Bridge financing is a short-term loan, typically up to about 90 to 120 days, that lets you use the equity in your sold home to complete the purchase of your new home when the closing dates do not line up. In most cases the lender requires a firm sale on your existing home, and you repay the bridge loan in full as soon as your sale closes.
What problem does a bridge loan actually solve?
It solves a timing gap. Say you take possession of your new Edmonton home a few weeks before your current home closes. Your down payment is tied up as equity in the first home, but your new purchase needs that money on its possession date.
A bridge loan covers that gap. It is secured against the equity in the home you have sold, and it is designed to exist for days or weeks, not years. Once your sale completes, the proceeds repay the bridge and your regular mortgage on the new home carries on. See porting your mortgage when you buy before you sell.
Do you need a firm sale to get bridge financing?
In most cases, yes. Lenders generally require a firm sale on your existing home, meaning conditions have been removed and the sale is set to close, before they will approve a bridge loan.
That requirement protects everyone: the lender knows the source of repayment and the closing date, and you know the bridge has a clear end point. If your home is only listed, or your sale still has conditions, a bridge is usually not available and a different plan is needed.
“She got everything done fast and found me a great rate too. Honestly, I felt really taken care of the whole time.” — Vince, Google review
Credit: hobvias sudoneighm, via Wikimedia Commons (CC BY 2.0).
What does bridge financing cost?
Costs are generally interest on the amount bridged for the short period you use it, plus lender administration and legal costs to set it up and discharge it. Rates and fees vary by lender and file, so confirm them in writing for your dates and amount.
Because the period is short, the total interest is often modest relative to the move, but modest is not free — ask for the full estimated cost, including fees, before you commit. If your term is also ending, start with the Mortgage Renewal Check.
How do you qualify for a bridge loan?
You will need enough equity in your sold home to cover the amount bridged, a firm sale with a known closing date, and approval for the mortgage on your new home. The lender reviews both contracts, your credit, and your ability to carry costs during the overlap.
Documentation is straightforward but time-sensitive: both contracts, both closing dates, and confirmation of the equity available. Any change to either date after approval needs to be reported right away, because the bridge is built around those exact dates.
When is bridging the wrong answer?
Bridging is the wrong answer when there is no firm sale, when the gap is open-ended, or when carrying two properties, even briefly, would stretch your finances too thin. In those cases, negotiating matching dates, a longer possession window, or waiting until your sale is firm may be safer.
It is a tool for a short, defined gap between two certain dates. Used that way, it is one of the most practical products in a move. Used to hope a home sells in time, it creates risk instead of removing it. See the spousal buyout: bridging’s closest cousin in a separation.
Buying before your Edmonton sale closes? Call me at (780) 722-5621 before you set your dates, and I will confirm whether a bridge works for your sale and what it will cost, or start with the Pre-Approval & Refinance Check.
See blend-and-extend if the dates push you into a new term.
By Travis Bannert, Realtor and Mortgage Broker
Travis Bannert, Mortgage Broker | Next Door Mortgages, BFL Dominion Lending Centres | (780) 722-5621 | nextdoormortgages.com