A Bridge Loan can be an effective solution if you need to pull equity out of an existing property to purchase a new property. It can especially come in handy if you suddenly come across the perfect home to buy – but you have not yet sold your existing home (and you know that your income is likely insufficient to cover the mortgage payments on two properties at the same time).

Provided your credit score is at least 680, up to 75% of the value of your current, to-be-sold home may be extended to you via a Bridge Loan in one advance.  The Bridge Loan proceeds would need to be used to fully repay your existing mortgage balance, but you can also use any leftover loan proceeds towards the down payment on your to-be-purchased home.  The Bridge Loan structure allows you to make an offer on a new property, which is not contingent on the sale of your existing property.

Bridge Loans are generally due in 12 months, which is ample time to sell your existing property. No mortgage payments are required to be made on the Bridge Loan until your property is sold (at which time the principal would be paid back plus accrued interest). And, because there are no monthly Bridge Loan payment requirements, Bridge Loan obligations are not counted towards the lender’s debt-to-income ratio calculation. The same lender will then separately advance you a permanent loan of up to 80% of the value of your to-be-purchased primary residence.

Buying a house for the first-time or even second time can be extremely exciting, but it can also be one of the most complex purchases of your life. Not knowing what to do when and how to start can make it even more daunting. To simplify things, we’ve broken down the timeline and created a step-by-step guide to help you navigate all the twists and turns along the way.

6 Months Out

Assess your situation and get your financials in order. Before jumping into your home search, you must determine how much you can afford. You may have saved enough for your down payment, but don’t forget to account for closing costs, taxes, insurance, and any other unforeseen expenses that may arise when buying a house. This is also the time to make sure you’ve paid down your credit cards and that your credit score is in good condition, ensure you’ve filed your taxes, and that you have a paper trail for all recent major financial transactions.

Get pre-approved and find a mortgage lender. It’s important to apply for a mortgage pre-approval before you begin house hunting in earnest. Not only will this help keep you realistic about your options, but it also shows sellers that you’re a qualified and serious buyer. Don’t be tempted to just go with your current bank. It’s best to shop around to find the best rate and determine which mortgage and lender are right for you. Pre-approval letters do have an expiration date, so be aware of when yours is. It’s okay if you have to apply again later on.

3 Months Out

Find a buyer’s agent. A buyer’s agent is a licensed real estate agent who will represent you throughout your buying journey. A good buyer’s agent will be an expert on the home buying process, know your area inside and out, be familiar with local listing agents, and be a skilled negotiator.

Begin searching for homes. Ask the questions that will help set parameters for your home search. Are you looking to move to a new city such as Sacramento or Portland? Are you set on buying a house in a particular school district or neighborhood? How many bedrooms do you need? Do you want a single-family home or are you open to a townhouse, or maybe even a condo?

Attend open houses and go on tours. When you’re touring multiple homes, it’s easy to confuse different features or concerns so take notes as you’re touring. Don’t forget to pick your agent’s brain and ask for their input.

2 Months Out

Submit, or resubmit your pre-approval application. If you didn’t get a pre-approval letter, now is the time. Most letters last for 60 to 90 days. If your search extends beyond that, reapply.

Make an offer. You’ve found the home you want to call yours. Submit your offer as soon after touring the house as possible. Speed is of the essence in a competitive housing market with limited inventory. Talk with your agent about the terms of your deal and the competition you face to determine an offer price. You and your agent will work together to write and submit the offer letter to the seller’s agent.

Negotiate Home Price. Counter-offers are common and should even be expected when buying a house. Common counter-offers can include proposed changes to the price, closing date, or purchase contract contingencies. You may go back and forth with the seller a few times before you come to terms you both agree on.

Enter the closing process. Once you and the seller agree on the terms, you’ll enter the closing process, which usually takes 30 to 45 days. You’ll likely be in very close communication with your agent, lender, and escrow agency during this time.

1 Month Out

Deposit earnest money. Once the seller has accepted the offer, the earnest money will be deposited into an escrow account or held by the listing agent. Once the sale of the home has been completed, the earnest money you paid will be applied toward your closing costs.

Order your title. You’ll receive a preliminary title report from an escrow agent or attorney within a week after you reach mutual acceptance on an offer. Once the transaction closes, you will receive a final title policy.

Line up a home inspection. This step is critical as it allows you as the homebuyer to discover any material defects or necessary repairs before buying the house. Pay special attention to the results of the inspection because many states hold a buyer responsible for understanding and investigating issues raised during inspections. Also, if there is an inspection contingency, you can negotiate with sellers to cover the costs of certain repairs, ask for concessions, or back out of the sale.

Finalize the home sale. Now that you’ve completed all negotiations, it’s time to finalize and sign the purchase agreement with the seller.

