Bridge Financing: What is it and how to use it

In a competitive market, closing dates rarely line up perfectly and that can create a gap in funding for your next purchase. That’s exactly where bridge financing comes in — it BRIDGES the financial gap between selling one home and buying another.

In simple terms, a bridge loan allows you to access the equity in your existing home before the sale closes so you can use those funds as a down payment on your new home. Once your current home sells, the proceeds are used to repay the bridge loan, including any accrued interest and fees.

If you would like to watch a full explanation, see the video at the bottom of the page

Why Home Buyers Use Bridge Financing

• Closing date mismatch: You find your dream home but the sale of your current property hasn’t closed. Bridge financing helps you move forward without waiting on funds.

• Access to equity sooner: You need the equity from your existing home to cover the down payment or closing costs on a new purchase.

• Moving flexibility: Some people want time between closing dates to coordinate their move or do renovations without pressure.

How Bridge Loans Work

1. You have a signed purchase agreement for the new home and a firm sale agreement on your current property.

2. Your lender advances you a bridge loan based on your available equity, which you then use as part or all of your down payment.

3. Once your current home sale closes, the proceeds are used to repay the bridge loan.

Bridge loans are usually meant to last only a few weeks to a few months

Different Elements of the Bridge Loan

• Cost:
  - Base fee: Depending on the lender could be $250, could be $750
  - Rate on the loan amount would be a variable rate, as example: Prime + 2% (This would change from lender to lender)
  - Because bridge financing is short-term and comes with extra risk for the lender, it generally has higher interest rates than a traditional mortgage.

• Amount
  - Each lender sets different minimum and maximum bridge loan amounts (Could be as little as $5,000 for a minimum and $350,000 for a maximum, but again, it depends on the lender)

• Length
  - Some lenders might allow 90 days, some might allow 120 days. As with everything else, the changes lender to lender

• Misc.
  - Some lenders don’t have a bridge financing product so they outsource it
  - Some lenders register the bridge loan on title until it’s paid off
  - Some lenders register the bridge loan as a second mortgage on both of the properties until it’s paid off

Pros and Cons of Bridge Financing

Pros:
- Helps you secure a new property without waiting for the sale of your current one to go all the way through closing
- Gives you access to your home equity sooner
- Provides flexibility with moving dates

Cons:
- Short-term costs can be high
- You may temporarily carry two mortgages plus the bridge loan
- Not all lenders offer bridge loans, so you may need to work with certain lenders

Is Bridge Financing Right for You?

Bridge financing is a strategic tool, not a default path. It works when you have solid equity in your current home and firm closing dates for both transactions. Your mortgage broker can help you decide if a bridge loan fits your situation.