A common question we get about mortgages is “can I use the money from the sale of my current home as a downpayment for a new home?” The short answer here is yes, you can. There are two ways to accomplish this:
- By lining up the sale of your current home with the purchase of your new home. This can be difficult, as the mortgage for your new home likely will not be fully approved until the sale of your current home is complete; if you don’t receive the funds from your current home sale before your condition of financing date for your new purchase, you risk being denied mortgage financing by your lender.
- For those who are unable to line up the buying and selling dates, there is a mortgage product called bridge financing.
Bridge financing is a temporary loan to cover the cost of your down payment before your current home is sold. This bridges the gap between the purchase of your new home and the sale of your current home. This loan is then paid back using the proceeds from that sale, however, there are a few things to watch out for when it comes to bridge financing:
- Not all lenders offer bridge financing, so you should ensure that your Mortgage Broker knows you will need this option upfront.
- You will need to use the same lawyer for the sale of your current home and the purchase of your new home.
- There are several costs you should be aware of before acquiring bridge financing, including:
- Interest - You can expect to pay a higher interest rate on this temporary loan, comparable to what is currently being offered on the market for open term mortgages.
- Legal Fees - There will also be extra legal fees involved with bridge financing.
Despite the extra cost, most people typically prefer using bridge financing to avoid the hassle having to line up purchase and sale dates, and so they do not have to worry that something will go wrong at the eleventh hour that will cause issues getting into their new home.
Is bridge financing an option you would consider? Leave us a comment below or contact our office to speak with a Mortgage Broker about how bridge financing can help get your family into a new home.