Complete the mortgage application and book an appraisal. While you have been pre-approved, you still need to meet with your lender and finalize your mortgage application. The lender will also request an appraisal at this time.

1-2 Weeks Out

Receive Loan Approval. A licensed appraiser will determine the home’s market value based on comparable recent sales of homes in the neighborhood. After the appraisal has been completed, it will typically take around two weeks for the lender to get all the paperwork and approval completed.

Final walk-through. This is when you can verify that the condition of the house hasn’t changed and that all updates and repairs have been made. The final walk-through usually takes place 24 hours before the scheduled closing day.

Closing Day

Pay closing costs and sign all paperwork. Come to closing day prepared with your government-issued ID and any requested documents. Bring a cashier’s check for your down payment and be prepared to pay any closing costs. Now all that’s left to do is close escrow and sign the required paperwork.

Get your keys. Congratulations on your new home! Depending on if your house is turnkey ready or not, there might be some maintenance and remodeling you want to complete before moving in. You’ll also want to think about hiring movers, buying new furniture and appliances, setting up your utilities, etc. You’ll pay for these after the house is yours but may want to factor them into your budget or create a separate post-move budget.

Snowbird mortgage rules are the same for anyone looking to finance a vacation home, unless the borrower resides outside the U.S. In the latter case, there are more onerous foreign national mortgage regulations, a higher interest rate would apply, and there are several title, estate planning, legal and tax issues which would need to be carefully considered. Given today’s exchange rate [CAD$1.00 = US$0.76], Canadians would do well to obtain a mortgage from a U.S. lender – preferably one affiliated with their Canadian bank (for relationship, credit history and funds transfer purposes).  

But here are a few thoughts for those who are able to qualify for a conventional mortgage for the purchase of a property in the sunny South:

1. Whether a condo or single-family home, call it a second or vacation home – not an investment property (rent it later, if necessary) - you can borrow up to 90% of value (vs 85% for a rental) and avoid a risk adjustment charge of 2.125% to 4.125% of the loan amount, depending on your credit score.
2. Get your credit score to 740. Otherwise, depending on your down payment, another 1.125% to 3.250% risk charge could apply.
3. Get a reliable pre-qualification letter. You don’t want to find out just before closing that your debt-to-income ratio (including mortgage obligations of all properties owned) exceeds the maximum lender threshold.
4. Understand the costs, and then budget accordingly. There will likely be unexpected repairs, improvements, HOA/property management fees, travel costs, etc.
   

One cold and snowy night, Bob Cratchit was wondering how he could purchase a new home for his family by Christmas.  Not just any home, but one that would surely be perfect for Tiny Tim and his wife – a dream come true.

Their current home was fine, but space was cramped now – and the heater and roof would likely need to be replaced within the next few years.

“I could sell my home and use the net proceeds towards the down payment of our new home”, he thought, “but I need more time to get our current home ready for sale.” “And, how can I afford mortgage payments on two homes?”  It didn’t seem possible.

Would his cruel boss, Ebenezer Scrooge, give him a bonus to make this work?  As expected, Cratchit was laughed out of Scrooge’s office.  Discouraged and dejected, Cratchit gave up.

But Scrooge, after being visited that night by Christmas ghosts, miraculously agreed the next day to simultaneously lend Cratchit two loans: 75% and 80% of the values of his current and dream home, respectively!  Cratchit, having just a 680 credit score, could now use Scrooge’s Bridge Loan proceeds towards the down payment on the new home.  Scrooge’s 12-month Bridge Loan term would provide ample time for Cratchit to sell his existing property.  And, Scrooge waived all Bridge Loan payments until Cratchit sold his current home – when the principal would be paid back plus accrued interest. 

Cratchit made an offer on his dream home the next day!

Do you own your business and maximize your expenses to minimize your taxes?

Who wouldn’t employ this strategy!

Well, a break-even tax return would prevent you from getting a conventional mortgage. But if your business has been open for two years, and you can show reasonably consistent deposits each month – then you might qualify for a mortgage under a bank statement program.

You can be approved for a mortgage based solely on your bank statements – without the lender even needing to see your tax returns. There are programs that will accept as little as three consecutive months of bank statements. The more months you are willing to provide (i.e., 24 months provides the best interest rate), the more comfortable the lender can become with your operations.

The lender will tally your average business deposits, and apply an expense ratio – which could be from: (i) an internal or third-party industry standard, (ii) your external accountant, or (iii) your Profit & Loss Statement that matches your selected bank statement period.

Since your resulting net income figure is used to calculate the mortgage amount for which you could qualify, it is more advantageous to select the current bank statement period that maximizes your business deposits.

Some lenders will:

• Extend a loan as high as 90% of the purchase price (Required: 680+ FICO, 4 months reserves)
• Credit you for any positive net cash flow from a rented property that has at least 25% equity
• Allow you to use a gift for the down payment