What do you do when:
Ideally, you could get a loan to fund the new down payment, thus “bridging” the gap until your existing home sells and you can cash out of it.
The problem is, “Most banks will not provide bridge financing without a bonafide, unconditional sale of the property being sold,” says Hali Noble, SVP at Fisgard Asset Management, a mortgage investment corporation (MIC).
Bridge loans also come in handy when you need the equity from your existing home, but you haven’t even listed it for sale yet.
“We see this happening in very hot markets where a buyer wants to make sure they can secure a new property before their home is listed or sold…[to] be sure they have a place to go,” Noble adds. The last thing some families want is to sell their home and be continually outbid on a new one or not find a suitable new home at all.
Conversely, some people can’t afford to risk getting locked into a purchase contract with no way to fund the down payment, given most of their cash is locked up in their home.
Enter bridge financing through a MIC. It’s one of the most flexible short-term lending solutions there is. The rates start at 6.99% to 7.49% plus a 0% to 1.5% fee, depending on the bridge type.
The payments are interest-only. Or, in cases where the bridge is only 60 days or less, there may be no payments at all, just a balloon payment when you sell your old home.
But why would you want to pay a rate like 6.99%? Well, four reasons:
“We focus on the equity, not a borrower’s ability to pay…unless the bridge is over two months,” says Noble. “Beyond two months, we need to feel comfortable that they can maintain the monthly interest payments.”
Fisgard can even provide a bridge in one province despite the home being in another (e.g., for a borrower moving from Toronto, ON to Victoria, BC).
To qualify for a non-prime bridge loan at a lender like Fisgard, you generally need:
“It is important to note that bridge financing is typically a first mortgage secured by the property being purchased and a second mortgage over the property being sold,” says Noble. That can result in higher legal fees. But that may be a small price for the assurance you get of knowing you can close on a new home and always have a place to live.