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If your Googling “What Is A Bridge Loan“, this post should help clarify. Here Brad Loans by eMortgage Inc explains what a bridge loan is, how it works and what it is used for.

What is a bridge loan?

A bridge loan is a temporary loan that will bridge the gape between sales price of a new home and your new mortgage, if the old home hasn’t sold yet.

The bridge loan is secured to the existing home. The funds are then used as a down payment on the new home.

A bridge loan happens to be quite popular within a certain type of real estate market. Whether or not that it is a good option will depend on various factors. The reason that a buyer will take out a bridge loan is because they want to buy another place before they sell their existing home. That may sound great, but a bridge loan does have risks.

For instance, whenever a home buyer is purchasing another home before selling their home, there are 2 ways to find the down payment for the new home which is financing through a home equity loan or a bridge loan.

It is best to wait before buying a home and selling your home first, but most think its best to locate their move in home first.

If you are certain that your existing property will sell, then it will remove fears about what happens if it doesn’t. You may want to talk to an advisor before you get a bridge loan. The main advantage of a bridge loan is to avoid a bad offer and make the move up offer more attractive to a seller.

Normally, a home equity loan is much less expensive, but a bridge loan has more benefits for certain borrowers. Additionally, most lenders will not lend a home equity loan if the home is on the market. Smart borrowers will compare the benefits between the 2 types of loans and find which one is better for their situation and plan ahead before making an offer on another home.

A big benefit for bridge loans is that it allows you to purchase a new home without worrying about selling right away.

Is the balance off? The account balance that is. Below is how much money that you should keep within your savings and checking accounts.

Get it right! In the seller market, most sellers won’t accept a contingent offer. If you are selling a home, that may mean that you can’t buy a home without contingency.

How does a bridge loan work?

Most lenders will not have set debt to income ratios or FICO minimums guidelines. Funding is actually done with an underwriting approach. This requires guidelines in long term financing that is obtained for the new home.

There are some lenders that will make a conforming loan to exclude bridge loan payments for qualifying purposes. This means that you are qualified to buy the new home by adding your existing loan payment onto the new mortgage payment. The reasons that you may be qualified on 2 payments is because:

• For a short time, you will own 2 homes.
• Many buyers have an existing mortgage on old home.
• Buyer is likely to close new home purchase before selling old home.

If the new mortgage is a conforming loan, then lenders will have a bit more ways to be able to accept a much higher debt to income ratio by being able to run it through automated underwriting programs.  If the new loan is a jumbo loan, then many lenders will restrict it to a 50% debt to income ratio.

Average fee for a bridge loan

Rates will actually vary between lenders, but below is an average estimate for a bridge loan in California. 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:

• Drawing/wire/courier fee: $75
• Recording fee: $65
• Notary fee: $40
• Title policy fee: $450 or more
• Escrow fee: $450
• 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.

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

Home Purchasing Benefits of Bridge loans

• If there is a contingent offer to purchase, the seller has a Notice to Perform, then the purchaser may then remove any contingency and move forward with the purchase.
• The buyer can put their home on the market immediately and buy without restrictions.
• A bridge loan may not require a monthly payment for several months.

Home Purchasing Disadvantages of Bridge Loans

• Buyers are often qualified by a lender to own 2 homes and most may not meet this requirement.
• Making 2 mortgage payments plus interest on a bridge loan may cause stress
• Bridge loans will cost much more than a home equity 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.

If you’re searching “How To Get A Hard Money Loan” you’re probably looking to finance a real estate investment project.  There are a number of ways to get funding such as private loans, conventional loans, and hard money loans. In Arizona  each of these options carry their own regulations, guidelines, and are all different.  The application process for a hard money loan vs. a conventional loan from a bank is much different, for example.

Conventional Loan Drawbacks

If this is your first real estate investment or you are a first time borrower, you may think that bank financing is the only way that people get the funding they need.  Conventional bank loans can be very slow and present a number of complications.

