Bridge Financing: What You Need to Know
Lisette Amalfi
March 04, 2025
Bridge financing is a short-term loan that helps you transition between selling your current home and purchasing a new one. It’s commonly used when the closing date of your new home occurs before the closing date of your existing home, leaving you temporarily without the funds from your sale.
As a mortgage broker with over 23 years of experience serving clients in Hamilton, Ancaster, and across Ontario, I often assist homeowners in understanding and securing bridge financing to make their move seamless.
How Does Bridge Financing Work?
Purpose: Bridge financing provides the funds you need to cover the down payment or balance on your new home while you wait for the sale of your existing home to close.
Loan Term: These loans are short-term, typically lasting from a few days to several months, and are repaid as soon as the sale of your current home is finalized.
When Do You Need Bridge Financing?
Mismatch in Closing Dates
If your new home closes before your current home sells, bridge financing fills the gap between the two transactions.
Using Proceeds from Your Current Home
If your down payment or the balance of your new mortgage depends on the proceeds from your existing home sale, bridge financing ensures you can close on time.
How Much Can You Borrow?
The amount you can borrow through bridge financing depends on the equity in your current home.
Calculation:
Available Funds = (Sale Price of Current Home - Mortgage Balance) - Closing Costs (if applicable)
Example:
- Sale price of current home: $700,000
- Mortgage balance: $400,000
- Closing costs: $10,000
- Available Funds: $700,000 - $400,000 - $10,000 = $290,000
You could borrow up to $290,000, depending on your needs.
Costs of Bridge Financing
Interest Rates
Bridge financing rates are typically higher than regular mortgage rates because it’s a short-term loan. Rates can range from prime + 1% to prime + 3%, depending on the lender.
Administrative Fees
Lenders may charge a setup fee, usually between $200 and $500.
Interest-Only Payments
Most bridge loans require interest-only payments during the loan term, minimizing upfront costs.
Requirements for Bridge Financing
Firm Sale Agreement for Your Current Home
Most lenders require proof that your existing home is sold (a firm purchase agreement). If your home isn’t sold yet, options may still exist, but terms will be stricter.
Strong Credit and Financial Standing
Lenders need assurance that you can repay the loan. Good credit and financial stability are key.
Down Payment on the New Home
You’ll need to meet the minimum down payment requirements for your new home. Bridge financing can cover this if the funds are tied up in your current home.
Advantages of Bridge Financing
✅ Smooth Transition – Avoids the stress of aligning closing dates and allows you to move into your new home without waiting for your current home’s sale to finalize.
✅ No Rush to Sell – Gives you time to secure the best possible price for your current home rather than rushing to meet a deadline.
✅ Flexibility – Allows you to secure your dream home even if your existing home hasn’t closed yet.
Potential Challenges
⚠️ Higher Costs – Bridge loans come with higher interest rates and fees compared to standard mortgages.
⚠️ Firm Sale Requirement – If your current home isn’t sold yet, you may need to explore alternative solutions, such as a home equity line of credit (HELOC) or private lending.
⚠️ Qualification Process – Lenders require strong financial standing and may be more cautious if there are uncertainties around your home sale.
How I Can Help
As your mortgage broker, I make the bridge financing process simple and stress-free:
🔹 Evaluate Your Needs – I’ll assess your financial situation and determine if bridge financing is the right option for your transition.
🔹 Find the Right Lender – I work with a wide network of lenders, ensuring you get competitive rates and terms.
🔹 Handle the Details – I’ll guide you through the documentation process, coordinate with your lender, and ensure everything is ready for closing day.
🔹 Explore Alternatives – If bridge financing isn’t the best fit, I’ll help you explore other options, such as a HELOC, second mortgage, or short-term private financing.
Key Takeaway
Bridge financing can make buying and selling a home more manageable by providing the funds you need to cover gaps between closing dates.
If you’re considering a move and need expert advice on bridge financing or other mortgage solutions, let’s connect. I’m here to guide you through the process and ensure a smooth transition into your new home!
📞 Call me at: 905-929-1199 📧 Email me at: lamalfi@tmacc.com