Residential property bridge financing loans are most common when the purchase date for a new home is going to occur before the closing date for the sale of the existing home. This is not an unusual series of events when trying to sell property and purchase property at the same time. In fact, most mortgage companies have a bridge financing program for you to utilize, provided that you’ve already committed to accepting a mortgage financing offer from the same company for your new purchase.
Lets take a close look at a bridge loan, why its required, and how it works.
First of all, the situation outlined above is that an individual or individuals is trying to sell their existing house while at the same purchase a new home. In an ideal world, the sale of the existing home would be completed first, allowing any equity freed up from the closing to be applied to the new home purchase. Unfortunately, the timing of the two separate transactions is not always perfect, creating a need to have money available to close the new home purchase before the existing home is sold.
Because the new residential mortgage is going to be based on the financial profile of the applicant or applicants post sale of their home, the new mortgage lender sees providing the bridge loan as a way to complete the purchasing transaction without taking any unnecessary risk in the process.
As long as the bridge financing period is less than 90 days, most mortgage lenders that provide bridge loans won’t even require that a collateral mortgage be registered against the existing property.
From a mechanical point of view, the borrowers will likely have to sign a letter of direction to have the proceeds from the soon to be completed sale of their existing home be directed to the new lender so that the bridge loan can be immediately retired from the available proceeds, as soon as they become available.
The actual proceeds from the bridge loan are advanced directly to the borrower’s solicitor so that they can be used to complete the purchase of the new home.
In the event that the mortgage lender is not in a position to provide a bridge loan, the borrowers could still turn to a private mortgage solution, which would likely require that a collateral mortgage be registered on the existing property.
For more information on residential property bridge financing, give us a call and I’ll make sure you get all your questions answered right away.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel