Shortly before Christmas, we sold our family farm for $4 million and bought a house for $1.7 million. We immediately sent the paperwork to the bank we’ve used for 40 years. Our closing dates are two weeks apart and the bank just told us we can’t get bridge financing. What do we do now? – KEEPING ME UP AT NIGHT
DEAR KEEPING: It sounds like you started off on the right foot by getting your paperwork to the bank right away. You may have thought things would be simple from there, but the channels of approval at most financial institutions have grown more complicated over the last few decades. What used to get done with a phone call now often takes several layers of approval across multiple departments.
You’re up against the clock, so check with your bank to see where their challenges lie. If you’ve owned your property for many years and it’s worth much more than you paid for it, the bank may be concerned about whether you can service your debt in a “what if” scenario: What if the farm doesn’t close and you can’t afford to carry both properties until you find a new buyer? What if you need to re-sell the farm but it doesn’t sell quickly or for as much money as it did before? These are the types of questions that get in the way of high-equity, lower-income clients.
When arranging for financing, you should provide any documentation the bank needs. From there, it should only take a week or two to get your deal approved. If you’ve followed up with the bank several times and not made any progress, it’s time to start working on a Plan B.
With so little time before closing, ask your Realtor if they can help you seek alternative financing. Lenders have varying appetites for different types of businesses, and some will understand the financing and leveraging of farm properties better than others. You now need a multi-pronged approach that may involve alternate financing, enlisting a co-signer if your income is not sufficient, or amending one (or possibly both) of your agreements so they close on the same day (this is the only situation where I advocate doing so). When your closings match, you eliminate the need for bridge financing, and can sidestep your major obstacle – the bank.
PRO TIP: The loan application process is equally rigorous whether you’re borrowing for two weeks or two years. Don’t be afraid to follow up when your application is underway. Keeping you in the loop is not an imposition, it’s part of someone’s role. If you had followed up with the bank and gotten a “no” early on, you could have started looking for funding elsewhere and wouldn’t be so rushed now. #Advice #AskDavid #TheNegotiator
David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Call or text today for your free home evaluation! 519-577-1212.