What is bridge financing?
It is essentially a short-term loan. It is used when the funds from an existing property are needed as the down payment for your next purchase.
What are the conditions and rules of bridge financing?
As long as your existing house is sold, most mortgage lenders and banks will lend you the down payment, in the form of bridge financing, needed to close your existing house along with the remainder of the mortgage money that you’ve been approved for.
- Usually, all you need is to have your current property sold. Then as long as you have qualified for the new mortgage, then you should also qualify for bridge financing.
- Remember – bridge financing is a short-term loan for the down payment. So the rest of the mortgage will fund at a nice low rate, at the agreed-upon terms and amortization. It’s the loan for a down payment, that the bridge financing terms apply to.
- No bridge financing is preferable, because bridge financing can get costly. However, if you need bridge financing, then the shorter period of time, the better.
How can I avoid bridge financing?
If you have savings or if you have access to a gift from a family member, then this could be an alternative to bridge financing.