Arizona Bridge Loans are Asset Based Loans (ABLs). These loans are revolving lines of credit or term loans that are secured by the borrower’s assets such as a real estate.
How much credit a borrower can access is primarily determined by the quality and value of the collateral, which can range from accounts receivables and inventory to equipment and real estate.
For a real estate a bridge loan transactions is to finance the initial construction of a dwelling with a terms of twelve months or less, such as a loan to purchase a new home where the consumer plans to sell a current dwelling within twelve months.
Reasons to take a Arizona Bridge Loan:
- Move before you sell your current home
- A better alternative than obtaining an equity partner
- Bridge the gap, while waiting on conventional financing
- Down payment to begin a build-out project
- Acts as a line of credit with access to 5 loan drafts over 120 days
- Equipment purchasing
- Cash flow stabilization
- Working capital
- Turnaround financing
- Capital expenditures
- Debtor-in-possession (DIP) financing
- Leveraged employee stock ownership plan (ESOP)
- Fast and convenient
- Saves money
- Keeps you in control of your businessCFPB Renewal Temporary or “Arizona Bridge Loan” 12 CFR Part 1026 (Regulation Z) §1026.43 Minimum standards for transactions secured by a dwelling.Under § 1026.43(a)(3)(ii), a temporary or “bridge” loan with a term of 12 months or less is exempt from § 1026.43(c) through (f) (known as the seven gate of hell).
What are the sections of CFPB Concerning a Arizona Bridge Loan?
§1026.43(b) Definitions and under this section you find this information:
§1026.43(a)(3)(ii) exempt for bridge loan the following sections
§1026.43(c) Repayment ability
§1026.43(d) Refinancing of non-standard mortgages
§1026.43(e) Qualified mortgages
§1026.43(f) Balloon-payment qualified mortgages made by certain creditors
The following sections still apply to Arizona Bridge Loans:
§1026.43(g) Prepayment penalties
§1026.43(g) Evasion; open-end credit.
A Bridge Loan is subject to the requirements of section 32 and section 35 but is exempt from:
- The right of rescission but only if the collateral which secures the loan is the newly purchased property. If the loan is secured by the existing owner-occupied residence, the borrower must be given the 3-business day right to cancel notice.
- The requirement to establish an Escrow Impound Account for minimum period of 5 years for higher-priced loans.
- The requirement to obtain an appraisal for higher-priced loans.
- The requirement to confirm and verify the consumer’s ability to repay the loan.
A section 32 bridge loan must comply with the following:
- No negative amortization.
- No advance payments (defined as a payment schedule that consolidates more than 2 periodic payments and pays them in advance from the loan proceeds).
- No increase in the interest rate after default.
- No Prepayment penalties.
- No late fees greater than 4% of overdue principal and interest payment (the late fee may only be charged once for a single late payment and may only be charged after a 15 day grace period).
- No Financing of points and fees that are required to be included in the calculation of points and fees (unless the fee is paid to a bona fide third party such as a HUD certified counselor).
- No Acceleration of debt unless the borrower committed fraud in connection with the loan or the borrower defaults on the payment obligation or the borrower’s action or inaction adversely affects the creditor’s security for the loan.
- No extension of credit to a consumer unless the creditor receives written certification that the consumer has obtained counseling on the advisability of the mortgage from a HUD approved counselor or by a State housing finance authority.
What is the definition of a “Arizona Bridge Loan”?>
- such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling;
- a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months and a loan to finance the initial construction of a dwelling.
- 1026.35(c)(2)(v) A loan with a maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling.
- 1026.32(d)(1)(ii)(B) A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition or construction of a dwelling intended to become the consumer’s principal dwelling; or
- 1026.35(b)(2)(i)(C)A temporary or bridge loan with a loan term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; or
- 1026.43(a)(3)(ii)A temporary or “bridge” loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling;Things to consider when doing a Arizona Bridge Loan.
A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt. FACTORS. In determining whether credit to finance an acquisition—such as securities, antiques, or art—is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:
- The relationship of the borrower’s primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
- The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.
- The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.
- The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
- The borrower’s statement of purpose for the loan.
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