Bridge Loans: What are they? Are They an Answer?


Bridge Loans: What are they?

Are They an Answer?


Many of my past clients and new clients alike have gotten in the homebuying mood now that we're on the backside of the pandemic.  They're contemplating taking advantage of the (still) low interest rates and becoming homebuyers soon ... or homebuyers again. 

Those hoping to become repeat buyers are reaching out to me to learn what options they have to become step-up buyers, investment buyers, or downsize to another home.  One question popping up with more and more frequency surrounds "Bridge Loans".  

They've heard that term raised to them by their realtor or they've run across it while searching online.  

They want to know: 

  • Will a Bridge Loan be a panacea and provide them an answer to address the challenges they're facing?  
  • Will it help them as they simultaneously try to sell their current home and buy another?'  

It's hard to provide a quick definitive answer to their questions.  Fact is, for some, a Bridge Loan may be the perfect remedy.  For others, no.  

As with most things, (especially with mortgages) the answer lies buried in the details and specifics of the question's scenario.  Some fact-finding must be conducted first.  Questions must be answered.  Facts, details, and information must be provided to me.

Why the uptick of interest in this particular loan? 

It's my belief that the rise in interest in Bridge Loans is directly tied to the state of many current U.S. housing markets, that meaning "hot, fast, and "competitive".  The need for solutions to address the current market has many considering all options possibly available. 

In these hot markets, it's now become quite common for sellers to receive multiple offers on their homes within hours or minutes of placing them up for sale.  And that's creating real challenges for those hoping to become home buyers at the same time they're home sellers.  

It's also heightened the importance of the content, execution, and timing of a contract.  The "how and when" of a new offer has become critically important.  It dictates how seriously a seller considers an offer and if a signed contract is the outcome.

Because of the hot competitive nature of markets and the speed at which offers are occurring, something that occurred fairly commonly in the past ... contract offers containing sale contingencies ... has become almost obsolete.  

This is leaving home sellers in somewhat of a pickle.  What is a positive for them in their role as a seller accepting contract offers is now a negative for them as a buyer submitting one.  

This can be an extremely frustrating and unnerving situation for some clients.  Seeing that, it's typically at this point in the negotiations that realtors are raising Bridge Loans as a possible solution.

Why?  Two main reasons:

  1. Down payment funds
  2. Closing cost funds 

Until they close on the sale of their current home, many clients find that their "working" money ... the money they would use for a down payment and funds to close on a new home purchase ... is tied up and unavailable to them.  

Also of concern ...  

The mortgage still held on the home they live in currently.  The one for sale.  In most cases, the one they are still obligated to making monthly payments on.

In short, their equity  ... and subsequent funds for downpayment and closing ... are still "locked up".  In many of these situations, agents are suggesting Bridge Loans as a solution to the dilemma. 

So ... 

  • What are Bridge Loans?  
  • What are their pros?
  • What are their cons?  
  • Will they provide the assistance these sellers need?

Note:  Moving forward in this article, I will focus on Bridge Loans only as they apply in this particular borrowing (sell and buy) scenario ...

First, Bridge Loans are ... just as the name suggests ... loans that get you from (or bridge) Point A to Point B.  They can provide funds during a short-term gap of time. 

They can assist the seller-buyer in tapping the equity that exists in their present home at that time.  These loans allow them in essence to basically borrow the down payment for their new home purchase. 

Bridge Loans are often utilized for mere months (6 to 12 months), or only as long as the seller-buyer needs to complete their transactions successfully.  They can, however, have longer terms.  It all depends on the conditions of the Bridge Loan secured.  

Because there are multiple types of Bridge Loans, differences can exist in loan terms.  So, it's very important that a borrower is privy and fully educated as to the terms of the Bridge Loan they are securing.  

