I've specialized in California hard money loans for many years. While it is true that many hard money loans are for clients with credit issues, income documentation issues and other problems, there is also a place for these products for A-paper borrowers. One such niche area is California hard money bridge loans for acquisition purposes.
With how hot the real estate market has been, getting under contract and purchasing a new home can be tricky. Many potential buyers may not want to sell their home first and then find a new home to buy. Rather, it may be their preference to find a home they love to buy and then sell their existing home. While this may be ideal for many buyers, it may not be ideal for securing financing for the new purchase.
This situation can have a few different issues. Two of the main hurdles are the down payment on the new home and qualifying for a new home loan with both the new mortgage and the existing mortgage in the debt to income ratios. Fortunately, a hard money bridge loan can be a solution to this issue.
With a hard money bridge loan for acquisition purposes, we can step in and secure a short-term loan for the buyer. These loans will typically be 11 months in term and interest only - with no prepayment penalty. We will look at the buyers finances to see that they will have the ability to refinance the bridge loan out once the first home is sold - but we will not require debt to income ratios to include the existing home loan.
In addition, we can structure the bridge loan as a blanket loan. The blanket loan can encumber both the existing home as well as the new home being purchased. Adding this blanket feature to the bridge loan allows us to utilize the equity in the existing home and apply it towards the purchase of the new home. This removes the need for the buyers to try and refinance their existing home to pull cash out for a large down payment and keeps everything self contained.
When the first home sells, the blanket/bridge loan will be paid down by an agreed upon amount. Then when the buyer refinances the new home with a bank loan, the rest of the loan will be paid off.
As an example for illustrative purposes, say a buyer owes $350,000 on their existing home, which is worth $1,000,000. They want to buy a new home for $1,200,000. We could structure a ~$1,200,000 bridge loan for that acquisition. It would be one loan, which would be recorded against both properties. The loan funds, the buyer acquires the new home. Once the existing home sells for $1,000,000, they pay down the bridge loan by say $500,000 (a pre-determined amount). Now they owe $700,000 on the new home - which they can then refinance and pay the remaining balance off.
Many buyers may not be aware that such a product exists. Being able to structure a purchase in this manner can really help a buyer find the right property before selling their current home. This can be a great product for realtors to understand, offering an additional level of service and options that the average agent may not have in their quiver.
There are many other ways you can utilize a California hard money bridge loan. Feel free to contact me at 877 462 3422 or visit us online to learn more about our California residential hard money loans!