It is unlikely that the first homes people buy can be the only houses they stay in forever. Regardless of this, you might want to sell it and buy a new house to downsize, upgrade, or move locations.
In this case, many homeowners may want to consider equity from existing homes and use them to purchase a new house.
Unfortunately, you might get stuck in a scenario where a closing date for the house you want to buy is before the closing date of a home you wish to sell, leaving you with no down payment for the new property. In such a case, bridge financing in BC, Canada remains one of the best tools you can use.
How a Bridge Loan Works
Bridge loans are a type of short-term financing that helps homeowners get new homes while their present ones are being sold.
In simple terms, it will enable you to bridge a gap existing between mortgages, making you stay in a hotel or sell your present home by force.
Since a bridge loan is short-term financing, it has a higher interest rate than other home equity financing options.
As a result, you can end up paying several percentage points in interest than you can in:
- Home equity loan
- Traditional mortgage
Qualifying for a Bridge Loan
With many banks, you can obtain a bridge loan when you have sufficient equity in your current house to repay the loan after closing a deal for the new property.
The approval for bridge loans usually happens faster and when you apply for regular mortgage financing. Lenders may easily verify if you have enough home equity to repay your loan.
For some lenders to protect their interest, they choose to register liens against properties. This normally happens when bridge loans are bigger, and it means the proceeds of the sale can be used to repay loans in case borrowers default.
Cost of Bridge Financing
In BC, Canada, sellers expect to pay due diligence fees to lenders. The interest rate is calculated monthly using a mortgage calculator. Plus, it is usually deal-dependent, ranging from around two to four cents every month.
When buying a new home and waiting for your existing house to sell, you might want to consider bridging for this kind of transaction, giving you peace of mind.
Bridge Financing Alternatives
If you have some savings or access to precious gifts from family members, this can be a suitable alternative when it comes to bridging finance.
Though in many situations, there will be silver bullets. If closing dates of purchase may not be in line with each other, then you might choose to:
- Extend your closing date
- Get a HELOC
In a Nutshell!
Bridge financing is a great way to fund your down payment on the house you want to buy before selling the existing house.
All you have to do is secure bridge funding in BC, Canada, in a signed contract from buyers with steady closing dates.
Although interest rates on a bridge loan are significantly high, the costs are normally reasonable because you will pay the interest for a short period.