You've found your next home, agreed on a purchase, and started planning the move. There's just one problem: your new home closes before the sale of your current home.
The money you need for your down payment is tied up in the property you're selling. So how do you complete the purchase when those funds haven't arrived yet? That's where bridge financing may help.
A bridge loan gives you temporary access to equity from your current home to cover the gap between the two closing dates. Once your sale closes, the proceeds repay the bridge loan. It can make coordinating a move easier — but the dates, agreements, and people involved all matter.
You need a firm sale and a firm purchase
For standard bank bridge financing, you generally need both a firm sale of your existing property and a firm purchase of your next home. "Firm" means the conditions have been satisfied or waived.
Your sale must close after your purchase. For example, if your new home closes on June 10 and your current home's sale closes on June 25, you have a 15-day gap to finance.
Simply listing your home or accepting a conditional offer generally isn't enough. The lender needs the firm agreements and must approve the financing. This is why it's important to discuss your closing dates with your mortgage team before relying on a bridge loan.
What does bridge financing cost?
Bank bridge financing is short-term borrowing and typically carries a higher interest rate than a regular mortgage.
In the bridge arrangements we commonly see, pricing is around the lender's prime rate plus four to five percentage points. The loan generally accrues interest without scheduled principal payments, with the balance and interest payable when it is discharged after the sale closes. Exact terms depend on the lender.
Because the rate is annual, your interest cost depends on how much you borrow and how many days you need the funds. There may also be administration or legal fees. Many bank programs accommodate gaps of up to 90 days, although limits and requirements vary. Our team can help you understand the expected dollar cost for your specific dates.
What if different people own the two homes?
This is an important detail that can be overlooked.
Suppose a son, mother, and father own the home being sold, while the son and his wife are purchasing the new property. Some of the parents' sale proceeds will help fund the new down payment.
The lender will need to understand who owns those funds and how they're being transferred. Where the parents' funds are being gifted, a signed gift letter documenting their contribution will be required.
The owners of the property being sold will also need to participate in the required bridge documentation and authorizations. The exact signatures and documents depend on the ownership structure and lender. A gift letter alone doesn't guarantee bridge approval. Reviewing the arrangement early helps everyone understand what's needed before closing.
Let's put a plan around your move
There are many variations: family gifts, different owners, overlapping closing dates, and different lender requirements.