To qualify for a bridge loan in Arizona, you typically need the following:
- Qualifying income: Lenders will analyze your income to ensure you can manage payments on your existing mortgage, your forthcoming mortgage, and potentially an interest-only bridge loan payment.
- Sufficient equity: Typically, a minimum of 20% equity in your present home is required. However, certain lenders may ask for up to 50% equity.
- Good credit history: Most bridge loan programs and lenders look for a credit score above 650. This score not only helps in approval but can also determine your interest rate and other loan aspects, like the loan-to-value ratio. A higher score is always more advantageous. If you’ve maintained a positive history with your current mortgage lender, it might be worth checking with them for bridge loan options.
- Your current home to be listed for sale: While not always a mandate, some lenders prefer evidence that your current property is actively listed, helping to ensure its sale within the bridge loan’s duration.
How much does a bridge loan cost in Arizona?
Securing a bridge loan in Arizona typically means preparing for a higher interest rate than you would with a conventional mortgage. Rates for bridge loans usually sit between 1-3 percentage points higher than what you might be offered on a standard mortgage loan. On top of that, there are also certain transaction fees associated with bridge loans.
This steeper cost stems from the heightened risk lenders undertake with bridge loans. It’s paramount for borrowers to consider the scenario where the current home doesn’t sell within the expected timeframe. If this occurs, you’ll need the financial capacity to manage both the mortgage and the bridge loan payments concurrently.
Your precise rate is influenced by factors like your credit score and your lender’s specific terms.
How to reduce bridge loan costs
Opting for the same lender for both your bridge loan and your new mortgage can be cost-effective. This usually means you sidestep additional underwriting fees because both loans undergo the approval process simultaneously.
It’s beneficial to compare multiple lenders to find the most favorable terms. Remember, a bridge loan is designed as a temporary solution. Therefore, when evaluating options, look beyond just the costs. Consider factors like convenience and how well a specific financing method aligns with your circumstances. We’ll share additional options in an upcoming section.
Budget for closing costs
It’s essential to remember that, like other loans, bridge loans also come with closing costs, administrative fees, and legal expenses. Generally, these costs range from 1.5% to 3% of the loan’s total value. Here’s what you might encounter:
- Appraisal fee.
- Administration fee.
- Escrow fee.
- Title policy costs.
- Notary fee.
- Loan origination fee.
Bridge loan cost example
Below is an example of how much a $300,000 bridge loan might cost, along with possible fees.
You find a home you’d like to purchase, but you’re still waiting for your current Arizona house to sell. The new home’s asking price is $800,000. You can only come up with $500,000, but you have at least another $300,000 worth of equity in your current property. You want to access that money to cover the shortfall before your new home is sold to another buyer.
| Net loan amount | $300,000 | $300,000 |
| Interest (varies) | 10% (example for 6 months) | $15,000 |
| Origination fee | 1.5% | $4,500 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $6,000 |
| Total repayable amount | $327,200 |
*These closing costs typically range between 1.5%-3%
Who provides bridge loans in Arizona?
In the vast lending landscape of Arizona, not every financial institution offers bridge loan products. The intricate underwriting requirements make it a specialized loan type. But for those on the hunt, various lenders might be considered before locking in an application. The most frequently tapped sources for bridge loans include:
- Your current mortgage lender: Often, your existing mortgage provider may have bridge loan options, especially if you’ve maintained a good relationship and payment history with them.
- Local banks: Some local or regional banks in Arizona offer specialized loan products, like bridge loans, to cater to their community’s needs.
- Credit unions: As member-owned institutions, credit unions often provide a range of loan products tailored to meet their members’ unique financial situations.
- Hard-money lenders: These lenders are typically more willing to accept risks. Thus, they might offer bridge loans, especially for real estate investments or situations with unique challenges.
- Non-qualified mortgage (non-QM) lenders: These lenders cater to borrowers who don’t meet the typical standards for qualified mortgages, often providing more flexible loan products, such as bridge loans.
Additionally, some modern real estate companies in Arizona have streamlined processes to help clients secure bridge loans. This bridges the financial gap that can arise between purchasing a new home and selling the old one. We’ll illustrate how this works later in this post.
