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Bridge Financing

Recently, we've been asked a few times about Bridge Financing. So I have asked a trusted Mortgage Planner, Matt Robinson from Dominion Lending Centres to help us explain how Bridge Financing works. If you have any questions, please feel free reply to this email, or see below the article for Matt's contact info. 
Bridge Financing
It’s unlikely that the first home you buy will be the home you stay in forever. At some point, you may wish to sell and buy a new home. Sometimes clients find themselves in a situation where the closing date for the home they’re purchasing is before the closing date of the home they’re selling. This is where bridge financing comes in.

Bridge financing is a tool that can allow a borrower to complete & take possession of a new home prior to completing the sale of their existing home.

As the primary trigger for bridge financing is a gap in dates between the purchase (of the new property) and the sale (of the current property), there must be a firm sale agreement (subject free) on your existing residence to secure bridge financing approval.

Most lenders will provide bridge financing with this subject free offer on your existing home to “bridge” that timeline gap.

To provide you with an example, let’s say you are purchasing a $750,000 home and you made a $25,000 deposit, but you have $150,000 of equity in your existing home you want to use as a down payment. The issue being your purchase completes April 15th and the sale of your existing home does not complete until June 10th. In this situation you would need to bridge $125,000 ($150,000 down payment - $25,000 deposit = $125,000 bridge financing) for 56 days.

Bridge financing often comes at rates similar to a line of credit in the Prime plus 2.00% - 3.00% range. While the interest rate on the bridge is higher than a typical mortgage rate, it will only be charged for a short amount of time.

If you find yourself in a situation where you don’t have a subject free offer on your home, then you would need Interim financing. Interim financing is a more expensive route and a topic for another day.

Matt Robinson, AMP, MBI | Mortgage Planner
Dominion Lending Centres - A Better Way
201-2600 Gladys Avenue, Abbotsford, BC V2S 0E9
Office: 604.852.1703
Better Choice - Better Advice - Better Rates....a Better Way


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What is a pre-sale?

Example scenario: When the developer intends to build an apartment building and applies for financing, the bank will grant financing under certain conditions. One of them will likely be a certain percentage of pre-sales the developer will need to secure before receiving the funds.
It is common practice for a developer to approach several real estate investors and offer them an opportunity to purchase units of the non-existent building at a discounted price, and on good terms.

Once the number of pre-sales is accomplished, the developer goes ahead with the construction, which will likely take two years or longer to complete. During construction, their marketing team offers the remainder of the units for sale at market value to the public.

If you are a RE investor, you know that it is preferable to be buying at the pre-sale prices, not market value prices.

The question is, how do you get the invitation to buy a pre-sale?
In the past many years, investors have made substantial income by buying at wholesale prices and selling at retail prices even before they needed to complete their purchase. I saw many of them lining up and sometimes even camping overnight in front of the sales center to get a chance to buy at lower prices, but not everyone was lucky enough. You needed to be well-connected to get an opportunity, and you had to act fast.

Today is a bit of a different story. Several projects in the Lower Mainland and Fraser Valley offer really good prices and incentives to secure a unit now and complete the purchase two or three years later. The list of incentives varies from one project to the next. Besides attractive prices, you can get low deposit amounts (5-15%), low or no assignment fees, free updates, a mortgage rate buy-down program, extra parking and more.

A month ago, I helped a few of my clients purchase a presale in Surrey that sold out in 2 days, and I know of another good developer that will be offering a few units for sale as well.

If you would like to know more about these opportunities, I would encourage you to call or email me, and I’ll be happy to send you details on those projects.
Kind regards,
Tibor Bogdan
Century 21 Creekside Realty Ltd.
45428 Luckakuck Way #190, Chilliwack, BC V2R 3S9
cell: 604-855-2521
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