GREAT ADVICE WHEN CLOSING DATES DON’T MATCH
If you’re buying a new home and selling an existing property at the same time in today’s busy market, you’ll often not be able to match up the closing dates on both homes so that you move out and move in on the same day.
On the buy side, you have to cater to what closing date the seller wants and when selling yourself, you might want to choose an offer that’s significantly better for you monetarily but doesn’t have the perfect matching closing date as your purchase.
In fact, many clients of ours have chosen to deliberately set the closing dates one to three weeks apart for several reasons.
By the way, if you want to find out more about which to do first… buy or sell, please read our article entitled "How To Make Awesome Decisions When Selling And Buying Together”.
First and foremost, it’s a real pain in the butt to have to move out and move in on the exact same day. You’re subject to potential delays at the lawyer’s offices to get the keys to your new home (maybe your buyers have sold a home too and their buyer is delayed… and on and on) and with moving companies being late to arrive at your home.
It can become very stressful to match both closing dates although for many years it was the norm.
Lots of times our buyers have wanted to do fix-ups at the new home before they move in… sometimes minor cosmetic repairs and sometimes more major renos. It could be as simple as a fresh coat of paint or as complicated as putting in a new kitchen, bathroom or flooring. Most folks just don’t want to live through that dust and disruption if they don’t have to.
If you do choose to go this route you’ll need to arrange short-term, temporary financing to cover your purchase while you’re waiting for your existing home to close and free up your equity from there for your final down payment. This is called bridge financing.
Bridge financing is almost always provided by the same lender that you’re getting a mortgage from. They’ll do that for you because they’re getting your long term mortgage business as well.
Bridges are commonly for one to two weeks but could extend up to four weeks. Beyond that it would be on an exception basis.
So this is how it works… let’s say your purchase closes on the 15th of the month but the sale of your current home closes 14 days later. You’ll need a bridge loan for two weeks in this case.
Your lender will supply the funds to purchase the new home, minus your offer deposit and any cash you’re throwing in to the purchase and you’ll pay interest on that amount… in our example for two weeks. Interest is typically calculated at prime + 3% or 4% which today is roughly 6% to 7%.
The good news is that it’s only payable for 14 days so this is not a big number. The convenience of being able to stagger the closings usually far outweighs the few hundred dollars of interest charged.
Now that you own your new home, you can get your renovations done asap and plan the move out from your existing home to be a day or so before its closing date… a far more relaxing scenario for most people.
Of course don’t just assume all this will happen by itself. You’ll need to talk to your mortgage lender about bridge financing at the same time as you’re arranging the permanent financing on your new home. Make sure you get a commitment in writing from that lender outlining bridge costs etc so you’re all covered.
The biggest stipulation that lenders have when approving bridge financing is that you must have a firm offer in hand for your existing home BEFORE the new home closes. This is critical!
This means you need to be aware of the type of market we’re currently in and price your home so it will sell quickly enough to accommodate your bridge financing goals.
If you’d like to get a better understanding of exactly how bridge financing operates, let’s set up a time to meet for a coffee and discuss in detail how the process works and what the costs would most likely be. You can email us directly or set up a seller consultation here.
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