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Calculating A Bridge Loan?

Calculating A Bridge Loan

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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.

What Is A Hard Money Loan?

What is a Hard Money Loan?

The definition of hard money loan is: A last resort loan or short-term loan to close a bridge or gap in your finances. A hard money loan is not based on credit but it backed by the overall value of the property.  Due to the property being used as the protection against default from the borrower, these type of loans usually have a low loan-to-value ratio also known as (LTV) typically lower than other traditional loans.

According to Investopedia, “A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of “last resort” or short-term bridge loans. These loans are primarily used in real estate transactions, with the lender generally being individuals or companies and not banks.”

  • Hard money loans are mainly used for real estate transactions and are money from a company or an individual and not a financial institute.
  • A hard money loan, typically taken out for a brief period of time, is a way to raise money fast, but at higher costs and a lower loan to value (LTV) ratio.
  • Since hard money loans aren’t commonly executed, the funding deadline is extremely reduced.
  • The conditions of hard money loans may frequently be negotiated between the lender and the borrower. These types of loans usually use property as the collateral.
  • Repayment could lead to default but nevertheless end up in a profitable business deal for the lender.

Brad Loans Explains “Hard Money Loans”

A hard money loan will usually carry higher interest rates than subprime loans or traditional loans. Traditional lenders don’t usually make hard money loans, hard money lenders are usually private investors that see potential in this risky market. Hard Money loans are commonly used in quick flip, short term financial needs or by loan borrowers with bad credit but have equity in the property they own and wish to avoid foreclosure.

How Does a Hard Money Loan Work?

Hard money loans have conditions that are mainly based on the value of the property that is used as collateral, and not on the credit worthiness of the borrower. Because traditional lenders, like banks, don’t execute hard money loans; hard money lenders are usually private individuals or companies that see worth in these types of possibly risky endeavor.

Hard money loans might be wanted by property flippers that plan to renovate and then resell the property that’s used as collateral for the financing—usually within a year, if not sooner. The higher costs of hard money loans are offset by the fact that the borrower plans to pay the loan off somewhat fast—some hard money loans are for 1 to 3 years—and by many of the other benefits, they provide.

Hard money lending may be considered as an investment. There are a lot of individuals who’ve used this as a business format and proactively practice it.

Unique Considerations for Hard Money Loans

The costs of a hard money loans to the borrower is usually higher in comparison to the financing available using government lending programs or banks, considering the higher risk that the lender is undertaking by offering the financing. Nevertheless, the increased expense is a tradeoff for faster access to funding, a less strict approval process, and possibly flexible in the repayment schedule.

Hard money loans can be used in short term financing, in turnaround circumstances and by borrowers that have bad credit but considerable equity in their property. Because they can be issued fast, hard money loans may be used to avoid foreclosure.

The Pros and Cons of Hard Money Loans

Hard money loans have their pros and cons. Keep reading to learn more about the pros and cons of hard money loans.

Pros of Hard Money Loans

One advantage is that the approval process for a hard money loan is usually much faster than applying for a mortgage or other conventional loans using a bank. The private investors that back hard money loans can make decisions faster since they usually do not do credit checks or review a borrower’s credit history—the steps lenders typically take to investigate a potential applicant’s capability to make their loan payments.

These investors are not as concerned about getting repayment because there might be an even greater worth and the possibility for them to resell the property themselves, should the borrower default.

An additional advantage is that because hard money lenders don’t use a conventional, customary, underwriting method, but assess each loan on a case by case basis, applicants can usually negotiate modifications regarding the repayment schedule for the loan. Borrowers may aim for more chances to pay back the loan during the timeframe available to them.

Cons of Hard Money Loans

Because the property on it own is used as the only safeguard against default, hard money loans typically have lower loan to value (LTV) ratios than conventional loans do: around 50 percent to 70 percent vs. 80 percent for standard mortgages (though it may increase if the borrower is a seasoned flipper).

Additionally, their interest rates are prone to be higher. For hard money loans, the rates may be even higher than those of high-risk loans. As of 2019, the rates of hard money loans were ranging from 7.5 percent to 15 percent, subject to the duration of the loan. Comparatively, the prime interest rate was 5.25 percent.

One other disadvantage is that hard money loan lenders may choose to not offer financing for an owner occupied residence considering regulatory monitoring and compliance by laws.

Hard Money Lenders in Phoenix, AZ

When you are searching for hard money loans near me in Phoenix, Scottsdale, Glendale, Tempe, Mesa, Chandler, or Gilbert, Arizona; Brad Loans is Arizona’s most trusted direct hard money lender!  We specialize in hard money loans for Fix and Flip, refinancing mortgages with bad credit, business loans secured by real estate, real estate purchases, short sales, and other endeavors with quick turnaround in the Phoenix Valley.

BradLoans.com is the most trusted direct hard money lender and private money lender in Arizona! We are the best hard money lender in Arizona with the ability to fund commercial & residential hard money loans many times within a couple days or less. Our lending rates and fees are reasonable compared to other Arizona hard money brokers or mortgage brokers in Arizona.

How Much Money Do I Need To Flip Houses?

How-Much-Money-Do-I-Need-To-Flip-Houses

How-Much-Money-Do-I-Need-To-Flip-Houses

To flip houses you will need enough money to cover the purchase cost, cost of repairs, carrying costs, marketing costs, and cost to sell the property.  How much you will need depends on how much repair is needed, where the property is, and the type of property.  The cost does average about 10% of the purchase price of a property.