Pre-approval Process – Conventional bank loan applications start with a pre-approval process which is followed by requests for virtually every imaginable financial document.  They will typically request copies of your tax returns, bank statements, credit card statements, and will want to know where your down payment is coming from.  If you have money gifted to you or another investor involved in the project they will expect notarized documents attesting to the source of your down payment.

Bank Property Appraisals – Another standard practice of conventional loans is an inspection and appraisal of the property by an agent hired by the bank.  In the case of fix and flip investments banks are typically hesitant to loan based on what a property will be worth after renovations, until the renovations are done.

Lengthy Approval Process – After you have jumped the documentation and appraisal hurdles it can still a month or more until they give you the go ahead on closing the deal on the property.  This means if you have identified a prime home or investment opportunity someone else may be able to get the deal done faster and take the opportunity right out from under you.  This can be an incredibly frustrating experience for investors or potential home buyers.

Restrictive Credit Limitations – Conventional bank loans have much different standards and will not offer financing to people who have bad credit, or no credit.  If you are just starting out and don’t have any credit history, or you have some history that meant bad credit you will most likely be denied a conventional loan.

Hard Money Loan Benefits

Clearly there are limitations to convention loans offered by banks, especially for fix and flip opportunities.  They take longer and are limited by bank conducted property appraisals. Hard money loans offer huge advantages for investors and home buyers.

Much Faster Application Process – The application process requires less documentation and is conducted much more quickly.  The borrower’s financial history will be looked at but more importantly if the borrower is able to produce a down payment and the project’s merits.  Many loan applications can be approved and funded in as little as 7-10 days!  Compared to the month or more that conventional loans you will have a much greater chance of getting the property secured for your real estate investment project, or the home of your dreams.

Greater Fix & Flip Flexibility – Hard money lenders evaluate the feasibility of project to turn a profit based on what it will generate during the renovations or upon completion of the project when it is sold.  The condition of the property is taken into consideration but hard money lenders are not as concerned with the present value of the property as they understand that an integral element of the process is to improvement of the property.   A factor that hard money lenders value is, how quickly a real estate investment will make them back their investment, plus the interest on the loan.  Read more about: Fix And Flip Loans

Funding For Bad Credit – Whether you’ve just started out and don’t have any established credit history or if you have had problems with your credit, hard money lenders have much more flexibility to who they make loans to.  This is a major advantage for a lot of consumers that have unavoidable credit challenges but still want to purchase a home, or want to get involved with real estate investing.

How To Get A Hard Money Loan With Bad Credit

Conventional loans are virtually impossible to get with bad credit, or no credit.  Hard money lenders look more at your ability to pay back the loan and the overall merit of the real estate purchase.  With the right down payment or collateral property people will bad credit are able to purchase the properties they want to live in, or they would like to invest in.  A major advantage of hard money lending is that homebuyers or real estate investors can get funding despite credit challenges.

It’s easy to get a hard money loan and you start by simply filling out a hard money loan application.  Less financial documentation and time is needed to find out if you quality for the loan you need.

How To Get A Hard Money Loan in the Phoenix Valley

If you live in the Phoenix Valley or want to invest in the real estate market in the area Brad Loans by eMortgage is your source for hard money lending.  Our team makes it easy to apply and does our best to get everyone approved for the properties they want to purchase.  We offer financing to a lot of people when banks cannot, or will not offer financing.

To get started simply click: Hard Money Loan Application

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How to get a hard money loan with no money down

If you’re searching the question “What Are Points On A Hard Money Loan?” you are looking for a better understanding of the inner workings of the hard money lending process.  This post is made to help you better understand what points are and how they related to hard money lending.

Fee Based Income on Hard Money Loans

In addition to interest, a hard money loan has other fees charged by the lender. These fees are a source of income for the hard money loan lenders, therefore it is important to fully understand the income sources of lenders so you have a fair negotiation process, which is how you will obtain the best term and rates.

