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What is a Bridge Loan and How Does it Work?

Even if you’re an amazing saver, sometimes you just don’t have cash on hand at the exact moment when you really need it. For example, what if your dream home comes on the market at the right price, but your money is tied up in equity in your current home? Or you need to move across the country for a new job. How can you make a down payment before your own home sells?

There are plenty of circumstances where you have to move quickly to secure a deal, and sometimes liquidating assets or securing long-term funding doesn’t happen as quickly as you need it to.

In these instances, interim funding options, like a bridge loan, can help you get the money you need to get things done.

Let’s dig a little deeper into how bridge loans work: what the rates are, the pros and cons, and an alternative source of funding you may have overlooked.

What is a Bridge Loan?

A bridge loan, also known as a swing loan, gap financing, or interim financing, is a temporary loan that bridges the gap between the down payment of a new property and the mortgage balance of your previous home.

Bridge loans tend to have six- to 12-month payoff periods and typically have higher interest rates than other types of loans. Basically, a bridge loan is a short-term loan taken out by a homeowner against their current property in order to finance the purchase of a new property.

One of the most common uses for bridge loans is to put a down payment on a new home before selling a current home. If you don’t have a contract with a home sale contingency clause or aren’t able to pay cash for the down payment on the new house, you may very well need assistance to bridge that gap.

Bridge loans often use an asset such as a current home as collateral. Borrowers generally need to have at least 20% equity in their first home in order to qualify for a bridge loan.

Buying a home? With SoFi there are no
hidden fees, and as little as 10% down.

Benefits of a Bridge Loan

The main benefit of a bridge loan is the ability to quickly secure short-term financing without having to wait until you sell your home. You may be able to delay payments for several months and you have the option of paying off the loan before or after you secure long-term financing.

Bridge loans can be a major benefit in a time crunch: the home seller can immediately put their home on the market and use the funds to move into another house. This can be especially helpful if you’re a homeowner going through a period of sudden transition.

For example, if you have a new job in another city or are trying to time your move with the beginning of your children’s school year, a bridge loan could be helpful. Bridge loans are not a replacement for a mortgage but a temporary solution. They are generally designed to be repaid within six months to three years.

Drawbacks of a Bridge Loan

Bridge loans may help you get fast financing, but they can come with some risks. Because qualifying and being approved for a bridge loan can be a faster process than that of an unsecured personal loan, bridge loan rates and terms can vary widely from lender to lender and are typically higher than market rates for mortgage loans.

Borrowers may also encounter differences in how lenders deal with interest payments. Some require monthly interest payments while others require an upfront or end-of-term lump sum interest payment.

Bridge mortgage loans are secured with the borrower’s current home, which means it can be foreclosed on if the bridge loan is defaulted on. The standards for qualifying for a bridge loan tend to be high, typically requiring a low debt-to-income ratio and excellent credit. After all, you’re trying to prove that you can afford not one, but two homes.The short-term financing of a bridge loan can also be one of the major drawbacks.

Until you are able to sell your previous home, you’ll be carrying two mortgages and paying down the bridge loan. If you are trying to sell a home in a weak real estate market, a bridge loan can create financial strain because you might not have the time you need to let your home sit on the market and wait for a prospective buyer.

Exploring Other Financial Options

Borrowing a bridge loan can be risky. You may be required to start paying off the mortgage on the new home and the bridge loan at the same time. You’re also depending on the sale of your current home in order to pay off the bridge loan, which could take time depending on the state of the real estate market as you are selling your home. Bridge loans can be risky investments for banks, too, which means they can be difficult to get.

Due to the risks and costs that come with a bridge mortgage loan, borrowers may want to consider one of these other options.

HELOC

One alternative to a bridge loan is a home equity line of credit (HELOC) which allows you to draw equity against the value of your current home in a similar way to a bridge loan.

With a HELOC you’ll usually get a better interest rate, pay lower closing costs, and have more time to repay the loan than you would with a bridge loan. It’s important to note that some lenders may not approve a HELOC on a home that is currently on the market for sale.

If you are considering borrowing a HELOC, you may want to look for one without any prepayment penalties or early closure fees, which could significantly cut into your profits in the event that your home sells quickly.

Personal Loan

Another alternative to a bridge loan is taking out an unsecured personal loan. If you have a decent credit history and a steady income, an unsecured personal loan can be a viable option that provides additional flexibility at more competitive rates than those typical of bridge loan interest rates.

In addition, because unsecured personal loan lending is a more diversified market, you can likely find unsecured personal loans without origination fees. Personal loans, including the ones available with SoFi, are often unsecured and therefore require no collateral.

The Takeaway

No matter what, make sure to do your homework. Thorough research is what will help you find the option that works best for your personal situation and get you the home you need at a cost that works for your budget.

