The Accunet Mortgage Show (9/27/2020) Episode
In this week’s episode, Brian and David talk about how to build a bridge loan, and the troubles clients may have when crossing that bridge.
This week’s highlights:
- Brian flies the bridge loan magic carpet
- Brian and David discuss why bridge loans can sometimes be shaky
- David details the differences between 15, 20, 30-year loan terms
De-mystifying bridge loans
This week, Brian and David took a deeper dive into what bridge loans entail for borrowers.
Brian says “bridge loan” is just a fancy way for the buyer to ask, “Can you help me get to my next house without selling my existing home?”
Brian has a repeat customer as an example of a bridge loan borrower. The customer is retired, owns a business, and still collects business income. The customer is looking to sell his and his wife’s primary residence- worth $500,000-600,000- and downgrade to a condo. This customer also owns a home in Florida. He originally wanted to keep his first mortgage in Chicago, pull a $150,000 home equity line of credit, and borrow $200,000 towards the new home. An efficient plan, but Accunet does not do short-term financing in this manner.
Accunet would get hit with an early payment penalty if that customer paid off his loan his loan too quickly, and, since the customer owns three properties, he would have to use his self-employed income to qualify him for this financing- due to the new COVID qualifications, effective June, 11th 2020. He would need not only to provide his tax returns for 2019, but monthly profit and loss statements, business bank account statements, and would have to close within 2 months or give another set of monthly financial statements.
Since Brian did not want his client to be “tortured” by all that documentation and red tape, Brian suggested he hook up the client with a company that does bridge loans.
A faster, easier plan with a bridge loan would be:
1.) Get a big, cash-out refinance on his primary residence
2.) Pay off his first mortgage
3.) Shut down his home equity line of credit
4.) Accunet loans $440,000 of the $550,000 home (80% of the value)
5.) Take $280,000 cash out after the first mortgage is paid off, and that way, the client only needs to come up with $70,000 and gets $350,000 to use for purchase
It’s classified as a bridge loan because it is temporary and will get paid off in short order, and bridge loan lenders only require business and personal tax returns for the last 2 years without all the other red tape.
Learn more about bridge loans, how they work, and when to get one.
A flimsy bridge…loan
Next, Brian told the story of another client who is selling their older lake home. They found a home, for sale by owner, that they liked, however, their spouse doesn’t have as great credit, so they opted to keep the spouse left off the loan.
This client also used a bridge loan; the client assumed their current house is worth about $280,000-$290,000, and wanted to take $65,000 cash-out. The client needs $62,500 for the new home…but the old home needs to be appraised first.
So Brian wrote them a “flimsy” pre-approval letter, contingent upon the appraisal of their house, and because they need a credit report on the spouse, the loan ends up being a big question mark, and their offer is then contingent on loan approval.
Learn more about how
home appraisals can affect your mortgage.
Comparing loan terms
Lastly, David went over the pros and cons of customizing your loan term.
Accunet can help you adjust your mortgage from anywhere between 10-30 years.
The interest rate breaks comes at the 20 and 15-year terms.
- On a $300,000, 30-year fixed-rate loan with 3.0 APR at 2.99%, principal and interest is $1,263 month.
- A 20-year fixed-rate loan would be $363 more per month, at $1,626 and 2.75 APR.
Brian called this a “forced savings plan”, wherein you pay your loan off faster, saving about $65,000 of interest.
- Finally, a 15-year fixed-rate mortgage would be about $730 more per month, around $2,000 a month in principal and interest, with a 2.5% APR and savings of around $100,000 in interest.
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