Bridge Financing - Uptown Financial

Transition smoothly with our Bridge Financing

Bridge financing for your
short-term financial needs

At Uptown Financial, we understand that sometimes you need to purchase your dream home before your current home sells. Our Bridge Financing is designed to help you navigate this tricky situation with ease.

A bridge loan is a type of short-term financing that helps you secure a down payment on a new home by using your current home’s equity. It is designed to help homeowners “bridge” the gap between the sale of an existing home and the purchase of a new one. You will still make payments on your current home mortgage until it sells, and the equity of your old home will pay off the bridge loan.

Bridge loan terms can range from 90 days to 12 months or even longer. The lender qualifies you based on your income, credit, assets and an appraisal to confirm your home’s value. You will also need a copy of the Sale Agreement from your current home and the Purchase Agreement for your new home.

The way it works is simple: We determine how much of a bridge loan is required, how many days it’s needed for, and with that we can calculate what that looks like for you. You only pay for the days you require the bridge.

It’s a smart, stress-free solution that ensures your housing transition is seamless. Let us be your bridge to a smooth and worry-free move to your new home.

Bridge Loan Benefits

Flexibility in Finding a Home: You can secure a new home before selling your current one, eliminating the need to align closing dates perfectly.

More Moving Time: Reduces the stress of moving, allowing you to comfortably transition between homes.

Not Having to Pay Two Mortgages at Once: Typically, you only need to pay your current mortgage during the transition period. For multi-millionaires, partial payments can still be made on the bridge loan.

Simple Process: Lenders handle the details quickly and efficiently, letting you focus on more important tasks.

Access Your Equity: Leverage the equity in your current home to fund the down payment on a new home.

Quick Financing: Provides fast access to funds, allowing you to act swiftly on purchasing a new home.

Avoiding Contingencies: Makes your offer more attractive to sellers by removing the contingency of selling your current home first.

Bridge Loan Risks

Higher Interest Rates: Typically, higher than traditional mortgages, which can add to your overall borrowing costs.

Default Risk: Defaulting on either your current mortgage or the bridge loan can lead to the lender taking possession of your property.

Loan Size Limits: The amount you can borrow is usually limited by the equity you have in your current home.

Additional Monthly Payments: Adds another monthly payment to your budget, which can strain your finances.

Potential Market Risks: If your home doesn’t sell quickly, you could be left with two mortgages for an extended period, complicating your financial situation.

How Bridge Financing is
Calculated

Imagine the closing date for selling your current home is 90 days away, but the closing date for purchasing your new home is in just 35 days. A bridge loan will cover the period between these dates, which is 55 days (90 days – 35 days).

For example, if you are purchasing a $350,000 home and have made a 5% deposit ($350,000 x 0.05 = $17,500), but plan to use the $165,000 equity from your existing home for the down payment, you might face a timing issue. Suppose your new home’s closing date is March 15th, while the sale of your current home closes on May 10th. In this case, you would need a bridge loan to cover the gap between your deposit and the total down payment.

The calculation would be as follows:

Total Down Payment Needed: $165,000
Deposit Made: $17,500
Bridge Financing Required: $165,000 – $17,500 = $147,500

This bridge loan of $147,500 will cover the equity you plan to use from your current home until it is sold, ensuring you can proceed with purchasing your new home without delay.

Additional Charges

Similar to any loan, a bridge loan incurs interest, typically at a rate akin to an open mortgage or personal line of credit. Although the interest rate on your bridge loan is higher than that of your mortgage, often ranging from Prime + 2.00% to Prime + 3.00%, it applies for a brief duration until the equity from your previous home becomes available for repayment.

In addition to the interest, your lender may impose an administration fee, generally falling between $200 and $500. Furthermore, if your loan exceeds $200,000 or extends beyond 120 days, your lender might place a lien on your property. To remove this lien, you will need to engage and compensate a real estate lawyer for their services.

What are the costs associated
with bridge financing?

Similar to very short-term loan, you will encounter a higher interest rate with this interim financing (typically prime + 3% to 5%). Additionally, there’s typically a bridge loan fee, along with potential administrative fees to discuss with the lender or lawyer (your Uptown Financial broker can provide free assistance).

These additional expenses are usually included in your closing costs, which you should plan for separately from your down payment — they cannot be rolled into your new mortgage amount.

Despite the higher interest rate, the relatively brief period between closing dates helps to minimize the overall interest costs.