What Is a Bridge Loan and How Does It Work?

A bridge loan is used to span the time between two other mortgages. Say you are in the process of purchasing one home while you sell another. To keep you from having to carry two mortgage payments at the same time plus providing a down payment for the new property, you might seek out a bridge loan.

In certain circumstances, this may be of benefit to you: for example, if you are trying to purchase your new home in a competitive seller’s market. If you are bidding alongside other bidders, they may look more attractive to sellers due to the fact that they have no homes to sell. A bridge loan could help your chances.

How does a bridge loan work? There are several types to choose from.

One type is where the bridge loan completely pays off the existing mortgage. At that point, you just make payments on your new mortgage, then pay off the bridge loan once your existing property sells.

Another type is where you take out an additional mortgage on your existing home and use those proceeds strictly as a down payment on the new property. You would still be carrying two mortgage payments at this point.

Keep in mind that interest rates for bridge loans are much higher than those for traditional mortgages, making them expensive. Another point to note is that they can only be taken out for so long.

Before entering into any bridge loan, you want to be reasonably certain that you are going to be able to sell your existing home at close to the price you need to get for it.

If you find yourself in a situation where a bridge loan could get you from one home to the next, let me help you sort it all out. Call or email, and we can go over the options that work best for you.

The Importance of HOAs in Financing Condos

Condominiums are great for the people who live in them, as they offer lower-maintenance living, including landscaping and other services, in the monthly association dues.

Financing a condominium is similar to financing a single-family residence, with a few exceptions.

These differences are important to lenders, specifically the fact that condos have homeowners associations, which run the operations of the subdivisions or developments and determine the direction in which they are headed.

These associations are so important to lenders that the lenders reference what is called an approved condo list in determining if they want to lend money within a development. Real estate agents are able to determine if the development is on the approved list before you start looking at condos.

There are companies that regularly send out authorized people on behalf of lenders to do both a physical inspection of the property and a thorough assessment of the finances of the association as well as the rules and regulations of the development. What they are looking for are trends and signs that the association is well managed and financially sound, both now and into the future. This is for the benefit of both the lenders and the people who borrow money from them, but mostly for the lenders.

If you are in the market for a condo, let me guide you through the process of finding and financing an approved condo. I am always here to help, and I am just a phone call or email away.

Financing an Investment Property That You Can Rent Out

From a financing perspective, an investment property is similar to a property you would purchase to live in, although with different guidelines. So what exactly is an investment property?

For our purposes here, it is a property that has 1-4 units. Anything larger would fall into what would be considered commercial financing. Being that FHA, VA and other programs only offer financing for properties where owners plan to live, your financing choices will, by and large, be limited to conventional financing, which means a Fannie Mae or Freddie Mac program. Along these lines, if you do plan on buying a multi-unit property and plan on living in one of the units, only then can you use primary residence financing.

As far as a down payment on an investment property, you can expect it to be 20% of the purchase price. Lenders want to know that you have a vested interest in this transaction and want to make it work.

With regard to credit, it needs to be nothing less than stellar. This means high credit scores and, more importantly, no recent major blemishes, such as bankruptcies or foreclosures.

As far as asset reserves go, you can expect to need up to six months of your monthly expenses of principal and interest, property taxes, and homeowners insurance.

In some cases, you can use the income from the rental property itself as part of your income. Keep two things in mind, though. One is that the allowable income from the property will be reduced by 25% for what is called an occupancy factor. The other thing is that an appraiser will determine the fair market rent that you can use as income.

I am here to answer all of your questions and provide financial guidance with regard to your next rental property purchase. Please give me a call.

What Exactly Is a Jumbo Loan and Who Can Get One?

When a home buyer or existing homeowner takes out a mortgage to purchase or refinance a home, they are often taking out either a conventional (meaning Fannie Mae or Freddie Mac) or FHA mortgage. This is all well and good, but these mortgage types have limits as to the dollar amounts that can be had, and the limits vary in different parts of the country.

In 2020, the Fannie Mae limit, also called a conforming limit, is between $510,400 and $765,600.

The range for FHA mortgages is $331,760 to $765,600, and the numbers quoted above are for one-unit properties. Limits are higher for 2-4 unit properties.

However, people in many parts of the country (specifically, on both coasts) live in areas where loan amounts far exceed these limits.

What people looking to finance properties in these areas do is take out what are called jumbo loans. These jumbo loans look similar to traditional mortgages in that they offer 10-, 15-, 20- and 30-year terms and are available in fixed and variable rate versions.

How jumbo loan borrower profiles differ from the traditional borrower profiles includes the debt-to-income ratios. They are lower with a jumbo loan, meaning that a lower percentage of income may be used to put toward the house payment.

Some lenders will also require two appraisals to make sure that the property is worth what they think it is worth.

I am your jumbo loan expert and want to answer all of your questions. I am just a phone call or email away.