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Unlocking Opportunities: A Deep Dive into Bridge Financing

by | Feb 5, 2024

Bridge Financing

Unlocking Opportunities: A Deep Dive into Bridge Financing

In the dynamic realm of real estate, navigating the intricate web of transactions can sometimes be a financial juggling act. One tool that has proven invaluable in such scenarios is Bridge Financing. In this blog post, we will explore the ins and outs of Bridge Financing, shedding light on its purpose, costs, duration, borrowing limits, and the essential documents needed.

What is Bridge Financing?

Bridge Financing acts as a short-term financial bridge, helping individuals smoothly transition between the sale of their existing property and the purchase of a new one. This financial aid is crucial when the closing dates for the old property’s sale and the new property’s purchase do not align seamlessly.

Consider this scenario: You’ve successfully sold your house and are ready to move into a new home. However, your new purchase closes on June 30th, while the sale of your existing house isn’t finalized until July 15th. This is where Bridge Financing comes into play, providing the funds needed for the down payment on the new property before the proceeds from the sale of the existing house are available.

What Does Bridge Financing Cost?

While Bridge Financing can be a lifeline in time-sensitive real estate transactions, it comes with associated costs that you should understand. Borrowers can expect to be charged interest on the borrowed funds, a rate typically based on the Prime Rate and varying among lenders. Prime plus 2 to 5% is a common range for this interest rate.

The calculation of the bridge loan involves a daily cost to the borrower, and this amount is settled with the lender upon the completion of the sale of the previous property. Additionally, borrowers should anticipate administrative fees, which can range from $200.00 to $695.00, depending on the lender.

How Long Can I Have Bridge Financing For?

The duration of Bridge Financing is not one-size-fits-all; it depends on the lender and the province in which the transaction is taking place. Typically, Bridge Financing spans 30 to 90 days, but some lenders are willing to extend this period to 120 days. Understanding the specific terms and conditions with your lender is crucial for effective financial planning.

How Much Can I Borrow with Bridge Financing?

Determining the amount you can borrow through Bridge Financing involves a comprehensive calculation:

{Bridge Financing} = Sale Price – Estimated Closing Costs (7%) – New Mortgage of the Purchase Property

The estimated closing costs cover expenses such as realtor commissions, property transfer tax, title insurance, legal fees, and appraisal costs where applicable.

What Documents Are Required?

To initiate Bridge Financing, you’ll need to provide a set of essential documents to your lender, including:

  • A firm contract of purchase and sale with a copy of the signed and dated subject removal on both the property you are selling and the one you are purchasing.
  • An MLS listing of the properties involved in the transaction.
  • A copy of your current mortgage statement.
  • Any additional documents required by the lender to meet the conditions of the new mortgage.

Conclusion: When is Bridge Financing Needed?

While Bridge Financing is not a routine necessity, there are times when it becomes a crucial financial tool. It ensures that you have the necessary funds for your down payment, bridging the financial gap between property transactions. 

At GLM Mortgage Group, we comprehend the nuances of Bridge Financing and are committed to securing the best mortgage product tailored to your unique needs. 

Whether you’re navigating a complex real estate transition or simply exploring your financial options, we’re here to guide you towards a seamless and successful outcome. Call us at any time, and we will be happy to help.

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