Bridge Loans are also:

  • Most often secured using the borrower's CURRENT home as collateral
  • Carry an interest rate of Prime Rate + (in varying degrees)
  • Issued by the mortgage lender that will finance the borrower's new purchase as well

The Pros of Bridge Loans: 

  • If the borrower qualifies for a Bridge loan (in order to provide the down payment funds for the next purchase), they are in effect taking out some of the equity in their home in advance of selling it  
  • They allow borrowers to make an offer and buy a home WITHOUT A CONTINGENCY.  That can be absolutely critical in today's competitive market

The Cons of Bridge Loans:  

  • Borrowers give up the amount of equity equal to the Bridge Loan PLUS the closing costs of that loan when they eventually sell
  • Borrowers must understand:  They could possibly end up with two mortgages plus the Bridge Loan for as long as it takes to sell their current home  
  • NOT all loan companies or banks even make Bridge Loans.  An assumption of availability can be a mistake 
  • Up to only 80% of your home's value (LESS the amount you might currently owe) can be obtained with a Bridge Loan.  
  • The amount of loan secured needs to be sufficient for the down payment if NOT using any other funds from your savings

As you can see, there is much to know and understand about Bridge Loans.  Again, I urge that all borrowers considering this type of loan gain a thorough understanding of the Bridge Loan under consideration prior to making any final decision regarding its use.  

Borrowers must keep this in mind:  In this particular selling/buying scenario, these loans must be executed properly in order for clients to reap the benefits they need and desire.  Timing is also of concern.

Borrowers should also pay special attention to the costs and terms of the Bridge Loan under consideration.  As stated above, typically Bridge Loans are costlier to obtain.  They are also only short-term in nature too. 

I recommend that a full evaluation of financial options available to the clients be conducted by their lender prior to any final decision being made.  If other funds are available to the client, tapping those funds may be a better (and less costly) option.  

Those financial options that should be evaluated can include:

  • Retirement monies 
  • Stocks 
  • Savings 
  • Home Equity Loans 
  • More ... 
If considering this particular home selling/home buying scenario and the use of a Bridge Loan, make sure to act proactively.  Talk to a seasoned and experienced Loan Officer well before making an offer.  

There is much to consider and weigh.  Take the time needed to review, find, and unlock the best path to obtaining financing for your next home purchase.  

Do so well ahead of time so you are not under duress and stressed out while making this important decision ...


Looking for mortgage financing answers, options, solutions, and experienced assistance?


Are you hoping to Buy, Refinance or purchase an Investment Property in New Lenox, Will County, or elsewhere in the Chicagoland area/IL/WI?

Contact me!  I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:


Gene Mundt

Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI Licensed

American Portfolio Mortgage Corp.

NMLS #175656


Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281


 

  Twitter Account of Gene Mundt, Mortgage Lender   LinkedIn Account of Gene Mundt, Mortgage Lender   Facebook Acct. of Gene Mundt, Mortgage Lender   Pinterest Acct. of Gene Mundt, Mortgage Lender   
  Gene's Chicagoland Blog/Gene Mundt, Mortgage Lender 


Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: 
Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the 
greater Chicagoland region, including: 
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, 
Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, 
Romeoville, Naperville, etc.), DuPage County, Kane County, Grundy County,
the City of Chicago, Cook County, and elsewhere within IL & WI.

                                       Referrals are Appreciated and Welcomed 

Hope to Buy and Finance a Home? Have you Experienced Job Loss, Furloughs, Unemployment, Hours & Wage Reductions?


Hope to Buy and Finance a Home? 

Have you Experienced Job Loss, Furloughs, Unemployment, Hours & Wage Reductions?


No one needs to tell you, the pandemic's toll has been severe ...  

It has affected us way beyond just our physical and mental health.  It has reached into and touched nearly every facet of our lives also ... education, childcare, finances, and employment among them.

As a loan officer, I see and hear of the fallout from the pandemic each and every day.  Past clients call me with their needs and concerns.  

Prospective homebuyers also call and share their experiences, at the same time peppering me with a host of questions.  The stories I hear are varied and many times, gut-wrenching.

The stories related often surround changes that have occurred in employment.  Callers want to know, "Will the changes they've experienced affect them or their chances of securing a mortgage?" 

Most commonly questioning revolves around these scenarios:

  1. A job "gap" occurring
  2. A job loss
  3. A reduction in pay or hours of employment
  4. A change in jobs/employment
Unfortunately, for each of these scenarios, there are no quick and simple answers.  That can be very frustrating for callers to hear.  

But typically in most situations, I'm going to need far more information (and possibly records and documentation) in order to provide them any solid reliable answers.  If moving forward with an application is a viable option for them, a mortgage underwriter will need it too.

