How to buy and sell a home at the same time
Buying a home for the first-time can seem overwhelming. Not only are you quite possibly making the single largest financial transaction of your lifetime, you’re doing it without any past experience.
With one real estate transaction under your belt, you may think your next one will be a lot simpler. Although you’ll know the ropes of what’s involved in buying a home, you’ll also have to deal with selling your current home at the same time (something you didn’t deal with the first go around). This may seem stressful, but don’t despair. When it’s done right, it won’t seem so difficult.
What happens when your closing dates aren’t the same?
In a perfect world where you buy and sell a home at the same time, your closing dates would fall on the exact same day. Unfortunately, things don’t always work out that way. For example, the buyer of your home may need the property by a certain date because they've already sold their home. If you’re not willing to be flexible with the closing date on the home you’re selling, you could lose out on a deal. For one reason or another, the closing date on the home you’re selling could end up being different from the one you’re buying.
People decide to move for many reason – a growing family, a better neighbourhood and better job prospects, among others. Once you decide moving makes more sense than renovating, you’ll first have to decide whether it makes more sense to buy first or sell first. In a seller’s market (when sellers outnumbers buyers and bidding wars are common), it’s fairly common to buy first and sell after. That being said, there’s nothing wrong with mentioning to prospective buyers your preferred closing date.
What is bridge financing?
What happens when the closing date on your new home occurs before the one of the home you’re selling? That’s when bridge financing comes in handy. It helps solve the financial issue of when you buy and sell a home at the same time.
As its name suggest, bridge financing helps close the gap when the closing date of your new home is sooner than the home you’re selling. Although you may have enough money to cover the deposit on the home you’re buying, unless you’re flush with cash, you’ll probably need the equity from your existing home to help cover the down payment and closing costs – land transfer taxes, home inspection fee and real estate lawyer fees – on the home you’re buying. This is when your lender can come to the rescue and help you out with bridge financing.
It’s important to understand what bridge financing is and isn’t. Bridge financing isn’t meant for the long-term. It’s a short-term loan that helps until your existing home closes. For example, let’s say your new home closes in 60 days, but your existing home closes in 90 days - you’ll need bridge financing for 30 days. The interest rate on bridge financing tends to be higher than what you’d pay on a mortgage, so it’s smart to shop around for a decent rate with different lenders.