And when you borrow an unsecured personal loan with SoFi there are no prepayment penalties, which means if your home sells quickly, you can pay off the loan without losing any of your profits.

Looking to move into a new home? With SoFi Personal Loans, you can bridge the gap so that you can move into your new house now instead of later.

Want to learn whether a SoFi Personal Loan can help you make a down payment on another home before you sell your current home? Checking your rates takes just two minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Source: sofi.com

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Why It’s Suddenly Harder to Get a Mortgage

With COVID-19 making it incredibly difficult to buy a home, or even to get a mortgage, home buyers and homeowners trying to refinance their mortgage have something new to keep them awake at night.
In response to increased risk to lenders from the coronavirus, in mid-April, JPMorgan Chase raised standards for mortgages and stopped approving mortgages with down payments lower than 20%. It also increased its minimum FICO credit score to 700.

Lenders Raise Scores

Flagstar raised its minimum credit score for new Federal Housing Administration (FHA), Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) purchase loans to 680. For cash-out refinances, the bank now requires that borrowers have at least a minimum credit score of 700.

US Bank and Wells Fargo both raised their minimum credit score to 680 for FHA, VA, and USDA loans, and 640 for conventional loans. LoanDepot requires 620 minimum FICO score for VA and FHA loans and a higher score, 660+, for cash-out or streamline refinancing. Now, the bank requires borrowers to have a minimum FICO score of 700 with a maximum debt-to-income (DTI) ratio of 43% when any funds used for closing costs or down payment are not borrower’s funds or gift funds, according to HousingWire.

Serious millennial man using laptop sitting at cafe table, looking up mortgage related resourcesSerious millennial man using laptop sitting at cafe table, looking up mortgage related resources

Fannie Mae and Freddie Mac are adding to the new hurdles facing borrowers by asking lenders to take additional steps to verify employment status. Instead of verbal verification, lenders may obtain an email directly from the employer’s work email address that identifies the name and title of the verifier and the borrower’s name and current employment, a year-to-date pay stub from the period that immediately precedes the note date. When a borrower is using self-employment income to qualify, the lender must verify the existence of the borrower’s business within 120 calendar days before the note date from a third party, such as a CPA, regulatory agency, or the applicable licensing bureau, if possible.

Homeowners Rush to Refinance

With millions of breadwinners out of work and unemployment payments delayed, a surge of applications for home equity loans and lines of credit jumped 30% or more from a year earlier in recent weeks before stay-at-home orders cut application volumes.

Happy adult man having a video call with a laptopHappy adult man having a video call with a laptop

Bank of America significantly tightened its standards for loans to homeowners wanting to borrow against their equity, ratcheting up an internal gauge that measures market conditions from the company’s lowest level to its highest. Its minimal credit score is now 720, up from 660.

Wells Fargo cut the maximum amount homeowners can borrow and reduced how much the bank will lend relative to a property’s value. The bank is applying stingier valuations to homes due to a lack of inspections and appraisals resulting from the pandemic.

Mortgage Credit Supply is Low

With mortgage rates at a historically low level and applications to refinance exploding, the Mortgage Bankers Association reported that the supply of available mortgage credit fell 16% in March, reaching the lowest level it has been since June of 2015.
“Mortgage credit supply decreased 16% in March to the lowest level since June 2015, with declines in availability across all loan types. There was a reduction in the availability of loans with lower credit scores and higher LTV ratios, and the largest pullback came from the jumbo and non-QM space,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.

If you’re looking for more resources as a homeowner, renter, or seller during the coronavirus outbreak then visit our COVID-19 Resources page where you can find everything from DIY projects to tackle during a weekend to seller and buyer tips during the pandemic.


Website | See more posts by this author

Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

Source: homes.com

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House or Condo: Which is Right For You? Take The Quiz

There’s something to be said for having peace of mind, even if it might cost you. For many, that can easily take the form of having a place to truly call your own—space that gives you privacy and the ability to customize it to your dream preferences.

Maybe you’re already picturing your deep sunken tub, eye-catching fireplace, and garden with its organically-grown fresh vegetables and bright, sweet-smelling flowers that will attract and support the honeybees.

Or, maybe the idea of having a place all your own appeals to you, but you sure don’t want to get tied down with all the upkeep that goes along with a home purchase—and the need for privacy doesn’t rank very high on your list, at all. What really matters to you is a sense of community.

If you find yourself nodding when you read the first paragraph, then it’s very possible that buying a house could be the right move for you; if you have that same type of positive reaction when reading the second paragraph, then a condo may be the better choice.

