Valley First

Managing the timing mismatch when buying and selling a home

May 4, 2016

Penticton, B.C.—As real estate activity across much of British Columbia continues to buzz at record levels, buyers and sellers are increasingly looking at how they can make the hot housing market work in their favour.

For many, this means moving, upgrading, downsizing or simply reviewing their options. But, with homes in some areas selling almost immediately after listing, buyers could be caught out when it comes to having the all-important down payment in place; particularly when it comes to aligning sale and purchase dates.

“With so much activity in the market, it’s not unusual for buyers to find themselves in a situation where the closing date for the home they’re purchasing is before the closing date of the home they’re selling,” says Christy Shular, a lending expert with Valley First, a division of First West Credit Union. “If you’re waiting on the sale of your existing home to make up your down payment, you may find yourself facing a financing shortfall.”

When this timing mismatch occurs, most financial institutions offer what’s known as bridge financing. In simple terms, bridge financing is a short-term loan that provides the down payment on a new home until the sale of an existing home is complete. Rather than losing out on the purchase, buyers are able to agree to purchase terms while they’re waiting for the sale of their home to complete.

“Bridge financing helps buyers bridge the gap between their existing home and new purchase,” says Shular. “It’s essentially an advance on your down payment secured by the equity you have in your current home. Bridge loans are short-term arrangements which give buyers more flexibility when finalizing their purchases. They are usually less than 90 days, with a fee of up to one per cent of the loan. And, to qualify, there must be a firm and binding sale agreement in place.”

Although bridge financing is not something all buyers will need to take advantage of, Shular says the hot real estate market is certainly making this interim financing option more popular.

“Buyers and sellers agree sale terms and dates,” says Shular. “And, they usually try and line these up as closely as possible. But, we are seeing more people agreeing to earlier closing dates on their purchase dates to secure the home they want.

About Valley First

Valley First is a premier provider of banking, investment and insurance services for residents and businesses in the Okanagan, Similkameen and Thompson valleys. As a division of First West Credit Union, B.C.'s third-largest credit union with 54 branches and 38 insurance offices throughout the province, Valley First brings innovative products, an extensive branch network and local decision making to the banking experience. For more information on Valley First, visit www.valleyfirst.com.

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