Bridge Financing: What It Is and When You Need It

Found your dream home but haven't sold your current one yet? Bridge financing covers the gap so you don't miss out on your new property while waiting for your existing home to sell.

What Is Bridge Financing?

Bridge financing (also called bridge loan or interim financing) is a short-term loan that:

• Covers the down payment gap when buying before selling
• Uses equity in your current home as collateral
• Is repaid when your current home sells

Typical term: 1 day to 6 months

When Do You Need Bridge Financing?

Scenario 1: Closing dates don't align
You're buying on June 1, but your sale closes June 15. You need 2 weeks of bridge financing.

Scenario 2: Buying before selling
You've found a new home but haven't yet sold your current one. Bridge financing covers the gap.

Scenario 3: Conditional sale fell through
Your buyer backed out after you committed to a purchase.

How Bridge Financing Works

Example:

• New home purchase price: $700,000
• Down payment required: $140,000 (20%)
• Current home sale price: $500,000
• Current mortgage balance: $200,000
• Equity available: $300,000

Bridge loan: $140,000 (your down payment)
Repaid from: $300,000 equity when current home sells

Costs of Bridge Financing

Bridge loans aren't cheap:

Interest rates: Prime + 2% to Prime + 4%
Administration fee: $200-500
Legal fees: $500-1,000

Example cost calculation:

• Bridge loan: $150,000
• Rate: 8%
• Term: 60 days
• Interest: $150,000 × 8% × (60/365) = $1,973

Total cost: ~$2,500-3,500 for 60 days

Qualification Requirements

You typically need:

• Firm sale agreement on your current home (for traditional bridge)
• New purchase agreement
• Sufficient equity in current home
• Ability to carry both mortgages temporarily (if no sale yet)

Without a firm sale:
Some lenders offer bridge financing without a sold property, but:

• Higher rates
• More restrictive terms
• May require more equity

How to Apply for Bridge Financing

Option 1: Through your mortgage lender
Many lenders offer bridge financing alongside your new mortgage.

Option 2: Through a separate lender
Banks and credit unions offer stand-alone bridge loans.

Option 3: Through a broker
We can arrange bridge financing from various sources.

Alternatives to Bridge Financing

1. Align closing dates
Negotiate your sale and purchase to close on the same day.

2. Include a condition on sale
Make your purchase conditional on selling your current home.

3. Rent back from buyers
Stay in your old home after closing while buying your new one.

4. HELOC in advance
Set up a line of credit before listing so you don't need bridge.

5. Delay your purchase
Wait to buy until after you've sold.

Risks to Consider

If your home doesn't sell:
Extended bridge financing gets expensive, and you may need to reduce your asking price.

If your sale falls through:
You could be stuck with two mortgages and a bridge loan.

Market downturn:
If your home sells for less than expected, bridge loan repayment becomes challenging.

Best Practices

✓ Have a firm sale before buying whenever possible

✓ Keep bridge period short (weeks, not months)

✓ Price your home realistically to ensure quick sale

✓ Have contingency funds in case of delays

✓ Work with experienced professionals who've handled complex closings

FAQ

Q: Can I get bridge financing without selling my home first?
A: Yes, but it's more expensive and riskier. Lenders prefer firm sale agreements.

Q: What if my home doesn't sell during the bridge period?
A: You may need to extend the bridge (at a cost) or reduce your home price to sell quickly.

Q: Is bridge financing available from all lenders?
A: No. Some banks and most monoline lenders offer it, but not all.

Q: Can I use bridge financing for a vacation property?
A: Yes, but terms may be stricter. See our second home guide.

Q: How far in advance should I arrange bridge financing?
A: As soon as you're making an offer on a new property. Don't wait until closing approaches.

What's Next

Bridge financing is a useful tool but comes with costs and risks. Before committing to buy before you sell, understand all your options and have backup plans in place. Contact us to discuss your specific situation.