Timing is everything — especially in real estate! Given everything that’s been happening in the housing market recently, you’ve likely heard about cases where people’s closing dates on their current and new places didn’t line up. So, what happens when you need the money from the home you’re selling to finance the one you’re purchasing but its closing date comes first?
Bridge Financing
If your new home purchase relies on the funds from your current home’s sale and the closing date for the new home is first, then you’ll likely require bridge financing. The key points here are that you must have firm sales on the home you’re selling and buying since you’re borrowing against the equity you don’t have yet. If the home isn’t sold (i.e. firm offer with all conditions fulfilled), the lender won’t give a bridge loan as there’s nothing to bridge.
Myth: Anyone can get a bridge loan, even when the home is not yet sold.
Fact: Unfortunately, that’s not the case. You have to complete the firm sale of the home you’re selling for this to be a consideration. The majority of banks won’t lend against a home that’s for sale, only a home that’s technically sold.
So if you have your home for sale and have also found a new home that you love, you’ll need a firm sale on your existing home before being able to qualify for a bridge loan. The bank is lending you money that you technically don’t have yet but are very likely to get because of a firm offer to back it up.
Unless you can qualify to carry both homes at the same time and have cash for a down payment, the bank will 100% need to have a firm sale on your existing house. They don’t have to close on the same day, they just need to know that it’s a firm sale. If you make an offer (and it’s accepted) before a firm sale, then you’ll want to consider a blanket mortgage.
Blanket Mortgage
Assuming that you can’t qualify to keep both homes and that your home is already listed (so you can’t refinance), this is when a blanket mortgage is required. Major banks won’t lend against a home that’s for sale since there’s no profit to be made. An alternative lender makes their profit up front (through lending fees) and is therefore more willing to offer this type of loan.
Myth: Your neighbourhood bank branch will offer you a blanket mortgage.
Fact: This is not likely. Since you’re selling the home, the banks won’t profit. This type of loan is generally offered more in the alternative lending space.
In the client example where there’s an accepted offer on a new home but the existing one is still for sale, a blanket mortgage would work. A lender would put a second mortgage on the home that is for sale and then that mortgage money can be used as a down payment on the new house. If the current home sells in time, then this isn’t needed but it does act as a backup plan in the event the home doesn’t sell before the closing date for the new one.
As you can probably guess, this option is more expensive but ensures that you’re covered in case your home doesn’t sell in time helping save your deal. Since two mortgages are being held simultaneously and you’re working in the alternative lending space, it follows that it’s pricier. In terms of risk though, it’s still cheaper than getting sued by the seller of your new home because you had to back out of the deal.
Contact the Kyle Miller Mortgage Agent team to learn about the different financing options available to you!
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