Thursday, May 4, 2017

What you need to know about Bridge Financing!

A bridge loan is a short-term financing tool that helps you “bridge” the gap between old and new mortgages when you move from one home to another. You may be taking possession of your new home a week or two in advance of closing on your current home, either because of how your closing dates worked out, or because you want to do some renovating on your new home before you move in. Whatever the reason, bridge financing is going to be your best friend for a few weeks: making it possible to easily transition from the old to the new.

Here’s what you need to know:

  1. It’s for a specific amount, which is your home’s selling price minus your current mortgage and costs (realtor/legal).
  2. It’s for a short period of time i.e. 1 to 30 days, and your lender will want to see a firm sale agreement for your existing place, with conditions waived.
  3. Not all lenders offer bridge loans, although there are private lenders that meet this need. Since you are working with a mortgage broker, you are in good hands: I can put together a combination of a new mortgage and bridge loan even if it’s not with the same lender.
  4. Expect to pay more. Your bridge is going to be at a higher rate than your mortgage, and will include administration fees, even when the bridge loan is with the same lender. Bridge loans from private lenders will likely have higher rates and fees, although they may offer more flexible terms.
  5. Plan in advance just in case. Together we’ll discuss your ability to carry two mortgages in the event that a rare worst-case scenario plays out. Your lawyer will pay out your bridge loan from the sale proceeds of your home. If for any reason the sale falls through, your lawyer will register the bridge loan as a charge on the property. And if you require a longer bridge i.e over 30 days, or for an amount over the lender’s maximum, your lender may register a charge against the property and your costs will increase.

What is Your Credit Score?

Credit scores can range from 300 to 900 and are used by lenders to determine what kind of a risk you are likely to be as a borrower. Your score is based on several attributes -

Payment History:
The single biggest factor in your credit score is having a timely bill payment history. Recent late payments are factored more heavily than old ones so start today and never let a bill get past due. 

Amounts Owed:
Keeping your accounts near their maximum limit can signal that you don’t manage credit responsibly, and that you may have trouble making payments in the future.

Length of Credit History: 
The longer you have had credit in good standing, the better. Keep your oldest cards; that good history will help you, and don’t regularly take out new credit accounts.

Pursuit of New Credit:
Opening several credit accounts in a short period of time is a risk factor.  How many inquiries done on your behalf can also have an effect on your score.  

Types of Credit:
A healthy mix of credit i.e. car loan, mortgage and credit card is more positive than a concentration of debt in only credit cards.

With an excellent credit score (750 and over), lenders will give you a quick mortgage approval at the best possible rates. This score says you are reliable and responsible with debt. At a lower score (below 620), you likely won’t get the best mortgage rates, you may require a larger downpayment, there could be extra fees, and you may even find it difficult to qualify.
Your credit score can change from month to month, which means you can boost your score relatively quickly with the right credit behaviour. We can review your situation and discuss how your score will be viewed by lenders and, if necessary, outline your best options for credit improvement. If you want to get a mortgage while you work on bettering your score, we can also advise how that may be possible.