5/4/2023 Bridge Loans – A Deeper Look

I always get the question, “How does a Bridge Loan work?” The next question is, “How much does a Bridge Loan cost?” Let’s talk about those subjects with you right now, as Bridge loans or getting approved for a Bridge Loan is prevalent!

A Bridge loan allows a person who owns a home to extract cash out of their home so they can put a down payment on a new house. It often allows a buyer who would typically be contingent on becoming non-contingent, which enables the buyer to make a non-contingent offer. If they sell and close their sale property before the purchase property closes, they can skip the Bridge Loan and just close on the purchase money loan. Here is a quick example below:

John and Suzie owe $385,000.00 on the house listed for $750,000.00. They want to buy a house for $900,000.00, and they will sell their home fast, but they have to make a non-contingent offer! We can get them a Bridge Loan up to 80% of the appraised value 750k x.8= 600K less the $385,000.00 they owe = $215,000.00. In this situation, they will put down $200,000.00 (15K ish for closing costs on purchase and Bridge combined) and get a new loan for $700,000.00. When their home sells, they will get an additional $100,000.00 to put down on the new house or use for home improvements. They could re-forecast their payment and make payments based on the $300,000.00 Loan Amount! By the way, they are closing escrow on June 10. Their first payment is due on the Bridge Loan, and the new Mortgage is August 1, so please understand that they now have 85 days to sell their property and close it without making a payment.

Say they sell their house quickly, which closes a week before the purchase. In that case, we close the purchase loan and skip the Bridge altogether!

Suppose the buyer gets a Bridge loan like the above. The fees on the Bridge Loan are Lender Fees, Recording, Escrow, and Title – about $3500.00. Let’s say the Bridge Loan amount is $600,000.00, and the new loan amount is $250,000.00. In that case, we will charge 1 point for the Bridge loan as we would only earn about $2500.00 on the Conventional Loan. The Bridge Loans feed our regular business, but when most of the loan is Bridge, we need to charge for it. Interest rates are typically 1.5% above the conventional 30-year mortgage rate (about 7.49%). We have very few competitors in this market, and the competitor’s rates are typically in the 9.5% plus range charging a minimum of 2.5 points, and they usually cut off at 75% of the appraised value. We have been doing this for a long time, and we know all of the ins and outs, so please let us know if you have a buyer that needs to go non-contingent!

Next week will be warm, so we will discuss the Augusta Financial Treat Suite (Ice Cream Truck) and how you can use that for marketing!

Interest rates are a little better today and have been pretty good all week. I guess I shouldn’t jinx it!

• 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge
• Government Loans (FHA / VA) are in the low to mid 5’s.
• Conventional Loans up to $726,200.00 are in the mid 5’s to low 6’s.
• High Balance Loans $726,201.00-$ 1,089,300.00 are in the high 5’s and low 6’s
• Jumbo loans above $1,089,300 are in the low to mid 6’s
• 5/1, 7/1, 10/1 Arms are in the 5’s and 6’s.
• Bank statement loans - They are available with 10% down again! 7’s + depending on down and credit score.
• Stated income loans – 20% down with reserves! In the 8’s and 9’s!
• 0 down loans are in the high 5’s to low 6’s- 620 credit score min right now! Low 6’s, for the most part, up to $740,000.00.
• Private Money lenders - hard Money Loans – 35% down!
• No Ratio Loans 30% down
• Debt Service Coverage loans with as little as 25% down
• Bridge Loans - are typically 6.99% with limited fees – But they get you where you need to go!
• 0 down California Dream for all Equity Share – Postponed until 2024!
• 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates!

Interest rates are subject to change without notice! Above are LA County Loan Limits.

I am around all week if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. Please text me at 661-714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!