When your new home's closing date arrives before your current home sells, bridge financing provides the short-term capital you need. Understanding how bridge loans and interim financing work helps you navigate this common real estate timing challenge.
What Is Bridge Financing?
A bridge loan (also called bridge financing or interim financing) is a short-term loan that covers the gap between buying your new property and selling your existing one. It's secured against your current home's equity and typically lasts 30 to 120 days.
How It Works:
- You purchase your new home with a standard mortgage
- The bridge loan covers your down payment using equity from your existing home
- When your current home sells, proceeds pay off the bridge loan
- You keep the difference as equity in your new property
When Do You Need Bridge Financing?
Scenario 1: Closing Dates Don't Align
You've sold your current home but the buyer's closing date is 3 weeks after your new purchase closes. You need temporary funds for your down payment.
Scenario 2: Buying Before Selling
You found your dream home but haven't sold yet. With strong equity in your current property, interim financing lets you act quickly.
Scenario 3: Conditional Sale
Your existing home is sold conditional on financing, but you need certainty for your new purchase.
Bridge Loan Costs Breakdown
Bridge financing typically costs:
| Cost Component | Typical Range |
|---|---|
| Interest Rate | Prime + 2% to Prime + 4% |
| Administration Fee | $200 - $500 |
| Legal Fees | $500 - $1,500 |
| Appraisal (if required) | $300 - $500 |
Example Calculation:
- Bridge amount: $150,000
- Duration: 60 days
- Interest rate: Prime (7.2%) + 3% = 10.2%
- Interest cost: $150,000 × 10.2% × (60/365) = $2,515
- Plus administration fee: $400
- Total bridge cost: ~$2,900
Qualifying for Bridge Financing
Most bridge loans require:
- Firm sale agreement on your existing property
- Sufficient equity in your current home to cover the bridge amount
- Approved mortgage for your new purchase
- Same lender for both your new mortgage and bridge loan (in most cases)
Bridge Financing vs. Other Options
HELOC (Home Equity Line of Credit)
If you have an existing HELOC with available room, it may be cheaper than a bridge loan.
Delayed Closing Negotiation
Ask your new home's seller to delay closing to match your sale date.
Rent-Back Agreement
Negotiate to rent your sold home for a few weeks after closing.
Portable Mortgage
Some mortgages allow you to transfer (port) your existing mortgage to your new property.
Common Bridge Financing Mistakes
- Underestimating carrying costs: You'll pay mortgage payments on BOTH homes during the bridge period
- Not having backup plans: What if your current home's sale falls through?
- Waiting too long: Apply for bridge financing as soon as you know you'll need it
The Bottom Line
Bridge financing is a valuable tool that enables you to purchase your new home without waiting for your current property to sell. While bridge loans add cost to your transaction, they provide flexibility in competitive real estate markets.
Planning a move and need to coordinate financing? Contact our team to discuss your bridge financing options and timing strategy.
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