Buying and Selling
What If Your Down Payment Is Tied Up in the Home You’re Selling?
You may have more than enough equity coming from the sale of your current home, but that does not necessarily mean you can access it when you need it. The deposit on your next purchase is one common example.
You've sold your current home and you know there is enough equity coming from the sale to help buy the next one.
The problem is timing.
The money is still tied up in the home you're selling, but the deposit on your next purchase may be due long before that sale actually completes.
This is one of those situations where the numbers can work perfectly, but the dates don't.
The Timing Gap
Why the timing can be a problem
When you make an offer on your next home, the deposit is usually due shortly after the offer is accepted. If the money you plan to use for that deposit is coming from the sale of your current home, the timing may not line up because you may not actually receive those funds until your sale completes.
That can leave you in an awkward position. In some cases, there may be other ways to cover the deposit or expense, such as savings, an available line of credit, or help from family. But if those options aren't available or don't make sense, accessing some of the equity from the firm sale earlier may be worth considering.
Accessing the Equity Earlier
Deposit financing can help access that equity early
Deposit financing is short-term financing that can allow you to access some of the equity from a home you've already sold before that sale actually completes.
Despite the name, the funds do not necessarily have to be used for the deposit on your next home. A purchase deposit is one common use, but depending on the circumstances, the funds may also be used for other purposes such as paying down debt, purchasing a vehicle, making a gift, travel, or another planned expense.
The important part is that the equity is already expected from a firm sale. Deposit financing may allow you to access some of that money earlier rather than waiting until completion.
The Timing
Firm sale
Your current home has sold and there is equity expected from the sale.
Funds advanced
If approved, the deposit financing is transferred electronically into the account provided.
Sale completes
The proceeds from your existing home become available.
Financing repaid
Your legal representative repays the financing and applicable fees when the sale completes.
Firm sale → Funds advanced → Sale completes → Financing repaid
Important
You need a firm sale first
Deposit financing isn't a way to access equity from a home that hasn't sold yet. Your existing property needs to have a firm sale in place.
The provider needs the sale information and enough equity in the home to support the financing. They will also need information about the mortgage or other charges that must be paid from the sale proceeds.
So if your home is still listed, or you have an accepted offer that is still subject to conditions, the firm-sale requirement has not yet been met.
The firm sale is what makes this type of financing possible.
Different Timing Needs
Deposit financing and bridge financing can solve different timing gaps
Both can involve accessing equity from a home that has already sold before the sale proceeds are actually available. The difference is usually what the funds are needed for and where you are in the buying and selling process.
Accessing Equity Earlier
Deposit financing
Deposit financing may allow you to access some of the equity from a firm sale before that sale completes. A deposit on another home is one common use, but the funds may also be available for other planned purposes.
A firm sale comes first
Your current home generally needs to have a firm sale in place, with enough available equity to support the financing.
The funds are not limited to a deposit
Depending on the circumstances, the money may be used for the deposit on another home or another planned expense.
Repaid from the sale
When the sale completes, your lawyer or notary typically repays the financing and applicable fees from the sale proceeds.
Covering the Completion Gap
Bridge financing
Bridge financing is typically used when the home you are buying completes before the home you sold, leaving a short period when the equity from your sale has not yet become available.
Usually tied to completion
The financing helps cover the gap between the completion date of your purchase and the later completion of your sale.
The mortgage lender may offer it
Traditional bridge financing may be available through the lender financing your new purchase if its requirements are met.
Another bridge option may be available
Deposit Financing may also be able to provide bridge financing in some situations when there is enough available equity and the lender on the new purchase is not requiring all of that equity to remain tied up until completion.
Same Equity. Different Timing Need.
If you need some of the equity from a firm sale before completion, the right solution depends on what the money is needed for, the timing of your purchase and sale, how much equity is available, and the requirements of the lender financing your new home.
How It Works
What does the process look like?
If you have a firm sale and need to access some of the equity early, Deposit Financing will need information about the property you sold, the sale agreement, the mortgage or other charges registered against the property, and the lawyer or notary handling the sale.
A lawyer or notary needs to have been retained, and their office needs to have the necessary sale documents before the process begins. Once the required information has been reviewed and the documents have been completed, the funds are transferred electronically into the account provided.
When the sale completes, your legal representative repays the financing and fees to Deposit Financing from the sale proceeds. The remaining equity is then available to you as part of the normal completion of your sale.
Deposit Financing currently provides this service for British Columbia properties.
Short-Term Financing
What does it cost?
Deposit financing is short-term financing, so there is a cost to using it. The exact cost will depend on how much you need to borrow, how long the funds are needed, and the provider's current pricing.
Because those details can change, it makes more sense to check the current terms directly with Deposit Financing. You can see their current pricing and program details on the Deposit Loans page.
The more important question is whether the cost makes sense for the problem it solves. If accessing some of the equity early helps bridge a timing gap — whether for the deposit on another home or another planned use — it may be worth considering. The cost still needs to make sense within your overall financial picture.
A Simple Example
A $50,000 deposit needed six weeks before the sale completes
Expected Equity
$250,000
Deposit Needed
$50,000
Sale Completes
In 6 weeks
Let's say you expect to have about $250,000 of equity from the sale of your current home after the mortgage and selling costs are paid. The sale is firm, but it doesn't complete for another six weeks.
Before then, you find the next home you want to buy and your offer is accepted with a $50,000 deposit due.
The problem isn't whether you have enough equity. The problem is timing. Your sale proceeds are coming, but not soon enough to cover the deposit.
In that situation, deposit financing may allow you to access the $50,000 now. If approved, the funds are advanced before your sale completes, and when your existing home closes, your legal representative repays the financing and applicable fees from the sale proceeds.
Planning the Sequence
This is why the dates matter
Buying and selling at the same time is often less about whether you have enough equity and more about when that equity becomes available. The deposit on your next purchase may be due shortly after your offer is accepted, while your down payment is needed at completion and the proceeds from your current sale may not arrive until later.
Those dates don't always line up neatly. Understanding the sequence before you make your next offer can help you see where a timing gap might exist and whether deposit financing, bridge financing, or another option may be appropriate.
Contributor
Neil Beaumont
Deposit Financing
Deposit financing information reviewed for accuracy by Neil Beaumont of Deposit Financing.
Visit Deposit Financing
Buying and selling at the same time?
Make sure the dates work before you make the next offer.
If money you expect to use is coming from the sale of your current home, it's worth looking at the dates before you commit to the next step.
We can work through how much equity you expect to have available, when your sale completes, when the deposit on the next purchase would be due, and whether deposit financing, bridge financing, or another structure may be needed.
Sometimes the numbers work perfectly.
It's the timing that needs a plan.
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