Dealing with bridge financing when selling your home and buying a new one

When clients are selling one home to buy another, realtors try their best to line up the sale date of the current home with the purchase date of the new home.

When clients want a few days, or even a few months, ahead of the sale of their current home to move from one home to another, they can look into bridge financing.

Depending on the lender you are working with, bridge financing can be very easy to arrange, or it may be the lender you are working with does not offer bridge financing so you need to arrange private bridge financing.

Before you agree to any dates with your realtor, it is important that you look into your options.

If you are working with a traditional bank or one of the monoline lenders, bridge financing is fairly simple to organize. Generally there is an administrative fee of approximately $250 and daily interest on the funds you borrow to bridge your down payment.

This year, I’ve had a couple of situations where bridge financing was not an option, so clients had to time their moves strategically.

When might bridge financing not be the right option?

• When your lender doesn’t offer bridge financing.

• When the cost of bridge financing through your current lender seems excessive.

• When the current home is located on First Nations land. (Most lenders will not offer bridge loans because of the terms of the lease agreements.)

• When the cost of arranging private bridge financing far exceeds the benefit of having a few days to move.

So, if you need a few days to empty your current home, what do you do? Over the years, several of my clients have used companies like Securite or Big Steel Box. They have a shipping container brought to their home a few days ahead of their sale date. The company will pick the container up once the home is emptied and store it for a few days, then bring it to the new home for possession day.

There is a bit of coordination required with this strategy and maybe a night or two in a hotel or staying with friends or family.

I did a cost benefit analysis with clients last week comparing using the shipping container versus arranging private bridge financing. In their case, they will save approximately $4,500 (using a container), even factoring in the hotel stay and eating out for a few days. For a few days of inconvenience I’d rather see those funds in their pockets.

I also helped clients arrange bridge financing through the monoline lender they are working with. In their case, it was the $250 fee and the interest for the week that will be about $650. In their case, the $1,000 investment will give them time to clean both homes and move their things over the course of a week rather than panic packing a moving truck the night before and exhausting themselves with the logistics.

When you are planning a move and considering have the sale and completion dates on different days, make sure you check with your mortgage professional before you sign off on a date change to your contract.

Thank you for your feedback and support throughout the year. Wishing you and your family warmth and happiness as we head into the new year!

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.