Lending restrictions based on property type (owner occupied, second home, or non owner occupied) depend on the lending institution. Although once you begin looking at the extremes 30,000 or 2,000,000 you begin to pay for it with the rate, meaning, there are hits increasing the rate due to the irregualrity of the loan amount requested. If your credit and income support the loan there is no real limit to the size of the loan amount.

2. What is the most percentage-wise you will lend on owner occupied loans?  What is the most for investor loans? We are talking percentage or LTV.

Again this is based on the lender you choose (another reason I recommend using a broker) For owner occupied loans, there are lenders that will go up to 125% of the value of the home. For investment, non owner occupied properties 100%… again if your financial situation supports the financing arrangment.

3. Is that amount (the amount you are willing to lend) based on appraised value or purchase price?

It is always based off the lower figure. If your home appraises for more than the contract price, 100% financing is based on the contract price, if the appraisal comes in lower than the contract price, 100% financing is based off the appraisal. The only way around this is 125% financing.

Suppose I get an even better deal on this house that appraises for $100,000.  Instead of paying $80,000, my purchase price is $70,000.  Would you lend me $100,000.

Not unless you were willing to take out a loan that was structured as 125% financing (or whatever the percentage works out to 125% being the maximum LTV allowed. Of course if you did take out this loan and new your home was worth an additional 20-40K then despite the loan structure, you would be able to refinance into 100% financing as soon as seasoning requirements have passed, or if you have a lender that does not have seasoning requirements, which I do.

4. Do you lend on the after repair value?

There are specific loans designed to accomplish this, although you will be required to bring in a down payment for the original purchase, between 5% and 15% depending on the purchase price.

5. Do you allow the seller to take back a note

Yes.

So if the seller were willing to take back a 2nd mortgage of 20%, you would give me an 80% 1st mortgage?

Ultimately this is up to the lending institution, a good broker has probably done his research and will know the answer based on your situation and the lender that he or she plans on using, as a general rule of thumb this can be accomplished without any real magic. 

6. Do you do piggybacks?

Yes, piggyback is an industry term for the 2nd loan closed concurrently with the 1st. Piggybacks are very common, and easier to obtain than stand alone 2nds…that is to say more lenders offer piggyback 2nds than stand alone 2nds. But both are obtainable.

7.  Do you have any creative financing, private investors, or hard money?

Yes. Any good broker will have a number of hard money and private investors ready.

8. Do you have any equity lenders?

Yes. ie: Home Equity Lines of Credit (HELOC)

9. Do you offer any loans for fixing up the property?

Yes. ie: construstion loans, and construction to permanent.

10. Do you have non-conforming loans?(Stated income loans, No ratio loans, No income or asset verification, No Docs)

These income verifying tactics have become an industry standard, but borrowers should understand the less verifiable information you give to the lender the more risk they assume, and you will pay for it with the interest rate charged… I recommend trying to document everything possible, it is well worth the extra work, and can save you literally thousands.

11. Is the loan based on the property itself or do you look at my income?

Loans are provided to qualified borrowers which is based off employment, income, and credit history. There are a number of ways this is done, but these are the most importnant components. The property is merely the collateral you are providing the lender. It is their security that you will pay back the loan, because if you don’t they have the right to sell it accordingly to the loan arrangments.

12. Up to how many units do you lend?

Once you are lending on property that is zoned commercial or has more than four units, typically you are looking at a commercial loan, which is a different beast. Brokers if experienced and established with the right lenders can make commercial loans. We can do commercial loans, but the qualifying process is different.

13. What is the interest rate?

The interest rate depends on program security, credit,  and doc type (full doc, stated income, etc…) Ultimately it will dictate your mortgage payment when taken in consideration with your loan amount, and can be thought of as the interest the bank is making off you… a simple calculation is loan amount (200,000) times interest (.06) equals interest paid over the course of a year (12,000).

14. Wjat kind of fees do you charge?

Fees are always negotiable, and depend on the type of financing the borrower needs.

15. Do you allow the seller to pay the closing costs?  How much closing costs typically run?

The seller can pay closing costs if it is included in the purchase contract. A common practice is what is known as seller credit. Closing costs depend entirely on the size of the loan amount.

16. Do you allow some type of seller concession, such as a repair or decorating allowance?

The contract is what should address these things, however you should know it is illegal for a buyer to receive cash at closing on a loan that is not structured  to do so. So you must be careful when considering these things. 

17. How long does it usually take to get an approval?  How quickly can you close?

An approval can be accomlished in as little as an hour, but the amount of time it takes to close depends on the working relationship between borrower and lender. If the borrower provides the necessary paperwork in a timely fashion, and the broker expedites his responsibilities, you can close in two weeks.

