Posted: 1 Dec '18

Bridge Financing with Bad Credit: How to Buy a House Before Yours Sells

In an increasingly competitive real estate market, many homeowners are finding themselves in the position of purchasing a new home before the one they live in has sold. For many, this will mean having to make two monthly mortgage payments for an indeterminable period after they've closed on a new home. Fortunately, there is a simple solution to this age-old dilemma: bridge financing.

Bridge financing allows homeowners to obtain a short-term loan against the equity in their current home to make a down payment on a new property, essentially "bridging" the gap between selling and purchasing properties. The loan is used to pay the down payment on the new home while the old home is still on the market. But what if you have a poor credit history? While securing a bridge loan with bad credit can be challenging, it's not impossible. Here's what you need to know about obtaining bridge financing with less-than-perfect credit.

You'll Need to Qualify for Financing

A common misconception is that you don't need to meet the lender's qualification criteria if you've accumulated equity in your home. While the value of your property is an important qualifying factor, lenders will also look at your credit score to determine how well you've handled debt in the past. Most prime lenders ("A" lenders) will require that you have a credit score above 680 to qualify for bridge financing.

You Might Consider Alternative Lenders

Another common challenge when seeking bridge financing is that this type of lending isn't offered by every financial institution. If you have a blemished credit history, finding a bank that will approve you for a bridge loan is even more difficult. The good news is that there are many alternative and private lenders who will extend bridge loans to borrowers with bad credit. Working with a mortgage broker can put you in touch with these "subprime" lenders so you can obtain the interim financing you need.

You Probably Won't Qualify for the Best Interest Rates

Lenders reserve their lowest interest rates for those with near-perfect credit scores. If you've declared bankruptcy in the last two years or have a consumer proposal in your credit report, expect be charged an interest rate as high as 21%. Speak with your mortgage broker about making your credit portfolio as attractive as possible so you can obtain a more favourable bridge financing rate.

If you need a bridge loan but feel weight down by a poor credit rating, we can help. Contact us for more information about obtaining bridge financing with bad credit.