Property Purchase Cost

The purchase cost includes more than just the price the property is sold for.  It also includes all of the other costs associated with purchasing the property.  These include closing cost, fees, title insurance, financing fees, and taxes.  Depending on how the seller is listing their home this may or may not include light fixtures, window treatments, and appliances.

The cost to purchase the property is simply how much the seller agrees to let it go for.  In the case this is a family home (single or multifamily) the structure and property will be included in the purchase price.  IN contract when co-op or condos are purchased the land is not generally part of the purchase price.

A good guideline for calculating what you should pay for a property is 70% of the value after repair subtracting the costs to rehabilitate.  That means if you’re looking at a property with a price of $100,000 you will offer $70,000 minus what you think it will cost to rehab the property.  It’s easier for beginners to choose properties that just need minor repairs such as new carpet and paint.  These rehab costs are easier to calculate.

Include The Closing Costs In Your Plan

Closing costs include property insurance, fees to the title company, title insurance, transfer taxes, and a portion of the property taxes.  It’s important to consider this as part of how much you will need to loan to flip a house.  Closing costs generally run about 5% of the purchase price of the property.  That means on that $100,000 dollar property you’d be looking at an extra $5,000.  So now you’d need to estimate $105,000 for how much you’d need to flip the house.

Property Rehabilitation Cost

How much it will cost to rehabilitate a house varies.  It goes without saying that the more the house needs to be sold the more it will cost and the longer it will take.  Include both the cost of labor and the materials needed to fix the problems with the property you’re considering.

Labor & Material Costs

Decide which items need to be rehabilitated to resell the property as a ready to live in “turnkey” property.  This will include the building materials, appliances, and all fees for delivery and installation.  If any of the items will need to be special ordered, work that into your timeline to ensure you borrow enough to cover carrying costs.

Most of your costs will fall into one of two categories, appliances and building materials. Carefully inspect the property’s appliances, HVAC system, floors, walls, hardware, paint, and tile.

How much you should budget for when it comes to labor is the cost for you or subcontractors to come and do the work.   Ensure you have a contracted amount before you authorize work from any specialized labor.  Most fix and flips will include services from landscapers, painters, plumbers, electricians, handymen, and if the project is big enough a general contractor.

Beginner Cosmetic Fix & Flip Costs

For the new fix and flipper it’s not a bad strategy to choose properties that only need cosmetic rehabilitation.  These fix and flips take less time which reduces the cost to carry the property.  In addition the labor and material costs are not as high.  The one downside is your purchase price is likely higher as the property is valued higher.

Common projects for cosmetic rehabs include, patching and painting walls, refinishing hardwood and replacing carpet, and taking care of remodeling in the bathroom and kitchen.  Cosmetic rehabs also typically include cleaning up the landscaping to bump up the curb appeal and value.

ROI For Cosmetic Fix & Flip

When you fix and flip a property that just needs some cosmetic repairs you should be shooting for about a 10% ROI.  An example of how that would look is if you purchase the property for $100,000 and put in $5,000 in cosmetic repairs your new sale price should be $105,000.  To calculate your ROI take the difference between your purchase price and your new rehabilitated value and divide it by your new value.  Then multiply that by 100 to get the percentage of ROI.

ROI For Moderate Fix & Flip

When you consider doing a moderate fix and flip it will include more involved repairs and upgrades that might require the hiring of licensed contractors.   While taking on properties that need more involved updates and repairs the potential ROI is attractive.

Examples of moderate repairs include: kitchen remodeling that replace countertops, appliances, lighting fixtures, along with bathroom remodeling, improving the landscaping and lastly painting the outside of the house.  You should be shooting for an ROI on this type of project in the range of about 18%.

ROI For Extensive Fix & Flips

Fix and flips that need more involved rehabilitation will require more time, more skilled labor, higher carrying costs, but do offer an opportunity to get the best ROI.  These properties typically have known larger issues that lower the value of the property.  This allows you to purchase at a lower cost and get better ROI for your efforts and investment.

Common rehabilitation projects include: fixing foundation cracks, adding bathrooms, adding more rooms, and putting in a garage.  You should be looking to get an ROI of about 23% or more for extensive fix and flip rehabilitation projects.

Cost To Own The Property

While you are rehabilitating the property there are costs of ownership.  These include the payments on the loan, insurance, utilities, and any property taxes.  These costs are generally paid monthly while you’re fixing and until you sell it.

Marketing & Sales Costs

There are costs to market, sell, and close when you’re done fixing and flipping the property.  You’ll need to decide if you’re going to market and sell the house yourself or if you will use a realtor.

Realtor Costs

Most real estate deals consist of the seller’s realtor and the buyer’s realtor.  Each of these realtors are typically paid by the seller.  While its customary for realtors to get 6%, any amount can be decided by the seller and realtor.   While this fee isn’t something paid out of pocket it should be expected and planned for as part of the settlement process.

Cost To Market The Property

When using a realtor the cost of marketing your fix and flip is minimal. However if you decide to purchase the property to yourself there will be some out of pocket costs.  The marketing approach may include some or all of the following: open houses, flyers, signs, and online posting.

These costs must be added into your carrying costs to have an overall picture.  Without the right marketing you may not sell your property quickly and increase your carrying costs.  The more people that are marketed the property you’ve fixed the higher chance you’ll sell it.

Find A Fix & Flip Loan in Phoenix

If you’re a real estate investor or fix and flipper that needs a loan for a prime property; Brad Loans can help!  Our team knows the local real estate market in Phoenix and offers hard money loans and bridge loans for the fixing and flipping houses.  To learn more please read about our loan programs or start your loan application now!

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