City of Bridge…Financing – Why a Bridge Loan may be Important to your House Deal
Lawyers like helping you buy houses. Those who practice in the area will do their best to get it to you on time, and as quoted, and done in accordance with their professional obligations.
Inspired by a recent Facebook and Twitter commentary by Brad Jamieson, a colleague up in Saskatoon, I thought that a little more education on the point would help. Here is a little FAQ on why bridge financing is necessary:
“(1) What is Bridge Financing?”
Bridge financing is short-term financing that helps purchasers to “bridge” the gap between old and new mortgages by allowing them to tap the equity in their current residence as a down payment.
Usually, this financing is provided by their lender on the clients’ new home purchase. The lender will usually require some additional documents to be signed, like a demand note and an assignment of proceeds on their sale. They will lend based on the amount of equity available after closing and commissions, and usually only after a firm sale is in place on the existing property owned by the client. There may be an application fee, and higher than mortgage lending interest rate for the short term financing necessary.
(2) “Why do I Need Bridge Financing at All? Can’t you Just Wait for the Money from my Sale?”
As the lawyer for the purchaser, I need to make a number of promises to the lawyer of the vendor. By using the vendor’s documents, I am promising them that I will have any non mortgage related funds available to me on the possession day to forward to their office. I NEED to be able to pay that money, or I am offside that promise.
These promises are called ‘trust conditions’. Trust conditions are described by the Law Society of Saskatchewan here: http://www.lawsociety.sk.ca/for-the-public/do-i-have-a-complaint/common-concerns/breach-of-trust-conditions.aspx
(3) “Why Can’t You Just Promise to Pay the other lawyer with the Money that you ‘will’ Receive from the Sale?”
Here is a bit of a shocker, to some.
The money on your sale is not guaranteed.
(4) “Huh. Makes Sense to Me. Thanks for the Help!”
No problem. Just remember – we may need bridge financing if your purchase and sale close on the same day, or even sometimes even if the sale closes just before your purchase. Talk to your lawyer about the need for bridge funds if the sale and purchase close date are close to one another, and the risks of not have bridge financing with a tight possession date.
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