Bridge Financing: Buying Before You Sell

Your purchase closes on the Friday. Your sale closes the following Wednesday. For those five days you need the money from a house you have not been paid for yet — and that gap is what bridge financing exists to cover.

What bridge financing is

A bridge loan is short-term borrowing secured against the equity in the home you are selling. It funds the down payment on your new property until the sale proceeds arrive, then it is repaid out of those proceeds. Terms are typically measured in days to a few months, and you pay interest for the period plus a lender administration fee.

It solves a real problem. Possession dates rarely line up, and the alternative — making your purchase conditional on your sale — puts you at a serious disadvantage against unconditional offers.

What lenders require

• A firm, unconditional sale. This is the requirement people underestimate. Most mainstream lenders will bridge only against a sale where every condition has been waived. A property that is merely listed, or under a contract still subject to the buyer's financing, is not security they will lend against.
• The sale agreement and the purchase agreement for both properties.
• A payout statement for the existing mortgage, so the lender can see the net equity.
• Your lawyer's undertaking to remit the sale proceeds directly to the bridge lender on closing.

What your lawyer has to deliver

Bridge financing is a legal coordination exercise as much as a lending one:

• Undertakings to the bridge lender to pay out the loan from the sale proceeds — a personal professional promise, not a best effort.
• Registering the bridge security against the property being sold, and discharging it on closing.
• Running two closings days apart, each with its own lender instructions, trust accounting and registration timelines.

This is the strongest practical argument for using one lawyer on both transactions. A single file means one set of undertakings, one trust ledger, and one person who knows on Tuesday afternoon exactly where the money is. Splitting the sale and purchase between two firms adds a coordination layer at precisely the moment you cannot afford one.

Where it goes wrong

• The sale collapses after your purchase has closed. This is the scenario that matters. You now own two properties, carry two mortgages plus the bridge, and the loan has no repayment source. This is why lenders insist on an unconditional sale — and why waiving your own conditions early to secure a bridge is a decision to take advice on.
• Your buyer's financing falls through late. See how the financing condition works.
• The sale closing gets delayed. Bridge interest keeps running, and the lender may need an extension — see legal issues that can delay closing.
• A title problem surfaces on the property you are selling — an old caveat, lien or builder's lien that has to be cleared before funds can flow. See what a title search can turn up.
• A Real Property Report problem on the sale. A missing compliance stamp discovered days before closing is a classic cause of delay — see Real Property Reports in Alberta home sales.

Alternatives worth considering

• Match the possession dates. The simplest solution, and often achievable if raised during negotiation rather than after.
• Negotiate a later possession on the purchase, or an earlier one on the sale.
• Arrange a home equity line of credit in advance, while you still qualify against the existing property.
• Make the purchase conditional on your sale. Safest financially, weakest competitively — a live trade-off in a fast market.

Costs to budget for

Interest for the bridge period, a lender set-up or administration fee, the legal work of registering and discharging the bridge security, and the additional file work of running two closings. Ask your lawyer and your lender for the full picture in writing before you commit — the gap being short does not make the paperwork short.

Frequently asked questions

Can I bridge without a firm sale?

Generally not with a mainstream lender. Private lenders sometimes will, at materially higher cost and on shorter terms. Weigh that against simply aligning the dates.

How long can a bridge run?

Short bridges of days to weeks are routine; longer terms are available but priced accordingly and scrutinised more closely.

What happens if my sale falls through entirely?

The bridge becomes due with no proceeds to repay it. You will be looking at refinancing, a second mortgage, or a fast re-sale, and possibly a claim against the defaulting buyer — see real estate litigation.

Do I need two lawyers for the two deals?

No, and you are better off with one. Our real estate financing team handles the purchase, the sale and the bridge as a single coordinated file.