Oftentimes, the problem that most aspiring homeowners face is the overlap that happens between the closing date of the home they just bought and the time they finally sell their old home.
This overlap is a problem that has spanned across decades ever since the formal structure for financing and selling a home was invented. Although you might think that it should’ve been solved by now, it still exists for most people.
Classic examples of a buy-sell overlap
Whether it’s down to a lack of planning or just pure misfortune, the bridge between your old home and the new one can be much shorter than you’d like, which can lead to you not having enough money to pay for the home you just secured. For example: if your new home is set to be turned over to you on April 20, but the selling of your current house closes on May 14, you’ll definitely have a bit of a problem with financing your new home.
Should this overlap problem happen to you, you’ll most likely end up having to consider one of two things: push your buyers to pay earlier or end up dropping the purchase of your home. Now, in order to alleviate the overlap, you don’t have to look desperate or lose your chance to live in your dream home. You can just use bridge financing to solve this logistical problem.
Defining what a bridge loan is and what it does
Before we talk about how you can use bridge financing to your advantage in dire situations, let’s look at what it is and how it works first:
Bridge financing is a temporary loan that covers or handles the time between the closing date of your old home and your new one by loaning you the amount that you need from your sale so you can make the deadline. Bridge financing acts as an advance withdrawal from your sale ahead of the actual payment and can be found right away with any loan servicer or bank.
However, you should that financiers or loan servicers will only approve you for bridge financing if the sale of your old property is guaranteed. That means that it shouldn’t have any conditions left to fulfil and isn’t conditional in nature.
The bridge financing equation
When applying for bridge financing, you’ll be greeted with a wide range of options with different rates that cater to a whole assortment of needs that you might have. To stay within your budget, here’s a formula that you should follow:
Down payment – deposit submitted with your offer = bridge financing amount
Another important factor to consider is that you should know the exact amount that you’ll be getting from the sale after all the expenses are deducted from it. The standard bridge loan lasts for a maximum of 60 days, so it’s best to plan ahead of time. You need to come up with a way that will allow you to make the payment within the prescribed period.
If you’re looking to buy real estate in Toronto, get in touch with us today – we’re happy to help you find a property that suits you.