Should any of these situations arise after a mortgage application has already been taken, it will likely result in, at minimum, a temporary delay in mortgage processing.  The applicant will need to supply Mortgage Underwriting with a thorough explanation (along with supporting documentation) of their employment situation.  

A determination will then be made regarding the mortgage application.  Whether it will continue forward in pursuit of loan approval or be canceled.

Following is some of the info a Mortgage Underwriter will ask the applicant to address:
  • Is the situation temporary?
  • Has the applicant returned to work?
  • If so, how long have they been back?
  • Is the applicant making the same rate/salary of pay as previously?
  • Is the applicant working the same number of hours?
  • Did the applicant return to their prior position or does the return to work mean a new position?
  • If the applicant has returned to work at a new job, is it in the same field?
  • How stable is the new employment?  
  • If the gap in employment was because of medical need, will documentation be required?
  • Possibly More
As you can see, depending on the applicant's employment scenario, underwriting requests can be quite varied.  But applicants must be aware that, if in pursuit of loan approval, an underwriter is going to require that there is proof of stability in employment, as well as wages, etc.

Getting the proper information and guidance as to how to move forward through each step of mortgage processing will be crucial during this time. Success will depend upon it.  

Keep your goal in mind.  Use it as your "carrot".  The rewards of obtaining a low interest rate and finding the right home are certainly worth the phone call or inquiry.  

So what's the first step you should take should you find yourself in one of these employment situations?  

As always, if you haven't been pre-approved, do so.  If you've already made application, contact your lender and inform them of your situation.  Then make sure to stay in close contact with them.  Respond to their requests for info and documentation quickly and thoroughly.

Always remember:
  • Not every buyer's/borrower's situation is the same.  So don't listen to or compare yourself with any other buyer/borrower.
  • Not all Underwriters interpret guidelines the same way.  Don't give up hope.  You and your situation are unique.  Your finances are specific to you.   

While it's true that the road to loan approval may be a bit more demanding during these times, hopeful homebuying applicants should not assume they cannot buy their dream home.  Instead, they should talk to a lender as soon as possible when their employment changes occur.  

When you have suffered a job loss, job gap, furlough or other employment change ... it's important to find and work with an experienced lender.  They'll help you discover the facts as they pertain to you and help you achieve your goals more quickly and easily.  

Looking for mortgage financing answers, options, solutions, and experienced assistance?


Are you hoping to Buy, Refinance or purchase an Investment Property in New Lenox, Will County, or elsewhere in the Chicagoland area?

Contact me!  I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:


Gene Mundt

Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI Licensed

American Portfolio Mortgage Corp.

NMLS #175656


Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281


 

  Twitter Account of Gene Mundt, Mortgage Lender   LinkedIn Account of Gene Mundt, Mortgage Lender   Facebook Acct. of Gene Mundt, Mortgage Lender   Pinterest Acct. of Gene Mundt, Mortgage Lender   
  Gene's Chicagoland Blog/Gene Mundt, Mortgage Lender 


Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: 
Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the 
greater Chicagoland region, including: 
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, 
Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, 
Romeoville, Naperville, etc.), DuPage County, Kane County, Grundy County,
the City of Chicago, Cook County, and elsewhere within IL & WI.

                             Referrals are Appreciated and Welcomed 

Current Interest in Appraisal Waivers Runs High


Current Interest in Appraisal Waivers Runs High


My mortgage clients' interest surrounding the topic of Appraisal Waivers ... and the number of questions they ask regarding them ... has grown quite dramatically over the last year ...  

It's become quite common for my borrowers to ask about waivers during our earliest conversations together.  

I've found that their interest has either been:

  1. Piqued by an article they've read about Appraisal Waivers online 
  2. They know someone that reaped the benefit of a waiver 
  3. Their real estate agent has mentioned it to them as a possible cost-saving measure when purchasing their home

Depending on their borrowing scenario, it's a topic of conversation we'd likely held anyway.  Appraisal waivers are currently being used that commonly.  

The statistics below prove that to be true.  Over the last year, there's been an "explosion" of their use.  The reasons for this are many, but perhaps the main driving force has been the Covid Pandemic and the amount of reliable Data in the Automated Valuation System.

The large number of refinance loans being made during this time has also factored into the number of appraisal waivers awarded.  

