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Bridge Loan Calculations!

By on April 1, 2024   /   Blog  
What Are Owner Occupied Hard Money Loans

Bridge loans are short-term loans used to bridge the gap between the purchase of a new property and the sale of an existing property. These loans are typically repaid once the existing property is sold or through long-term financing. Here’s a basic calculation for a bridge loan:

  1. Determine the Amount Needed: Calculate the total amount needed to purchase the new property, including the purchase price, closing costs, and any renovation or repair costs.
  2. Estimate the Sale Proceeds: Estimate the expected proceeds from the sale of your existing property. This can be based on the anticipated sale price minus any outstanding mortgage balance and selling expenses (e.g., real estate agent commissions, closing costs).
  3. Calculate the Bridge Loan Amount: The bridge loan amount is the difference between the total amount needed to purchase the new property and the estimated sale proceeds from the existing property.

    Bridge Loan Amount = Total Amount Needed – Estimated Sale Proceeds

  4. Determine Interest Rate and Term: Bridge loans typically have higher interest rates than traditional mortgages and shorter terms, often ranging from a few months to a year or more. Contact lenders to obtain quotes for interest rates and loan terms.
  5. Calculate Interest Payments: Use the interest rate and loan term to calculate the monthly interest payments on the bridge loan. Keep in mind that some bridge loans may require interest-only payments during the term, with the principal due in a lump sum at the end.

    Monthly Interest Payment = Bridge Loan Amount × Monthly Interest Rate

  6. Assess Feasibility: Evaluate whether the monthly interest payments are feasible within your budget, considering your current income, expenses, and cash flow. Be sure to account for any potential delays in selling your existing property or unexpected expenses.
  7. Consider Risks: Bridge loans can be risky, as they often come with higher interest rates and fees. Be aware of the potential consequences of defaulting on the loan or not being able to sell your existing property within the expected timeframe.

Read on to learn more about calculating the cost of a bridge loan.

Rates will actually vary between lenders, but below is an average estimate for a bridge loan. The interest rate will fluctuate, but for this instance, we will use 8.5%. These types of bridge loans will not have payments for 4 months, but interest will build up and be due whenever the loan has been paid based on the sale of the old property. Below are sample fees:

  • Title policy fee: $450 or more
  • Recording fee: $65
  • Notary fee: $40
  • Escrow fee: $450
  • Drawing/wire/courier fee: $75
  • Appraisal fee: $475
  • Administration fee: $850

Additionally, there will be a loan origination fee for the bridge loan that is based on the loan amount. Each point will be equal to 1%. Below are the average fees and they will vary.

  • $100,000 – $150,000 = 0.75 point
  • $150,000 – $250,000 = 1 point
  • $25,000 – $100,000 = 0.50 point

Bridge Loans In Arizona

If you are looking for bridge loans in Arizona, Brad Loans by eMortgage can help. We offer bridge loans, hard money loans and fix and flip loans in Phoenix, Arizona and the sourounding cities.

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Are Hard Money Loans Inflation Proof?

By on October 20, 2023   /   Blog, hard money loan approval, hard money loans, loan approval, Owner Occupant Loans, refinancing  
What Are Owner Occupied Hard Money Loans

Hard money loans are not inherently “inflation-proof,” as they are influenced by various economic and financial factors, just like other types of loans. Inflation, which is the increase in the general price level of goods and services over time, can have several effects on hard money loans:

  1. Interest Rates: Inflation can influence interest rates, including those associated with hard money loans. If inflation is on the rise, central banks may respond by increasing benchmark interest rates to control inflation. This can lead to higher interest rates on hard money loans.
  2. Borrowing Costs: As interest rates rise due to inflation, borrowing costs for hard money loans can also increase. Borrowers may have to pay more in interest, which can impact the overall cost of the loan.
  3. Loan Terms: In an inflationary environment, hard money lenders may adjust their lending terms to account for the reduced purchasing power of money. They may offer shorter loan terms or require borrowers to pay a larger down payment.
  4. Property Values: Inflation can affect the value of real estate and other assets that serve as collateral for hard money loans. Property values may increase in an inflationary environment, potentially affecting the loan-to-value (LTV) ratio and the terms of hard money loans.
  5. Loan-to-Value Ratio: Inflation can impact the loan-to-value ratio, which is the ratio of the loan amount to the appraised value of the property. Rising property values can lead to lower LTV ratios, which may result in more favorable loan terms for borrowers.
  6. Economic Conditions: The overall economic conditions, including inflation rates, can influence the demand for hard money loans. In times of economic uncertainty or high inflation, borrowers may seek hard money loans as an alternative financing option.

