Bridge Financing in British Columbia: Buy Before You Sell

Buying a new home while you still own your current one can be exciting but it often comes with a timing problem. The sale of your old house might take time and may not happen in a timely manner to coincide with the purchase of your new home.

That is when the need for bridge financing in BC comes into play. A bridge loan is a type of short-term loan meant to bridge the gap in time that exists between buying a new home and receiving the sales proceeds on your current one.

It is important for homeowners considering a transaction in which they will purchase a new home without having sold their current home yet to know about the details of bridge financing.

What Is Bridge Financing in British Columbia?

Bridge financing in British Columbia is an interim loan that enables home buyers to unlock the money invested in their existing house when they require funds to acquire a new one.

For instance, let us consider that you have already sold your current home, but the date on which it will be completed will come after six weeks from the date of closure of your new property. The money is still locked in your current house but you need that money to complete the transaction of the new property.

In such cases, a bridge loan can help you get those funds, which will be paid back once the sale of your existing home is completed.

How Does Bridge Financing Work?

The process is relatively straightforward when the purchase and sale transactions are properly coordinated.

1. You Find Your Next Home

You find a property you want to purchase and agree on a closing date. Ideally, you already have a clear plan for selling your existing home.

2. Your Current Home Is Sold

In many conventional bridge financing situations, lenders want a firm sale agreement on your current property. This gives the lender greater certainty about when the sale proceeds will become available.

3. The Lender Determines Your Available Equity

The lender reviews information such as your expected sale price, existing mortgage balance, and other applicable costs to determine how much equity may be available for the bridge.

4. The Bridge Loan Covers the Timing Gap

The approved funds can help provide the money needed to complete the new purchase while you wait for the proceeds from your existing property.

5. Your Existing Home Sale Closes

When the sale of your current property completes, the proceeds are used to pay off the bridge financing, along with applicable interest and fees.

This allows the bridge loan to serve its intended purpose: temporarily connecting two transactions that do not close at the same time.

Why Do People Choose to Use Bridge Financing When Buying a House?

Mainly because of flexibility.

If you do not have a bridge loan, you will have to try to make sure that both closing dates match or delay your move until after the closing of your property. You may find this difficult at times.

You could use a bridge loan for:

• Purchasing your next house without waiting for the sale proceeds of your house

• Having different closing dates

• Getting at your equity locked in your current house

• Avoiding temporary housing

• Not having to try to close both deals on the same day

• Being able to act quickly when the property you want to buy is available

It can be especially important in competitive BC real estate markets. Nevertheless, purchasing while still owning another house is an important decision and needs to be planned well.

Who May Qualify for Bridge Financing in BC?

Qualification depends on the lender, your financial circumstances, the properties involved, and the details of both transactions.

For conventional bridge financing, lenders commonly want to see:

• A firm sale agreement for your existing property

• A purchase agreement for the new property

• Sufficient equity in your current home

• An approved mortgage for the new property

• Details of both closing dates

• Evidence showing how the bridge will be repaid

A firm sale is important because it provides the lender with greater certainty regarding the amount and timing of the expected repayment. Requirements can vary between lenders, so it is important to have your specific situation reviewed before relying on bridge financing.

What If The Property You Are Living In Has Not Yet Been Sold?

This is a significant difference.

Not all borrowers who buy a new house without having sold their old one will qualify for a traditional bridge loan. If your current home is just listed but hasn't sold yet, most conventional lenders won't approve a bridge loan since there's no confirmed date for when you'd receive the funds.

In this case, there may be other ways worth exploring, such as:

• Negotiating other dates for the closing of the deal

• Using your savings for buying the property

• Qualifying to carry both properties

• Investigating some other equity financing

Other factors determining the correct way are your income, total debt, equity, mortgage, and the likelihood of your property being sold.

How Much Does Bridge Financing Cost?

Bridge financing generally costs more than a standard long-term mortgage because it is a short-term financing product and carries additional risk for the lender.

