(Photo credit: Nicolas Raymond/Creative Commons)
With Canada’s competitive real estate market, homebuyers are constantly on the prowl for a property gem that could either be their next home or an income property that can pay off in the long run.
If you’re someone who’s selling your property while you’re looking, whether you’re upgrading from a starter home or downsizing from a large home that you’ve lived in for years, you can run into a cash flow issue while shopping.
Some Canadian housing markets continue to be red hot, which can mean that buyers are at the seller’s mercy in regards to financing decisions and closing dates.
This is where a bridge loan comes in. This is a short-term loan, which must usually be paid back within 90 days, that gives you extra funds to purchase a new property, while you’re waiting for the sale on your current property to close. This lets you access your current property’s equity to act as a downpayment on your new property.
Over the last few years, the use of bridge loans has gained popularity and they’re useful in situations when the property’s closing date doesn’t happen right away, a senior mortgage development manager at a Vancouver credit union told the Globe and Mail.
According to a Toronto Star article, the use of a bridge loan could have prevented three real estate deals from falling through. In this case, the bank refused financing on one property, which led to a domino effect on the other two deals since they were contingent on the seller providing them money to close their own purchases.
Bridge financing could have prevented this from happening since the loans are used to pay off the new home purchase before the sale closes. (This also offers homebuyers extra time to move in.)
To qualify for bridge financing, you need to have a firm purchase and sale agreement for both homes, according to TD. Whether you qualify or not will be based on the same criteria which determines your mortgage approval: income, credit score, liabilities and financial situation.
But bridge loans may be more expensive than a mortgage since there’s still a risk that the house sale could fall a part, a Calgary mortgage broker told the Globe. Also, you will need to qualify for a mortgage to get a bridge loan and your credit score will be a huge factor. If your credit score isn’t very strong, you may not qualify for a bridge loan with your financial institution, which means you may need to tap into private lenders, who will charge higher rates. (Not all financial institutions offer bridge financing either.) You also run the risk that you don’t qualify and if the sale of your property falls through, you could be left carrying two mortgages.
If you’re buying a newly built home, you can claim back some of costs with an HST housing rebate claim.
Whether the property is an investment or for personal use, Rebate4U can help you put some money back into your pocket by filing a claim with the CRA. We strives to provide our clients with the most professional and quality service in obtaining rebates for their new and extensively renovated homes. We are proud to offer our clients the most personal and attentive service, and we make sure that all of our clients are 100% satisfied.