It’s important to note that hard money loans are typically shorter-term loans, often used for real estate investments or projects that require quick funding. The impact of inflation on hard money loans may be less significant than on long-term loans with fixed interest rates.

To address the potential effects of inflation when seeking a hard money loan, borrowers should consider the following:

  • Keep an eye on inflation trends and central bank interest rate policies to anticipate potential interest rate changes.
  • Negotiate loan terms that align with your expectations regarding inflation and property value appreciation.
  • Consult with a financial advisor or attorney to understand the implications of inflation on your specific loan terms and overall financial situation.

In summary, hard money loans are not immune to the effects of inflation, and their terms and costs can be influenced by economic conditions and interest rate changes. Borrowers should be aware of these factors and plan accordingly when seeking hard money financing.

Can A Hard Money Loan Be Transferred?

Hard money loans typically cannot be transferred from one borrower to another without the lender’s consent. These loans are typically based on the value of the underlying asset, such as real estate, and are often granted to a specific borrower or entity for a particular purpose. Transferring a hard money loan may require approval from the lender and potentially a modification of the loan terms. Here are some considerations:

  1. Lender Approval: Before a hard money loan can be transferred to a new borrower, the lender must typically approve the transfer. Lenders will assess the creditworthiness and financial situation of the new borrower to ensure they are capable of repaying the loan.
  2. Loan Modification: In many cases, transferring a hard money loan involves a modification of the loan terms, including the interest rate, loan amount, and repayment schedule. The lender may require updated terms that reflect the new borrower’s financial situation and risk profile.
  3. New Collateral: If the hard money loan is secured by specific collateral, such as real estate, the lender may need to assess the condition and value of that collateral before approving a transfer. The new borrower’s asset may also be considered as collateral.
  4. Fees and Costs: Transferring a hard money loan may involve various fees and costs, including loan assumption fees, legal fees, and appraisal fees. The new borrower and the existing borrower may be responsible for covering these expenses.
  5. Due Diligence: Lenders will conduct due diligence on the new borrower, similar to the process they follow when originating a new loan. This may include a credit check, financial documentation, and an evaluation of the new borrower’s qualifications.
  6. State and Local Regulations: Loan transfer regulations may vary by state and locality, and certain jurisdictions may have specific requirements or restrictions on loan transfers. Complying with these regulations is important.
  7. Consent from All Parties: All parties involved, including the existing borrower, the new borrower, and the lender, must consent to the loan transfer and agree to the revised terms.

It’s important to communicate with the lender early in the process if you are considering transferring a hard money loan. The lender’s willingness to facilitate the transfer and the specific requirements and conditions will vary depending on their policies and the terms of the loan agreement.

Keep in mind that transferring a hard money loan can be a complex process, and the lender’s decision may depend on the unique circumstances of the loan and the creditworthiness of the new borrower. Consulting with a legal or financial advisor can be valuable when exploring the possibility of transferring a hard money loan.

Bridge Loans In Arizona

If you are looking for bridge loans in Arizona, Brad Loans by eMortgage can help. We offer bridge loans, hard money loans and fix and flip loans in Phoenix, Arizona and the sourounding cities.

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How Does The Economy Impact Hard Money Loans?

