What is a Bridge Loan?

A bridge loan is a short-term financing solution designed to "bridge" the gap between the purchase of a new luxury property and the sale of your existing home. These loans are particularly valuable in the luxury real estate market, where timing and flexibility can make or break a deal.

Eligibility Requirements

Who Qualifies for a Luxury Bridge Loan?

Bridge loans for million dollar plus properties cater to high-net-worth individuals who meet the following criteria:

– Minimum credit score: 680 FICO scores
– Loan amount request from $1 million-$10 million
– Equity in an existing property worth more than $1 million
– Able to demonstrate a viable exit strategy such as your home selling or refinance
– DTI: Below 45 or disregarded if your current home is listed for sale
– Employment and asset verification: Reviewed for borrower strength

Bridge Lender Terms

Choose a short term bridge loan to make your purchase seamless.

Interest only or principal & interest payments

Loan term: 11 to 24 months

8.50% - 10.50% depending on bridge program offered

Ready to Start

Interest rates are higher due to the short-term and increased risk for lenders. Unlike traditional mortgages, bridge loans have one interest rate for everyone regardless of whether your credit score is 700 or 780. A balloon payment is due at the end of the term.

Sounds good so far? Now, let's see how these type of loans work

For starters, the bridge loan lender will not have their loan in second lien position behind your first mortgage in case of default. Therefore, further explanation is needed.

Bridge Loan Options

Method #1

This program allows up to 60% of home's value

mortgage originator shaking hand of high-net-worth borrower

– Current value of home in San Francisco is $2,800,000
– Mortgage owed $800,000. Equity is $2,000,000
– Maximum allowed loan is 60%: $2.8M x .60 = $1,680,000
– New Bridge Loan: $1,680,000
– What you'll receive: $880K ($1.68M - $800k) (bridge pays off your $800K mortgage)
– New home's purchase price in Palo Alto is $3.2 million
– Down payment: $880K + $120K of own funds = $1 million
– New Loan: $2.2 million jumbo
– When your home sells for $2.9M: Payoff $1.68 million bridge and you get $1.22 million

Method #2

This program allows up to 75% of home's value

Current home's value in Temecula is $1,400,000
Mortgage Balance owed is $400,000
Equity: $1,000,000
New home's purchase price in Murrieta is $1,200,000
Add values of both homes ($1,400,000 + $1,200,000 = $2,600,000)
Multiply by 75% ($2,600,000 x .75 = $1,950,000)
New Loan: $1,550,000. Subtract existing loan balance ($1,950,000 - $400,000)
Based on these numbers, we're able to lend the full price of $1,200,000 or more.

Comparison of Bridge Loan Programs

Why Consider a Bridge Loan?

A short term bridge loans may be necessary if you've found your ideal high-end property but haven't sold your current home yet. They provide the financial means to act swiftly in competitive markets like Beverly Hills, Santa Barbara, San Francisco, Newport Beach, Carlsbad, West Lake Hills in Austin, or Miami Beach.

Bridge Loan Application Process

Step-by-Step Process

Pre-qualification: Initial assessment of your financial situation. Time: 1 day
Document gathering: Proof of assets, income, and property details. Time: 1-2 days
Loan approval: Underwriting, order appraisal(s) and final decision. Time: 5-10 days
Closing: Finalizing of the loan, clear to close, and transferring funds. Time: 1-2 days

How to Apply for a Bridge Loan

The application process with a luxury bridge loan lender is streamlined compared to traditional mortgages often completing in 14-21 days. This speed is crucial when competing for prime properties in hot markets like Presidio Terrace in San Francisco or River Oaks in Houston.

The Pros and Cons

Advantages

Quick access to equity for your next purchase
Make a very strong or non-contingent offer in competitive markets
Sell your home without being rushed vs. a rushed sale to access funds
Move once instead of selling your home & storing your belongings, then move belongings again once you buy another home

Disadvantages

Higher interest rates compared to traditional mortgages of 2.5% to 3% higher
Higher fees for higher risk; 1.75-2.5 points (1.75 - 2.5% of bridge loan amount)
Full repayment is due in 12-18 months.
Selling may be a challenge in a slow or declining value luxury market

Best Bridge Loan Alternatives

If a luxury bridge loan doesn't align with your needs, consider these alternatives:

Look into a no-ratio loan up to $3 million: Qualifying is based primarily on your liquid assets, 25% down payment and "0" 30-day late mortgage late payments in the last 24 months. No job or income is disclosed. It's a 30-year fixed and may be paid off in 6 months after purchase.
Hard money loans up to $5 million: Secured by the property with less emphasis on borrower qualifications (high fees approx. 3 points)
Home equity lines of credit (HELOCs) on your current luxury property. Must be done before listing home for sale.

People are asking

What happens if I default on a Bridge Loan?+

Defaulting on a bridge loan can result in foreclosure on your current property. It's crucial to have a solid exit strategy and maintain open communication with your lender if challenges arise.

Can I extend my Bridge Loan term if my luxury property doesn't sell?+

Some lenders offer extensions for luxury bridge loans, but they often come with an added fee and 0.25% higher interest rate. It's best to have a contingency plan in place before taking out the loan, especially in the high-end real estate market.

Are there minimum reserve requirements to qualify for these loans?+

Yes, most lenders require 12-18 months of the bridge loan payment in liquid reserves before closing. That amount may come from the bridge loan proceeds at closing.

Disclosure: Minimum loan amount is $1,000,000 for residential bridge loans. Loan guidelines are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify.

Bridge Program	Minimum Loan	Maximum Loan	Property Type	Maximum Loan to Value	Terms	Interest Rate	Fees	DTI Calculated	Appraisal
#1	$1,000,000	$10,000,000	1-unit home or condo	60	11-18 months	8.75%	2 points	Not applicable	2 full appraisals
#2	$750,000	$5,000,000	1-unit home or condo	75	11 months	10.50%	2.5 points	Not applicable	2 Automated Values (much less cost)

Feature	Bridge Loans	Jumbo Loans
Time to Close	14-21 days	30-45 days
Interest Rates	Higher	Lower
Fees	2-2.5 points	1-2 points
DTI Consideration	Not a factor	Crucial factor

Luxury Bridge Loans