Intermediate financing is a form of financing you use between the sale of your current home and the purchase of your future home. This means that you can buy a new home before you have received the purchase price for your old home.
There are a number of factors that come into play when using bridging finance for house purchase or second home. We will go through them in this guide.
To best explain what bridging finance is, here's an example. Imagine you find a house you want to buy. The house costs DKK 5 million, so you want to sell your current home to finance the purchase of your new house. You find a buyer who is willing to buy your current home for DKK 6 million.
At first glance, you might think that you could simply use the DKK 6 million proceeds from the sale of your current home to finance the purchase of your new house, which costs DKK 5 million. This is where intermediate financing comes into play. There is a longer process from the time you enter into an agreement to sell your home until you actually have the purchase price in your hands.
Read also: Financing new construction and construction loans.
Once you have sold your current home, you will receive a portion of the purchase price . However, you will not receive the full amount, as this will only be paid on the day of takeover, which is the day the buyer becomes the legal owner of the home. However, once you receive the purchase price on the day of purchase, you can't spend it on your new home until the deed to your old home is registered without a court entry. A legal note is, for example, that you have a loan on your old home that must be repaid or taken over by the buyer before the deed can be registered.
Registration is the process by which rights over a property are verified, registered and published. When you sell your home, it must be registered that the buyer is the new owner of the property. After this, ownership, valuations and similar information will be publicly available at Tinglysning.dk. When a document is registered, a registration fee is paid to the state.
A title deed is the document that proves who owns a property. It is the deed that is registered when the property is transferred in connection with a sale. The deed contains the main information about the buyer, the seller and the terms of the transfer of the property. However, these things are detailed in the purchase agreement, which is the contract between the buyer and the seller.
Whereas the deed contains only the most important information about the sale, the purchase agreement is the document in which the agreement about the property is specified. The purchase agreement also includes the transfer date, which is the day on which the property is transferred from the seller to the buyer. This day is important for obtaining intermediate financing.
If you sell your old home before buying a new one, you will not need bridging finance. This is because you will have the purchase price available before you buy your new home. However, it often happens that people choose to sell their old home just when they have found a new one. In such cases, you will need bridging finance unless you can afford to pay the full amount for the new home before you get the purchase price for the old one. So, in the time between selling your old home and buying your new one, you will need bridging finance.
Intermediate financing is an expensive form of financing. Therefore, it may be advantageous to agree on as early a date as possible for registration in the purchase agreement. Once the deed is registered, you can use the purchase price to pay for your new home, and the sooner the deed is registered, the less time you will need for bridging finance.
There may be a number of reasons why you need bridging finance for a longer period. If the deed is registered with legal annotations, these must be put in order before the deed can be registered and the purchase price paid. In addition, the buyer's advisor may fail to meet the deadlines agreed in the purchase contract, for example by late deposit of the purchase price or late registration of the deed.
If this happens, interest may be charged on the purchase price at a higher rate than you pay for the bridging loan, so that the buyer's default does not become an expense for you. In general, delays may also occur with your bank or estate agent which extend the period of your bridging loan. It is therefore a good idea to follow up regularly so that your bridging finance costs do not increase.
Something that is absolutely essential between the sale of your current home and the purchase of your new one is that the purchase agreement includes a reservation that you will sell your current home. Without such a clause, you could find yourself in a situation where you have signed an agreement with the seller of your future home, but the buyer of your current home backs out, leaving you without the proceeds of the sale.
At Fundbricks, we offer attractive financing options for construction projects through our crowdlending services. Read more about crowdlending here. You can also read more about alternative financing for house purchases.
Use our crowdlending service as intermediate financing for a new construction project, avoiding personal liability. You also gain access to a wide network of investors who are all interested in investing in new Danish construction projects.
Youcan calculate your case and obtain financing offers right here.
Together with our partners, we can in most cases provide full financing for solid Danish real estate projects. This includes both senior and junior financing - and all without any requirement for personal liability.
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Historical returns are no guarantee of future returns. The money you lend to projects can therefore increase or decrease in value and there is no guarantee that you will get back the full amount lent.
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