Are you looking into moving but are worried about footing the bill for a new home while waiting for a buyer for your old one? A bridge loan could be the solution for you to cover the down payment on your new place. While this does seem like a solid solution for a homeowner, they may need some legal assistance to overcome any hurdles between lenders. Allow us to explain how that helping hand in real estate law could spare some future troubles.
Understanding Bridge Loans
When consulting with a bridge loan lender, you’ll get insight into this form of short-term financing. Bridge loans are secured by collateral, that collateral more than likely be your current house that you’re looking to sell. Also known as gap financing, these loans typically have an interest rate between 8.5-10.5%. While those rates could be alarming, the application and underwriting process for a bridging loan is generally faster than for traditional loans.
Applicants who qualify for a mortgage to purchase their new home more than likely qualify for a bridge loan. This quick access to funds to purchase a new house is a greater draw than mildly distracts from the higher interest rate. A homeowner can work with their current mortgage lender to obtain this bridge loan between the new purchase and the sale of their old home. A bridging loan does come with a timeline of at most a year to sell your old house and lock down a new place to cover the cost of the loan.
Bridge Loan Costs
Bridge loan interest rates are swayed by your creditworthiness and the size of the loan. This generally ranges from the prime rate of around 3.25% to as high as 24% if credit scores are lower. In addition to covering the cost of bridge financing, borrowers must pay closing costs on these real estate transactions, as well as additional fees like the administration fee or the loan origination fee. It’s important to take into account your current expenses to make sure you can satisfy the loan amount under your current circumstances.
Interest repayment on bridge loans can also be handled in various ways. Some lenders may require borrowers to make monthly payments, others may opt for lump-sum interest payments. Consider a homeowner who hasn’t sold their current home yet and wants to borrow $25K for the down payment on a new place. They could have a lender offer up a repayment plan that is interest-only, paid off with the proceeds of the sale of their old house. Another lender may suggest an amortized bridge loan, which will be a significantly higher monthly payment, but allow a buyer to keep the proceeds from the sale of their old home.
Legal fees are a part of the bridge loan application process. It’s important to entrust in an attorney that can guide you through the finer points of real estate law. This ensures that the line of credit you’re receiving from this bridge loan is being properly handled from the accepting of the finances for a down payment on a new home to signing on the dotted line for the sale of your old home. This could also help you avoid any complex litigation.
If you’re shopping for a home in Canada, you may want to consider an attorney like those from the firm of Nava Wilson LLP, founded under Malliha Wilson, a groundbreaker in Canadian politics. Wilson was the first visible minority to serve as Assistant Deputy Attorney General of the Province of Ontario. She held that role from 2008 to 2016 before going on to serve as senior partner of her law firm. The Nava Wilson LLP firm ensures that each client’s case is treated with the utmost care, aspiring towards the best outcome possible.