Your total cost may depend on factors such as:

• Loan amount

• Length of the bridge

• Interest rate

• Lender fees

• Legal costs

• Property value and available equity

• Your overall mortgage structure

Because bridge loans are typically short term, the total interest expense may be manageable when the financing is used for a relatively brief period. However, the cost should always be calculated before committing to the strategy.

Rather than focusing only on the interest rate, consider the total cost of the financing and how it fits into your overall home-buying budget.

Example of Bridge Financing

Let us assume that you have a house in British Columbia and have received an offer for the sale of that house.

Your present house will close within six weeks while your new house will close within two weeks, which makes four weeks difference.

In order to make your purchase of a new house possible, you would require partial equity of your present house.

The possibility of securing a bridge loan would give you the necessary finance for four weeks and upon closing of the sale of your present house, the funds could pay off the bridge loan.

Benefits and Risks to Consider

Bridge financing can make a home transition easier, but it is not the right solution for everyone.

Potential Benefits

Greater flexibility: You may not have to wait for your existing home sale to complete before purchasing your next home.

Smoother transition: Buying first can reduce the need for temporary accommodation or multiple moves.

Access to home equity: The financing can temporarily unlock equity that is otherwise unavailable until your property sale closes.

Better timing: You may be able to take advantage of an appropriate property instead of waiting for your current transaction to finish.

Potential Risks

Additional borrowing costs: Interest and other fees increase the cost of your move.

Two-property expenses: Until the existing property sale closes, you may have expenses associated with both homes.

Sale-related uncertainty: If your expected sale does not complete as planned, your financial situation could become more complicated.

Qualification requirements: Not every homeowner will qualify for the amount of financing they need.

For these reasons, it is important to consider both the benefits and the risks before deciding to buy before you sell.

Selling Your House Before Purchasing One vs. Bridge Financing

If you choose to sell your house first and then buy one, you will have a clearer picture of how much money you have. Thus, you can plan your future purchase.

However, selling your house first can also bring certain problems. You may require accommodation during the time when you are looking for a new house.

Bridge financing is another solution to the problem of the people who are purchasing and selling at different times.

It is up to you whether bridge financing or selling first is a better option.

What Makes It Beneficial To Go With A Mortgage Broker?

Every real estate purchase comes with varying finance needs. A mortgage broker will be able to analyze your current mortgage, estimated sales price, purchase details, closing deadlines, and overall financial situation to see whether you need bridge financing.

Sunlite Mortgage's objective is to find the right lending options for homeowners and educate them about the possible solutions. The company offers its bridge financing services throughout British Columbia, including cities like Vancouver, Victoria, Kelowna, Surrey, Nanaimo, Kamloops, Abbotsford, among others.

The most important thing is to have a finance plan prepared in advance of your deadline. Understanding your equity, estimated sales price, financing needs, and other aspects of the process may become very helpful.

Frequently Asked Questions About Bridge Financing in British Columbia

Can I buy a home before selling my current home in BC?

It may be possible, depending on your financial circumstances and the financing available to you. Bridge financing is one potential solution when the purchase closes before the sale of your current property.

Do I need to have a firm sale?

Many conventional lenders require a firm sale agreement before approving traditional bridge financing. However, requirements vary by lender and situation.

How long does bridge financing last?

Bridge loans are designed for short-term use. Depending on the lender and circumstances, they can cover a period ranging from several weeks to several months.

Is bridge financing expensive?

It can cost more than conventional mortgage financing because of its short-term nature and associated fees. However, the total cost depends on the loan amount, interest rate, duration, and lender requirements.

What happens when my current home sells?

The proceeds from the sale are generally used to repay the bridge loan and applicable costs. Any remaining funds can then be applied according to your overall financing plan.

Plan Your Next Move With Ease

When purchasing a new property prior to selling your current one, you don't need to go through the time between closing dates on your own. Bridge Financing in BC offers temporary financing when your purchase and sale are not timed together.

Knowing your finances is key. You will want to look into your current mortgage, your equity, expected sale amount, purchase price, closing dates, and financing fees.

When you are looking to buy prior to selling, Sunlite Mortgage can assist you in exploring the financing options you may be interested in.