But, is it really that simple? To find out what might be right for you, we invite you to take our House or Condo Quiz—and, unlike many quizzes, this one can help to answer two important questions for you:

•   Does it make sense to purchase a home or condo, or should I stay where am I for now?
•   If it does make sense to buy, which one could be better for me? Condo or house?

Let’s get started with the quiz!

Buying a Condo vs. House

Now that you’ve taken the quiz, what do you think? Are you clear about which direction you want to take? If so, consider checking out our home affordability calculator to get a better understanding of how much house you can afford.

If not, it may be because there are several pros and cons to each choice (aren’t there, always?) and you may just need to mull them over a bit more.

Pros of Buying a House Typically Include More:

•   privacy
•   space, including storage space
•   yard
•   ability to customize your home
•   room to garden and create a pleasing outdoor space
•   control, including but not limited to having pets
•   typically no homeowners association (HOA) or HOA dues

Another pro of buying a house is that they are generally considered better investments overall.

Cons of Buying a House Typically Include:

•   higher cost
•   more work to maintain inside
•   more work to maintain outside

If, after taking the quiz and weighing the pros and cons, buying a house feels like the right choice for you, you can start brainstorming about your dream house, including its size, number of rooms, location, style and more.

Attend open houses to help decide where you could see yourself putting down roots and to see what home layout really grabs your attention. It can also be a good idea to check home prices for the type of home (size/layout) and area you are drawn to and see if it is in your price range.

Plus, SoFi offers some great home ownership resources to help you along your journey. Including a first-time home buyers guide.

Now, let’s dive into the pros and cons of buying a condo.

Check out local real estate
market trends to help with
your home-buying journey.

Pros of Buying a Condo Typically Include:

•   more affordable
•   lower expenses
•   more ease of maintenance
•   amenities included
•   less expensive homeowners insurance
•   covered maintenance
•   security
•   community activities

Cons of Buying a Condo Typically Include:

•   less privacy
•   no yard
•   rules and restrictions (noise levels, style/colors, pets and more)
•   less overall space
•   HOA fees
•   limited parking
•   slower appreciation in value
•   easier to outgrow

Plus, the mortgage interest rates might actually be higher on a condo vs. a house, and condos can be harder to sell. Lenders sometimes charge more for loans on condo units because of the strength of the condo association financials and other factors are taken into consideration and evaluated for risk.

If, after reviewing pros and cons you decide the benefits of a condo are right up your alley, then you can start creating a list of what you definitely need in yours, along with what you’d like to have, and then start looking at your options.

When to Buy

You may know what you’d like to buy (condo vs. house) and where (in what neighborhood), but do you feel as though now is the right time? If so, fantastic!

You might decide, though, that you want to rent for a while longer under certain circumstances, which can include:

•   wanting to pay down debt first, whether that’s credit card debt or student loan debt, as just two examples
•   wanting to save more money for the down payment and any associated expenses
•   needing to boost your credit score first
•   wanting more time to look at houses/condos before deciding

Renting is typically the cheapest option available for housing, because rent can be less than typical mortgage payments in certain areas of the country. Plus, there isn’t a down payment to pay (just a one-time security deposit), and the landlord usually covers repair and maintenance costs. Renting also gives you more freedom to move and, when you decide to live somewhere else, you haven’t invested your capital into the property.

Pro tip: If you want to buy a house or condo but don’t feel financially ready (or have other reasons to wait), consider putting the decision on hold while you reconfigure your budget and get ready for home ownership. You may discover that, in a relatively short time frame, your decision has changed.

Making Your Dream Home or Condo a Reality

At SoFi, you can make your home owning dreams come true with as little as 10% down on mortgages for qualified borrowers and properties. We’ve been named a 2019 award winner for the Best Mortgage Lenders for First Time Home Buyers.

Potential benefits of choosing SoFi for your mortgage loan include a more affordable down payment that allows you to buy more house, the fact that we charge no application fees or origination fees—and that we have no prepayment penalties. The pre-qualification process is painless and you can conveniently apply online.

Find out more about applying for a mortgage loan at SoFi today!

IMPORTANT: The projections or other information generated by this quiz regarding the likelihood of various outcomes are purely hypothetical, do not reflect actual results and are not guarantees of future results. The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.

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Source: sofi.com

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What to Do If You Can’t Cover Bills During Coronavirus

This post can be found en Español here.

This content is for the first stimulus relief package, The Coronavirus Aid, Relief and Economic Security Act (The CARES Act), which was signed into law in March 2020. Looking for the latest news on the stimulus relief package? For more information on The American Rescue Plan, the stimulus relief package which was signed into law in March 2021, please visit the “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.