18. What would you like to see in a loan package?

That it is structured to accomplish my overall financial goals, not just put me into anther home. If the loan has a purpose, and an objective, and it coincides with my overall goals, I am happy.

19. If the seller were to put me on the deed, could I get a refinance loan instead of a purchase loan?  Is there any “seasoning?”

No, you would need to prove that you have been paying the current mortgage with cancelled checks, or something of the sort. If you had been paying their mortgage for 12 months, and can prove it, than there is a chance you could get a refinance loan rather than a purchase loan, but there is really no advantage to doing this, in fact if you use a quit claim deed to transfer you onto title and them off title they have granted you no warranties and will be taking on unnecessary liability.

-Friedrich Wilhelm Nietzsche

-Martin H. Scharlemann

- James M. Barrie

-Dag Hammarsjold

-Kin Hubbard

-Baron De Montesquieu

Of course the Fed is not the only indicator that we should be paying attention to. Recently rates have risen, the 30 year fixed hovering at 6.18, and construction spending fell by .2% in November, an number thought to be closer to .5%; despite this, we have not seen an increase in this figure since April. More importantly residential spending has dropped for the eighth consecutive time to the rate seen in two years.

Doom and gloom appears to be the forecast, however, like the glass, you may see these figures as half full rather than half empty. Yes rates are up, but loan applications are up as well, signalling perhaps a turning point that has been long anticipated by insiders waiting for market recovery. Despite numbers being down, we must keep in my these figures represent the conclusion of the year last, a typical down time in the market cycle, and not necessarily indicative to what we should expect in ’07. With applications up, it is not a hasty conclusion to believe that people are beginning to look at home purchases for the New Year.

Moreover with the bullish stock market, money is being made in different sectors, and may be diversified into longer term investments like real estate after a slight fall and market correction in housing prices. Historically rates are still lower than there counter parts through out the last few decades, and despite recent rate hikes, which were minimal, there are no real indicators that suggest we will see significant hikes causing concern in the market.

With that said, shopping for a new home, is, in my professional opinion, a wise investment; but like any other market those investing should consider and research all the factors, such as population increases in their specific areas as well as median income hikes (links on this blog down the left hand side can assist you in this research). We are not at a point in time where you can simply expect appreciation, however, finding a home that will appreciate is very possible. Finding the right agent, (a point discussed in a previous entry) is one of the most important steps in this process. In addition finding a established lender with references readily available from past clients is as important.

Should anyone have additional questions, or concerns about a particular transaction or regional market, please comment, my many readers along with myself are ready and willing to produce the necessary information you need.

Here’s to a prosperous 2007.

peter@approved-online.com

-Fyodor Dostoyevsky

-Ambrose Bierce

-Henri Frederic Amiel

Often times the advantages out weigh the disadvantages, namely the short term and high closing costs.

 What will follow will break down the general rules of hard money lending so you will have an idea of what to expect if you are in the market, or you can use as a reference if you happen to be in the industry and speak with someone that is in the hard money market and needs more information.

 First and foremost hard money is equity driven. I can’t think of one hard money lender that will lend over 80% loan to value (if you happen to know of one please leave a comment for our readers), in fact most cap out at 70%, some 75%. So the first thing you need to do, is take a hard look at how much you owe in relation to how much your home is worth. Add the necessary amount of cash you need to the current loan balance (and any penalties you may be facing), and closing costs for hte new loan, then divide this number into the value of your home and you will have an idea of what your loan to value is.

 Keep in mind many hard money lenders do not require a full appraisal to be completed. Instead their particular investors will research your home and come up with a value that they feel comfortable loaning against; a rough fact to live with, but it’s their gold so they make the rules.

 As for income and employment history, typically this is not not as important to the investor as you would think. There are many hard money lenders that do not require debt to income ratios to “make sense” in the conventional standard – that is under 50%. Usually they simply require that you document your employment history, and demonstrate you income in the form of W2s or 1099s, but do not consider the final DTI ratio.

In addition, your credit scores are not weighted as heavily as some would think. You can borrow money with a sub-500 credit score from a hard money lender. Ultimately, your credit score, and final loan approval are not dependent on one another. There are however other stipulations that they may have, for instance paying off all existing revolving debt, and having enough loan proceeds left to make payments on your home loans (Principle Interest Taxes and Insurance = PITI) for the next 6 months. Please keep in mind that it is an example, but something to prepare yourself for, especially if you are running numbers like I suggest.

To get started in a hard money loan is very similar to your typical home loan. Most likely you will have to complete a 1003 or Universal Residential Loan Application. Once this application has been completed, it is forwarded over to the investor who will conduct their investigation on the property – typically a two to three day process. Assuming they agree to proceed with the loan they will grant approval conditions pending. Fulfill the conditions and you have your loan. Based on this breakdown, the immediate advantage of hard money is all the red tape you are able to cut through; point in fact, you can receive proceeds from a hard money loan in much less time then your typical refinance.

