Bridge financing: buying before you sell

How bridge financing works

A bridge loan lets you borrow against the equity in the home you're selling, so you can use it toward the purchase of your next home. When your sale closes, the proceeds pay off the bridge loan. It is usually arranged by the lender providing your new mortgage.

Most lenders require a firm, unconditional sale agreement on your current home before they'll approve a bridge. The length of time a lender will bridge, and the maximum amount, vary: [PLACEHOLDER: typical maximum bridge term and amount].

What it costs

Bridge loans are typically priced above prime, and there may be an administration fee. Because the loan is short, the total interest is often modest, but it's worth calculating so there are no surprises. Your lawyer may also charge a little extra to handle the additional paperwork.

When it helps

Bridge financing gives you breathing room to move, make small repairs or simply avoid two moves in a short time. It can also help you avoid a rushed closing date on your purchase just to line it up with your sale.

Risks and alternatives

The main risk is that your sale falls through. That is why lenders want a firm sale first. If your current home isn't sold yet, alternatives include a conditional offer on your purchase, negotiating matching closing dates, or in some cases a home equity line of credit set up in advance.

Our brokers can review your dates, the equity in your current home and the new mortgage together, so the whole move is financed in a way that fits.

A simple example of the timing

Say your purchase closes on the first of the month and your sale closes a few weeks later. Without a bridge, your down payment is tied up in the home you haven't sold yet. With a bridge, the lender advances part of your equity on the purchase date, and your lawyer repays it from the sale proceeds when that deal closes.

To make this work smoothly, share both agreements with your broker and lawyer early. Having the firm sale agreement, the purchase agreement and your mortgage approval lined up gives the lender what it needs to approve the bridge in time.

How our brokers can help

Active Mortgage is a team of brokers working with a range of lenders. We can review your situation, explain the options that apply to you and compare real offers side by side. There's no cost to talk with us, and you're never under pressure to proceed.