Bridge Financing
Traditionally when home owners sell and purchase the down payment comes from the sale proceeds of the home being sold. Therefore ideally the completion date for the sale is before the completion date of the purchase. As much as your realtor attempts to coordinate the closing dates to accommodate this timeline, it is not always possible.
If the down payment is coming from the sale of your existing property and the completion date for the sale is AFTER the completion date of the purchase then a bridge loan is required. A bridge loan is a temporary loan that bridges the gap between the sales price of a new home and a home buyer's new mortgage. The bridge loan will be paid upon the closing of the sale and is also referred to as interim financing.
In order for the lender to set up a bridge loan there must be a firm sale and firm purchase. The firm sale should be in place at least 2 weeks before the completion date of the purchase. Please note different lenders have different policies.
Example
John Doe is purchasing a home for $350,000 from Jane Doe, of which $300,000 is financed through a mortgage. The down payment of $50,000 will be from the proceeds of the sale of John Doe's original home.
A closing date for John Doe's purchase is March 31st, but the sale of John Doe's original home cannot be closed until April 30.
A bridge loan of $50,000 is required for 30 days, the proceeds of which will be paid to Jane Doe on March 31st, along with the proceeds of the $250,000 mortgage, to permit Jane Doe to be paid in full at closing. When the sale of John Doe's original home is closed on April 30th, the proceeds will be used to pay back the $50,000 bridge loan plus any interest accruing in the 30 day period.
If the down payment is coming from the sale of your existing property and the completion date for the sale is AFTER the completion date of the purchase then a bridge loan is required. A bridge loan is a temporary loan that bridges the gap between the sales price of a new home and a home buyer's new mortgage. The bridge loan will be paid upon the closing of the sale and is also referred to as interim financing.
In order for the lender to set up a bridge loan there must be a firm sale and firm purchase. The firm sale should be in place at least 2 weeks before the completion date of the purchase. Please note different lenders have different policies.
Example
John Doe is purchasing a home for $350,000 from Jane Doe, of which $300,000 is financed through a mortgage. The down payment of $50,000 will be from the proceeds of the sale of John Doe's original home.
A closing date for John Doe's purchase is March 31st, but the sale of John Doe's original home cannot be closed until April 30.
A bridge loan of $50,000 is required for 30 days, the proceeds of which will be paid to Jane Doe on March 31st, along with the proceeds of the $250,000 mortgage, to permit Jane Doe to be paid in full at closing. When the sale of John Doe's original home is closed on April 30th, the proceeds will be used to pay back the $50,000 bridge loan plus any interest accruing in the 30 day period.