternative, they may not be the best decision for buyers who are strapped for cash. <\/span><\/p>\n

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How Bridge Loans Work<\/h2>\n

Bridge loans work as follows: Borrowers apply for a bridge loan through a mortgage lender (often the same lender that is underwriting the mortgage on their new home). The amount of the bridge loan that the lender approves will not exceed the equity value of the borrower\u2019s current home.\u00a0<\/span><\/p>\n

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Before approving a bridge loan, the mortgage lender will ask the borrower\u2019s real estate<\/a> attorney to sign an Assignment of Proceeds Sale, which is a document outlining the terms of the bridge loan (for example, that the bridge loan will be repaid in full once the sale of the borrower\u2019s current home is complete). On the day the home is sold, when the seller and buyer\u2019s respective real estate attorneys settle the accounts, they will pay off the bridge loan by depositing the funds back to the lender (along with any additional fees or interest).\u00a0<\/span><\/p>\n

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Qualifying for a Bridge Loan<\/h2>\n

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Bridge loan qualifications vary between mortgage lenders. For example, some might stipulate that the borrower has a firm closing date from a buyer in order to obtain financing. In such an instance, the borrower would need to have the buyer sign a contract confirming this. On the other hand, some mortgage lenders \u2014 especially private lenders \u2014 may offer bridge loans without a sale agreement. That said, bridge loans from private lenders tend to be significantly more expensive.\u00a0<\/span><\/p>\n

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It\u2019s also worth noting that some mortgage lenders simply do not offer bridge loans owing to the risk involved. If your lender is one of these, you may be forced to apply for a bridge loan through a private lender.\u00a0<\/span><\/p>\n

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No matter how or from what lender you qualify for a bridge loan, borrowers should be prepared to provide an up-to-date copy of the mortgage statement on their current home, as this will show how much equity remains after the sale is complete. Assuming you have sufficient home equity and are approved for a bridge loan, your loan will be equal to the down payment on your new home less the deposit you paid at the time your offer was accepted. <\/span><\/p>\n

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“Bridge financing and home equity lines of credit (HELOCs) are not the same. While the former requires borrowers to pay back their loan when their existing property sells, the latter requires borrowers to make monthly interest payments.”<\/span><\/h2>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” text_font_size_tablet=”21px” text_font_size_phone=”16px” text_font_size_last_edited=”on|phone” header_2_font_size_tablet=”36px” header_2_font_size_phone=”25px” header_2_font_size_last_edited=”on|phone” global_colors_info=”{}”]

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The Cost of a Bridge Loan<\/h2>\n

As you can imagine, bridge loans cost money to obtain. In Canada, there are typically two types of fees associated with bridge financing: interest and administrative costs.\u00a0<\/span><\/p>\n