Points:

A percentage of the total loan amount is calculated. One point equals one percent of a loan. Depending on the lender, some hard money lenders will charge points to simplify the closing costs without providing details of separate underwriting fees, or others. Also, some lenders will charge additional points besides these fees. The charged amount will depend on transactions and agreements between the involved parties, risk, complexity and loan-to-value (LTV).

Example:

You have a $500,000 loan, and you are charged 3 points (3%), totally $15,000. These points are often referred to as ‘up front’ points since they are included in closing costs and get disbursed during the tart of your hard money loan, rather than being collected over the span of the loan. However, there are situations when hard money lenders might agree to pay referral fees to another hard money lender for sending you or private investors. Furthermore, lenders might agree on sharing part of the points collected with private investors.

Possible example of up front point distribution:

-$4,000 to private investor for increasing yields

-$3,000 to referring hard money broker

-$8,000 to hard money lender

Underwriting Fees and Other Fees

These fees get charged to you as an additional cost that increase the points of a hard money loan. With private lenders, some will charge them, others will not. Although certain fees just ‘pass through’ hard money lenders, including credit report fees and appraisal fees, others are additional compensation sources.

Example:

Underwriting Fees – This is a flat fee, generally ranging between $750 to $2,500 and is charged to hard money loans. Overall price depends on the complexity. There are cases where this fee gets incorporated in the points charged, but it could also be charged as a separate addition.

Processing Fees – This is a flat rate that is charged for the processing of a loan.

Doc Prep Fees – This is a flat rate charged for the loan document preparation. There are cases when these fees are simply passing through due to hard money lenders using private companies or creating documents, while other times the fee will be a source of additional income for the PML.

Referral Fees

This is an agreed loan percentage or dollar amount between the referred business and hard money lender. If you got referred to the hard money lender, it is likely that referral fees are part of the fees you will be paying to the lender. Because of specialized nature behind private money lending, every hard money lender is not able to provide ‘all things to all clients’. The funds they lend get decided on by investors that they represent. Thus, referral fees are a common factor.

Loan Servicing

This is a fee paid by the investor to a PML, if they are servicing the loan. A PML will retrieve your payment, maintains all required records, then provides you an applicable report. The servicing fee varies; some may be a flat rate while others charge a percentage of a loan balance. For example, 0.25% to 1% of original loan, which is calculated annually and collected monthly.

Late Fees

Another source of income hard money lenders collect are late fees, which occur if you make payments after the specified date within your promissory note. Late fees are often split with an investor (50/50), this is paid upon you paying the fee.

Foreclosure Fees

This fee is generated when a foreclosure occurs, sometimes being paid to a hard money lender, but not always. There are various PML that offer foreclosure services, thus act as a source of profit revenue or hard money lending companies. However, there are other situations where hard money lenders outsource the entire foreclosure service, and do not collect any revenue from foreclosure fees. Usually, this type of income does not get split with investors.

Renewal Fees

This is a fee that you pay for renewing your current loan with mutual consent from a private investor. Investors will likely be willing to renew your loan if you are a quality borrower who pays on time. This maintains their funds earned. Renewal frees are commonly paid by the borrower, either up front or as additional cost to the loan principal.

Each hard money lender has a business structure slightly different than another. The profit revenue may come from a single source, or a combination of the above sources. Keep in mind that nothing is set in stone, and fees of a hard money loan can be negotiated.

By having a better understanding of fees in association with a hard money loan, you will be able to negotiate a better rate for your loan. You can improve negotiation position by having a great track record, low LTV and high collateral, which can result in a much lower cost.

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Phoenix Valley Hard Money Lending

If you’re looking for a hard money loan in the Phoenix Valley, Brad Loans can help.  We finance both investors and owner occupant purchases with up to 100% loan to value with cross collateral.  That means you could get a loan with little to nothing down with the right combination of collateral.  Brad Loans has helped thousands of Arizona residents get the money they need for fix and flips, bridge loans, home purchases, or other real estate endeavors. To learn more about what Brad Loans can do for you fill out a hard money loan application or give us a call at 602-999-9499.