Bridge Financing
Definition
Bridge financing is a short-term loan that covers the gap when your new home closes before the sale of your current home completes.
How it works
It lets you use the equity that is legally still tied up in the old property to fund the down payment on the new one, so you avoid moving twice or making an offer conditional on selling first.
Lenders require a firm, unconditional sale agreement on the existing home before approving a bridge. The amount is based on the sale proceeds you will receive, and the term usually runs from a few days to 120 days.
Costs are modest relative to the convenience: interest at roughly prime plus 2% to 5% on the bridged amount for the days it is outstanding, plus a small administration fee and sometimes legal costs.
Quick facts
- Requires a firm sale on your existing home.
- Typically covers a few days up to 120 days.
- Interest applies only for the days the bridge is used.
Put this into practice
Still have questions about bridge financing?
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