So you find yourself in the situation where you are buying your new home and selling your existing home. It all sounds good, except you have to pay for the new home before you receive the sale proceeds from the sale of your existing home. You have a problem! You can try to avoid this problem, but it is sometimes tough to do.
The ideal situation is for you to obtain possession of your new home, say two weeks before you have to provide vacant possession to the Buyer of your existing home. In this way, you can do any cleaning or renovations to new home and have time to move your belongings into the new home and not have to worry about living somewhere else or putting your belongings in storage.
Enter “bridge financing”. Bridge financing is an additional, short term loan from your bank that helps you “bridge” the gap between your old home and new one. In essence, the bank gives you an advance against your equity in your existing home so that you can purchase your new home. You complete the purchase of your new home and move in. When your existing home is sold, you repay the bridge loan.
Bridge financing is just like its name sake; it gets you from one place (your existing home) to the other place (your new home).
DO I NEED BRIDGE FINANCING?
The Buyer’s Lawyer is on an Undertaking to the Seller’s Lawyer not to send the Transfer of Land to the Land Title Office until he holds the Cash Shortfall in his Trust Account. The Buyer’s Lawyer also wants to ensure that the transaction completes on time so calculates the last date upon which he can forward the Transfer of Land to the Land Title Office in order for it to register on time. As I write this, the Land Title Office is currently NINE (9) business days behind. So with two weekend days in there, I would need your Cash Shortfall at least 11 days before the Closing Date. I call this the CASH SHORTFALL DATE. This Cash Shortfall usually comes from the sale of the Buyer’s existing house. If you do not have the cash from the sale of your existing house or you do not have additional other cash available on or before CASH SHORTFALL DATE, then you need Bridge Financing.
It this example, it does not matter whether your sale completes a week before or a day before your Closing Date; I won’t have the Cash Shortfall on the CASH SHORTFALL DATE. I need your Cash Shortfall on or before the CASH SHORTFALL DATE or I can’t send the documents for registration. To do so would be to breach my Undertaking which is not going to happen.