If the ever-evolving coronavirus situation has put a halt on your income or lowered it dramatically, don’t panic. Instead, it’s best to stay calm, rally your resources and come up with a strategy for your finances. If COVID-19 has affected your ability to pay your rent or mortgage, cover your other bills and put food on the table, here’s what you can do to get through this time:

Re-Evaluate Your Finances

First, get a big-picture look at your financial situation. What are your basic living expenses, how much debt do you have, and will you be getting any financial assistance in the form of unemployment or disability checks?

Then, go through all your expenses and see what you can cut back on or get rid of entirely. “Now is a great time to go through your most recent billing statement and cancel any subscriptions or costs in order to lower your future spending,” says Logan Allec, founder of Money Done Right. “Also, think about canceling any spending that you can’t use now.” Some services might have been halted because of the coronavirus situation. For instance, your gym membership or yoga classes. 

You’ll then want to see how you might go about lowering your existing expenses. Can you get a cheaper plan for your home internet, or reach out to your provider to see if they’re willing to offer a promo rate? If you’re new to this world of negotiating, come up with a basic script before giving them a call. Remember: It’s far better for them to keep you as a customer than to lose you entirely.

Last, go down the list of all your expenses and see how you can scale back. How can you save on groceries and entertainment at home? Instead of doling out cash on streaming entertainment services, can you download movies for free from your library?

Check for Eviction Moratoriums

There might be an eviction moratorium where you live. In other words, if you’re unable to cover your rent because of the coronavirus, then you won’t be kicked out of your place. This is being rolled out at the city, county, or state level. There are different rules and terms depending on where you live, so you’ll have to check.

For instance, the governor of California has issued a statewide executive order that will protect tenants until May 31, 2020. That doesn’t mean you’re completely off the hook, though. In the Golden State, you’ll still need to pay your landlord for what’s owed. And in the state of New York, eviction moratoriums are in place until at least June 20th.

Reach Out to Your Loan Servicer

If you’re a homeowner and have mortgage payments, the Federal Housing Administration (FHA) has suspended foreclosures on single-family homes that are FHA-insured for 60 days, effective March 18, 2020. More good news: If your home was in the process of a foreclosure, this would be halted.

Along the same lines, you can reach out to your gas and power companies to see if they’re waiving late fees or being more forgiving before shutting off your utilities. 

Contact Your Landlord as Soon as Possible

If you’re renting from somebody, reach out to them as soon as you can if you are concerned about your ability to pay next month’s rent, and be sure you understand any eviction freezes being considered by your state or local government, recommends Allec.

“As a landlord myself, I appreciate it when tenants are upfront with me about their situation and don’t try to hide it with bogus excuses.” Just like you’d like a heads-up before stuff hits the fan, letting your landlord know as soon as you can gives them time to prepare, and to come up with some sort of contingency plan.

If you’re able to cover some of your rent, you could try reaching out to your landlord, explaining your situation and why you’re not able to cover the next month’s rent. You’ll want to then ask if a temporary reduction in rent would be possible. Given the circumstances, your landlord might be amenable to this arrangement.

And if you’ve exhausted all the obvious avenues, see if your landlord would be open to bartering, suggests money coach and educator Sarah Von Bargen. “What skills do you have that might be useful to them?,” says Von Bargen, who is the founder of Yes and Yes. “Could you repaint an empty unit in the building or do some landscaping in exchange for cheap or free rent? If you rent from a large company, maybe they could use help with their website or social media.” 

Look for Relief

If you’ve lost a job or aren’t able to work due to circumstances prompted by the coronavirus, look toward forms of relief. Help is out there.

For instance, under the newly passed Families First Coronavirus Act (FFCRA), certain employers are required to provide their workers one of two things: 80 hours of paid sick leave if they’re unable to work because of a quarantine or are experiencing COVID-19 symptoms. Or up to 80 hours of paid sick leave that’s equal to two-thirds of their pay because they were tending to someone under quarantine or someone with symptoms. An employee might also qualify for an additional 10 weeks of paid leave at two-thirds of his or her regular pay.

You might also qualify for disaster unemployment benefits. This extends to freelancers and self-employed folks, too. For instance, if you’ve lost your job, aren’t able to reach your place of work, or cannot work due to a disaster-related injury, you can apply for this form of unemployment. You’ll need to apply through your state’s unemployment office.

You’ll want to learn about other relief efforts based on the type of work you do and your industry. For instance, there are relief efforts for small businesses, freelancers, and artists. There are also relief efforts for different professions and industries. To name a few, those who work as bartenders and in the beauty industry.

While the reality of not being able to keep up with your bills because of the coronavirus can feel scary, remaining calm and looking at different solutions will help you swiftly navigate through rocky times.

Do you know of more helpful resources? Share them in the comments! 

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Source: mint.intuit.com