Having witnessed this noticeable increase in Appraisal Waivers on Conventional Loans (those that fit into the Fannie Mae/Freddie Mac guidelines) firsthand, I wasn't surprised to learn the actual statistical data recently released on this subject.   You'll understand and agree with my use of the term "explosion" when you read the stats below.

  • Year-end 2020, "waivers" occurred on 45% of the two Agencies' volume, per a recent release of figures.  45%!

This dramatic explosion of waiver use began in 2019.  As recently as 2018, only 10% of business was conducted using these appraisal waivers.  

Another contributing factor was the large number of refinances conducted during the same time period.  Waivers are more commonly used during refinancing than home purchases.  Non-cash-out refinances utilize the most appraisal waivers at 67-69%.   

The increased amount of waivers can be also furthered explained by several phenomena, in my opinion:

  • Increased data accumulated in the "CU" (Collateral Underwriter) system of Fannie and Freddie
  • Increasing home values, creating lower LTV (Loan-To-Value) ratios and larger equity positions
  • The "need for speed" and reductions in consumer costs in the mortgage process. 
 
With a growing comfort level with automated valuations and an ever-improving appraisal reporting method within these database systems, we can likely expect these trends toward waivers (versus full appraisals) to continue.

There are those that believe that Lenders could be taking on greater risk without an appraiser's on-site inspection and eventual report/opinion of value.  But I can say from experience that, at least in the Chicagoland area, the riskier scenarios are typically NOT getting a waiver option offered them (at least up to this time, March 2021).

Some of the factors impacting the automated decision allowing for appraisal waivers include:

  • Purchase VS Refinance
  • Loan-to-Value Percentage
  • Property Location and proximity to metro areas
  • Single-Family (detached condo, townhouse, duplex)
  • Combination of borrowers credit and assets and help limit "risk"
  • The amount of stored appraisal data and public records for given properties

Bottom line, the many factors that go into the "System Approval" for a Waiver are fairly complex,  As a rule, at least from this Originator's perspective, seems appropriate.

Risk Management Cost Savings  ... and the ability to adjust to ever-changing markets ... is the ongoing challenge to the algorithms that ultimately provide for these decisions.  Common sense must ultimately prevail.

Should you have any questions regarding Appraisal Waivers or the mortgage process in general, please do not hesitate to contact me for additional information.


* Looking for mortgage financing answers, options, solutions, and experienced assistance?

Are you hoping to Buy, Refinance or purchase an Investment Property in New Lenox, Will County, or elsewhere in the Chicagoland area?

Contact me!  I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:


Gene Mundt

Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI Licensed

American Portfolio Mortgage Corp.

NMLS #175656


Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281


 

  Twitter Account of Gene Mundt, Mortgage Lender   LinkedIn Account of Gene Mundt, Mortgage Lender   Facebook Acct. of Gene Mundt, Mortgage Lender   Pinterest Acct. of Gene Mundt, Mortgage Lender   
  Gene's Chicagoland Blog/Gene Mundt, Mortgage Lender 


Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: 
Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the 
greater Chicagoland region, including: 
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, 
Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, 
Romeoville, Naperville, etc.), DuPage County, Kane County, Grundy County,
the City of Chicago, Cook County, and elsewhere within IL & WI.

                             Referrals are Appreciated and Welcomed 



Do You Have an FHA Buyer Offering to Purchase Your Home?

Do You Have an FHA Buyer 

Offering to Purchase Your Home?


FHA loans have a long history of helping consumers successfully buy homes. They have helped homeowners purchase more than 46 million single-family and multifamily homes since its inception back in 1934.

As a mortgage lender, I refer to FHA loans as "the path of least resistance" for some borrowers.  

Here's why I say that:

  • The minimum down payment needed to qualify for an FHA loan is lower (can be as little as 3.5%
  • Gift monies can be a source of down payment and closing costs
  • Minimum Credit score and credit history requirements are lower and more lenient 
  • Co-signing borrowers (non-occupying) are allowed 

Add to those benefits listed above:

  • An FHA loan also provides a buyer somewhat of a break on their interest rate as well (1/4% to 1/2%), if credit scores are equal to those utilized for comparison with a Conventional Loan  
  • FHA is the most forgiving loan product regarding employment requirements and allows borrowers to rebound more quickly from major credit events, such as bankruptcy, foreclosure, and short sales.  

