If you’ve ever bought and sold a home at the same time, you know how stressful it can be to line everything up. In a perfect world, you’d sell your current place in the morning, buy your new one in the afternoon, and move straight in. But in real life, it rarely works that smoothly—and that’s where a bridge loan comes in.
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What is a bridge loan?
A bridge loan is short-term financing that lets you access the equity in your current home before the sale officially closes. In other words, it’s money advanced by your lender that “bridges the gap” between selling and buying. Most people need the funds from their sale to close on their purchase, and unless you’ve got a large amount of cash sitting around, it can be impossible to move forward without this type of financing.
It’s worth noting that bridge loans aren’t for everyone. First-time buyers won’t need one since they don’t have equity tied up in a property yet. Where bridge financing really comes into play is for move-up buyers, downsizers, or anyone transitioning from one property to another who needs their sale proceeds to complete their purchase.
Is it better to buy first or sell first? Do you really need a buyer’s agent? When’s the best time to buy? Get these answers and more with these posts next:
- Is it Better to Buy a Home or Sell First?
- When is the Best Time to Buy a Home in Toronto?
- Do You Really Need a Buyer’s Agent?
- Things that Fail a Home Inspection
Why the same-day plan often doesn’t work..
Many people try to schedule their sale and purchase for the same day. On paper, it looks efficient. But here’s the problem: the money from your sale doesn’t transfer instantly. Even if your buyers close first thing in the morning, your lawyer and the bank still need to process the funds and register title. That money often doesn’t land until late in the day, and by then it can be too late to use it for your own purchase. What looked like a perfect plan suddenly turns into a stressful waiting game.
I worked with clients recently who experienced this exact challenge. They bought their new home first and then sold their existing one quickly after. Everything seemed lined up until the buyers of their home asked for a later closing date. My clients now had a full week between when they needed to pay for their new house and when they would receive the funds from their sale. Without a bridge loan, they would have been stuck. Instead, their lender advanced them the money they needed, secured against the equity in their current home. They closed on their new property, moved in comfortably, and then finalized their sale a week later without a hitch.
Speaking of closing dates, what else is negotiable during a real estate transaction? Read our post: What’s Negotiable When Selling Your Home in Ontario
What to keep in mind!
Bridge loans are designed to be short-term. Sometimes you need them only for a few days, other times for a few weeks or even months. The interest rates are usually higher than a regular mortgage, but because the term is so short, the actual cost often isn’t as scary as people imagine. Lenders typically require a firm sale agreement on your current property before approving the loan, since that’s their assurance the money will be paid back quickly.
Bridge loans aren’t something everyone will need, but when timing doesn’t line up, they can be a lifesaver. They remove the stress of trying to choreograph closings down to the minute and give you peace of mind that you won’t lose your new home over paperwork delays.
Do you have more home-buying questions? Here are some more posts that might interest you:
- What Does the SC Escape Clause Mean?
- Fixed Rate Vs. Variable Rate Mortgage: A Guide for Buyers
- Should I Buy a Home That’s Been on the Market for a Long Time?
If you’re planning a move and want to know whether a bridge loan might come into play, let’s chat. It’s always better to plan ahead than scramble at the last second!
Thinking about buying a home in Toronto? We’re always happy to chat! Get the conversation started today by filling out the form on this page, calling us at 416.642.2660, or emailing us at admin@torontorealtygroup.com.
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