As we come to the end of the year, I wanted to highlight a very niche product in the hard money loans world. Hard money lenders have to document income for owner occupied loans, ensuring that the borrowers have the ability to make payments. For consumer purpose lending, this is required. For some situations, however, there are exceptions. One of those is when dealing with hard money bridge loans for owner occupied properties.
These bridge loans are typically written for 11 months, so they are a true bridge situation - not a long term solution. One specific instance where they can help, however, is when a buyer has a home under contract, but has yet to sell their existing home.
Banks are typically going to have problems with this situation, requiring income to cover both the existing home payment as well as the new purchase home payment. Sellers may not want to accept offers contingent upon the sale of another home. Home buyers may not want to sell their home before they start looking for a new home to purchase. It puts potential buyers looking to relocate, move up or downsize at a distinct disadvantage.
By leveraging a hard money bridge loan for owner occupied properties, however, a borrower can purchase the new home pior to selling their existing home. These loans can utilize the equity in the existing home as well as the equity in the new home being purchased. If there is enough equity, these bridge loan options can potentially finance up to 100% of the purchase - without requiring the borrower to sell their existing home first.
This can allow a buyer to make a non-contingent offer to purchase, which is much more attractive to sellers than a contingent on sale offer. Once the existing home is sold, the bridge loan can be paid off through the sale and/or the refinance of the new property through a more traditional long term bank loan.
Another situation where this might make sense is when closing on a transaction is urgent. A 1031 exchange situation might fall into this category - or perhaps the sale of the buyers existing home falls through at the last minute. These hard money bridge loans for owner occupied properties have the ability to close very quickly - much more quickly than the bank loans.
The key to these niche products is the short term bridge nature of the product. These loans are only meant to fill a specific short term need, with a clear exit strategy identified. This exit strategy is typically tied to the sale of an existing property and/or the refinance of the new property.
In addition to being able to help with the purchase of a new home, these short term bridge loans can also be used for business purposes. Take advantage of short pricing on inventory, acquire assets or additional businesses, for real estate investors, or fix and flip investors, take advantage of a real estate opportunity.
For more information, or to discuss your scenario, give us a call at 877 462 3422, or you can visit us at acalending.com.