How to get a Bridge Loan to buy a New House and Sell your old one
Tags: Bridge Loan, Buy House
A bridge loan is a type of short-term financing that can help you bridge the gap between buying a new home and selling your current one. Here are some general steps you can take to get a bridge loan to buy a house in Canada:
Determine if you qualify for a bridge loan: Not all lenders offer bridge loans, so the first step is to find out if you qualify. Typically, lenders will require that you have significant equity in your current home and a strong credit score.
Find a lender: Once you've determined that you qualify for a bridge loan, you'll need to find a lender. You can start by reaching out to your current mortgage lender or bank to see if they offer bridge loans. You can also search for other lenders online.
Provide financial information: To apply for a bridge loan, you'll need to provide financial information, such as proof of income, credit history, and details about the home you're buying and the one you're selling.
Get an appraisal: Your lender will likely require an appraisal of both your current home and the one you're buying to determine the value of each property.
Agree to loan terms: If you're approved for a bridge loan, your lender will provide you with loan terms, such as interest rate and repayment period. Be sure to carefully review the terms and ask any questions you may have.
Close the loan: Once you agree to the loan terms, you'll need to sign legal documents and transfer ownership of your current home. You'll then use the bridge loan to purchase your new home, with the intention of paying off the loan when you sell your old home.
It's important to note that bridge loans typically come with higher interest rates and fees than traditional mortgage loans, so it's important to carefully consider the costs and risks before applying. Work with a qualified lender who can help guide you through the process and make sure you fully understand the terms of the loan.
Let's say you've found your dream home, but you haven't yet sold your current home. You need the funds from selling your current home to make a down payment on the new one, but you don't want to risk losing the new home to another buyer while you're waiting for your current home to sell.
In this scenario, you could apply for a bridge loan to help bridge the gap between buying the new home and selling your current one. Let's say the new home you want to buy costs $500,000, and you have $100,000 in equity in your current home. You could apply for a bridge loan of $100,000 to cover the down payment on the new home.
Assuming the bridge loan has an interest rate of 7% and a repayment period of 6 months, you would owe $3,500 in interest ($100,000 x 7% / 12 months x 6 months). You would also need to pay any additional fees associated with the loan, such as appraisal fees and loan origination fees.
Once you sell your current home, you would use the proceeds to pay off the bridge loan. If you sell your home for $500,000, you would receive $400,000 after paying off the mortgage, and you would use that to pay off the bridge loan. If you sell your home for less than $500,000, you would need to come up with the difference to pay off the bridge loan.
It's important to carefully consider the costs and risks of a bridge loan before applying and to work with a qualified lender who can help guide you through the process.