In this final part, we will discuss the numbers and flexibility that Arrival Home Loans bridge loans offer. Since our loans use “cross-collateralization”, many times, borrowers may obtain higher loan amounts when securing more than one property.
In a simple math scenario, here are the numbers:
- Current home value (that will at a later date be sold) = $1,000,000
- Existing mortgage in current home = $400,000
- Target new home purchase price = $800,000 (empty nesters are downsizing)
Now that we know the variables, we can apply the math:
- Add the value of both homes together; $1,000,000+$800,000 = $1,800,000
- Multiply by 75% (this is our maximum LTV) = $1,350,000
- Subtract any existing mortgages; $1,350,000-$400,000 = $950,000
Based on these figures, these borrowers could finance up to $950,000. Since the new purchase price is $800,000, there is enough equity to finance 100% of the purchase price, and cover the closing costs as well*. There is even enough equity these borrowers may leverage to freshen up their current home and have it professionally staged when they move into their new home, maximizing the sales price.
Remember that Arrival Home Loans bridge loans are underwritten with the ability to exit, so there are no debt-to-income restrictions. The term is 11 months, interest only, with no pre-payment penalties. Once these borrowers sell their existing home, they will refinance out of our bridge loan and into a long-term conventional mortgage.
Let’s take a look at how that might play out. Assume these borrowers obtain a bridge loan for $850,000 to buy the new house. They moved in and are loving the new home. Four months later, they sold their existing home for $1,000,000. After paying off their existing mortgage and other fees (~$60k- realtor, tax stamps, closing fees, etc…) they have $540,000. In simple terms, the borrowers will use that $540,000 to pay down our bridge loan (and we will release the lien on that property to complete their sale) to $310,000 and then they will obtain a long-term conventional mortgage for $310,000 to complete the payoff of our bridge loan. Voila! Keep in mind, that the borrowers may obtain a higher loan amount and not necessarily use all of the proceeds from the sale of their previous home.
As for flexibility, we can cross-collateralize more than two properties if applicable. We can cross a current primary residence, second home, or investment property. We can even cross-collateralize someone else’s property if they want to allow someone to “borrow” or “gift” their equity as long as there is a reasonable exit strategy in place.
In the coming weeks, we will share different case studies of bridge loans in action, so you may clearly understand the problems many home-buyers face and how our bridge loans become the solution.
*Points and fees may vary and may not be financed into the loan per HOEPA/Section 32 requirements.