All these reasons (and more) explain why so many borrowers choose to buy using an FHA loan.  It expands the number of qualified buyers capable of viewing and buying homes.  That's of great benefit to Sellers hoping to sell their home.  

But besides the advantage of having more potential buyers viewing your home, what do offers received from FHA-qualified buyers mean for a Seller?  What decisions lie before them as they consider accepting an FHA offer?

One concern heard fairly often from Sellers surrounds one of the FHA benefits mentioned above ... credit scores.  Sellers often fear that the lower FHA credit score requirements mean their transaction might not proceed to fruition or Closing.  The buyers making the offer will "fall through" or face stumbling blocks on the road to Closing their loan. 

In fact, data does not back up that concern.  According to Ellie Mae statistics, FHA and Conventional Loan applications reach successful Closing at a similar rate.  

As an FHA loan is "insured" by a government entity, all FHA loans must meet certain set guidelines.  Lenders must follow these guidelines for all their FHA borrowers. 

By this point, an experienced loan officer should have conducted the automated underwriting for their borrower.  A pre-approved buyer in the automated underwriting system should be able to meet the final approval, assuming a thorough job was performed upfront and no "surprises" arise while in the verification process.  

In other words, most reasons for buyer "fall through" should have already been discovered and addressed.  So of those concerns expressed by Sellers, the ones that may have validity are those surrounding the home appraisal.  

Why is that true?

It's important to point out that appraisals for FHA loans and Conventional loans are focused on achieving slightly different goals:  

  • A Conventional loan appraisal's aim is that of determining property value  
  • An FHA loan appraisal must also make the same determination, but a "review" of the property ... and its condition ... must be provided as well  

FHA demands minimum requirements and guidelines be met by the property being appraised.  The "health and safety" of the property must be determined.  If discovered, concerns must be pointed out by the appraiser in the appraisal report.  

An FHA appraiser also provides an estimation of the repair costs within the report.  The possibility of repairs being requested is what gives some Sellers pause.  

If a Seller: 

  • Believes that their property might have issues that would be raised by an FHA Appraisal Report, it stands to reason that they might not view the offer from an FHA buyer as favorably as an offer from a conventional buyer 
  • Does not want to (or can't) make repairs to their property, the same stance regarding an FHA offer might be taken 

However, in most transactions, the concerns mentioned in an FHA Appraisal will likely have already been addressed by the Home Inspector (assuming one was done).  

In that case, the Seller is typically responsible for items of concern and then chooses one of two paths, if they hope to move the transaction forward.  Sellers choose to either: 

  1. Make the repairs 
  2. Offer a Credit to the buyer 

Fact is, whether a buyer is at the lower range of credit scores, their down payment is the minimum required, or their Debt-to-Income ratios are on the higher side, a loan approval is a loan approval.  

So the real issue at hand for Sellers is whether the potential buyer has a closeable loan?  And ... will it impact me in any significant way financially by choosing one buyer over another?

In the end, a Seller is the only one that can answer that question ... 


* Looking for mortgage financing answers, options, solutions, and experienced assistance?

Are you hoping to Buy, Refinance or purchase an Investment Property in New Lenox, Will County, or elsewhere in the Chicagoland area?

Contact me!  I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:


Gene Mundt

Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI Licensed

American Portfolio Mortgage Corp.

NMLS #175656


Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281


 

  Twitter Account of Gene Mundt, Mortgage Lender   LinkedIn Account of Gene Mundt, Mortgage Lender   Facebook Acct. of Gene Mundt, Mortgage Lender   Pinterest Acct. of Gene Mundt, Mortgage Lender   
  Gene's Chicagoland Blog/Gene Mundt, Mortgage Lender 


Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: 
Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the 
greater Chicagoland region, including: 
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, 
Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, 
Romeoville, Naperville, etc.), DuPage County, Kane County, Grundy County,
the City of Chicago, Cook County, and elsewhere within IL & WI.

Referrals are Appreciated and Welcomed


Bridge Loans: What are they? Are They an Answer?

Bridge Loans: What are they? Are They an Answer? Many of my past clients and new clients alike have gotten in the homebuying mood now that w...