Bridge loan between two transactions
Buying before selling: amount, term and real cost.
What it is for
It covers the period between buying the new property and selling the old one.
What the lender asks
- A signed sale agreement on the current property
- The accepted offer on the new one
- The date of each transaction
- The expected net value from the sale
The cost
Interest runs for only a few months. Fixed fees therefore weigh more.
Calculating the amount
Take the expected net value of the sale. Subtract a safety margin.
Lenders never advance the full expected equity.
The main risk
If the sale falls through, you carry two loans. Check that you can handle both.
A conditional sale agreement offers less security than a firm sale.
What lowers the cost
Move the two closing dates closer. Each week saved cuts interest.
Aligning the two dates
A sale that precedes the purchase removes the need for a bridge loan.
Negotiate dates in both offers, not just one.
A few days apart costs far less than a few months.
What to check in the contract
Check what happens if the sale is postponed by a month.
Some contracts provide an extension, others a penalty.
That clause matters as much as the rate on such a short loan.