By on October 20, 2023   /   Blog, hard money loan approval, hard money loans, refinancing  

How To Purchase Rentals With No Money Down Hard Money Loans

The economy can have a significant impact on hard money loans, just as it does on traditional lending and financial markets. Hard money loans are typically short-term, asset-based loans that are often used by real estate investors and borrowers who may not qualify for traditional bank financing. Here’s how the economy can influence hard money loans:

  1. Interest Rates: Economic conditions, especially changes in central bank interest rates, can affect the interest rates on hard money loans. When the economy is booming and central banks raise interest rates to control inflation, hard money loan rates may also increase. Conversely, during economic downturns, interest rates may decrease.
  2. Credit Availability: In a strong economy, borrowers may have an easier time obtaining traditional bank loans, which offer lower interest rates and longer terms compared to hard money loans. However, during economic downturns or credit market crises, banks may tighten lending standards, making it more challenging for borrowers to qualify for bank loans and increasing the demand for hard money loans.
  3. Property Values: The overall economic health can influence property values, impacting the collateral used to secure hard money loans. In a strong economy, property values tend to rise, potentially providing more valuable collateral. In a weaker economy, property values may stagnate or decline, affecting the loan-to-value (LTV) ratio and the terms of hard money loans.
  4. Loan Terms: Economic conditions can affect the terms of hard money loans, including loan-to-value ratios, interest rates, and loan duration. During economic uncertainty or downturns, hard money lenders may be more conservative and reduce LTV ratios, increase interest rates, or offer shorter loan terms to mitigate risk.
  5. Borrower Demand: Economic factors can influence the demand for hard money loans. During economic booms, real estate investment and development projects may increase, driving up the demand for hard money loans. In contrast, during economic downturns, demand for hard money loans may decline as investment opportunities become scarcer.
  6. Lender Risk Tolerance: Hard money lenders are private individuals or entities, and their risk tolerance can be influenced by economic conditions. In prosperous economic times, lenders may be more willing to take on riskier projects or offer more favorable terms. During economic uncertainty, they may become more risk-averse and impose stricter lending criteria.
  7. Availability of Funds: Economic factors can affect the availability of funds for hard money lenders. When the economy is doing well, lenders may have more capital to invest in loans. Economic downturns can impact their ability to raise funds for lending, potentially reducing the supply of hard money loans.

It’s important to note that hard money loans are generally less influenced by economic conditions compared to traditional bank loans because they are primarily asset-based and focus on the value of the collateral. Borrowers who cannot qualify for traditional loans or need a quick financing solution may turn to hard money lenders, regardless of economic conditions.

Borrowers and investors considering hard money loans should carefully assess their financial situation, the potential risks, and the terms offered by lenders, especially in light of current economic conditions. Additionally, it’s advisable to work with reputable hard money lenders who have a history of responsible lending practices.

Hard Money Loan Rates

Hard money loan rates typically ranged from 7% to 15% or more, with some lenders charging even higher rates for riskier loans.

It’s essential to understand that hard money loans are often considered riskier than traditional bank loans, and as a result, they tend to have higher interest rates. To get the most accurate and up-to-date information on hard money loan rates, you should contact several hard money lenders in your area or conduct online research.

When inquiring about hard money loan rates, keep in mind that lenders may consider the following factors in determining the rate:

  1. Credit History: Some hard money lenders may take the borrower’s credit history into account, but this is generally less important than the property’s value and the loan’s LTV ratio.
  2. Property and Location: The type of property and its location can affect the interest rate. Lenders may charge different rates for residential properties, commercial properties, or properties in different regions.
  3. Loan-to-Value (LTV) Ratio: The LTV ratio, which is the ratio of the loan amount to the appraised value of the property, is a crucial factor. Lower LTV ratios (meaning the borrower is providing a larger down payment) may result in lower interest rates.
  4. Market Conditions: Economic conditions, local real estate market conditions, and lender competition can all influence hard money loan rates.
  5. Lender Policies: Different hard money lenders have different policies and risk assessments, which can lead to variations in the rates they offer.

To get the most accurate and up-to-date rates, reach out to hard money lenders directly, compare offers from multiple lenders, and thoroughly review the terms and conditions of each loan. Be prepared to provide details about your project, the property, and your financing needs to receive the most accurate rate quotes.

Please note that my information is based on the state of the industry as of September 2021, and market conditions may have changed since then. It’s important to do your due diligence and work with a reputable and experienced hard money lender to secure the most suitable loan for your specific situation.

Give us a call today if you are interested in hard money loans for fix and flip, finishing construction, refinancing your mortgage, buying land, or need loans for other investment opportunities but have bad or no credit. Give Brad Loans a call today at (602) 999-9499.

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