As for the cost, this is dependent on the lender and investor that is chosen. Typically a lender is going to charge anywhere from 2 to 7 points, depending on the loan. Yes, this is a steep figure when comparing it to other conventional financing methods, but is often times justified based on how quickly they can expedite the process, and the ability to loan money when other people won’t.

For more information please feel free to comment or email peter@approved-online.com. Hope you find this helpful.

-John Foster Dulles

-Anonymous

1) Speak plain – interestingly, intelligently.

2) Explain – patiently, thoroughly.

3) Convince – facts, factors, figures.

4) Highlights – brief resume of picture.

5) Close – income, appreciation, diversification, safety.

Our American civilization is no accident. It exists because it was found securely upon the concept of human liberty. It exists because we have learned to defend the rights of teh individual and to respect the dignity of man.

-Benjamin F. Fairless

- H. H. Ross

Don’t believe me… then you probably buy stock when you should be selling and vice versa…

Right now interest rates are as low at a low point in the year, housing prices have fallen, and lenders are rolling out programs that are more secure than their past counterparts providing the informed investor with the know-how to leverage themselves into real estate.

Let’s first look at why many people think now is not the time to invest in real estate, at which time we will shift gears and discuss how investors are turning profit despite these protests.

The most obvious rebuttal is home prices are falling. According to the media the housing market is upside down, construction is down, inventory is up, and there are not many signs that suggest recovery any time soon. If you have read any of my past posts particularly “The Biggest Housing Slump in 40 Years” then you know what I am talking about. I am not contradicting myself here. The market is in a interesting place, and many people are going to recognize a loss on their real estate investment; but that fact has nothing to do with what investors are going to accomplish in the future. Because of increased inventory, finding a justifiable (meaning profitable) opportunity is only a question of locating a regional market that is still moving in the right direction. What is the right direction? Population is rising, there is adequate job security, there is a sound rental population (as in a college town) etc… Once a region has been identified, then it is only a matter of finding a home that is priced right, and due to negative media, most homeowners are only thinking short term, and offloading property that has the potential to be very profitable 3, 5, or 10 years down the road.

Moreover, because many of these homeowners got into the market under 100% financing at the peak of the market with adjustible rates need to refinance. For many reasons this may not be possible (if you fit into this catagory I suggest you talk to a lender sooner rather than later so you can prepare yourself for when the time comes). Whether it is credit, value, etc… this will place the burden of sale on the homeowner placing most of the cards in the hand of the investor.

I know what you are thinking. Short sales and foreclosures. Point in fact, buying short sales and foreclosures is much more difficult than you think. It is not as easy as walking in and offering cash under value. This process is more difficult than many give credit to, and although there is money to be made, and many will, unless you have experience in this market I don’t recommend it… moving on… 

The next obvious rebuttal is financing. Rates have risen, various government bodies (namely the FBI) are cracking down on unethical lending practices, and the secondary market (wall street) is tightening, their investing practices leaving warehouse lines backed up. All true, but keep in mind, cracking down on unethical lending practices is a good thing for everyone, and anyone participating in such practice is not helping their client, has ignored their fiduciary responsibility and deserves what is coming to them. As for the secondary market, this is mostly affecting the subprime sector, and will not affect investors that are typically A-paper borrowers – enough said. As for financing. Rates are the lowest they have been year to date, and as we move into the winter months (months typically reserved for buyers), you can be sure that many investors will be taking advantage of the low rates offered. Furthermore, the programs available are more secure. This is due part in fact to the inverted market, meaning, many fixed programs are priced as competitively as adjustible rate mortgages. But that is not the only factor coming into play. Recently fixed option ARMs have sprung up. Banks are starting to offer 40 year fixed with interest only options (in the past it was one or the other) allowing borrowers to lower their payment even further; and there is talk that 50 year programs will have longer fixed terms (typically they are only fixed for 2 years at which time they will be adjust. All this means is there are more options for the saavy investor, allowing them to leverage a postion easier than ever before.

Of course all of this does not mean a lick of difference if the home does not appreciate, and that is the concern most people have in today’s market. For a true investor this is not the primary concern. The primary concern is turning over a positive cashflow on a monthly basis. They view the home as a long term investment, and I challenge you to find a state that has not watched home value appreciate over the last 20 years. 20 years too long, try five years. As long as their is a postiive monthly cashflow on the property and nothing is out of pocket, they understand that they will make money in the long run. Obviously this is a more conservative investment approach rather than the high risk property flipper.

In light of all these facts, it becomes clear how one can make money despite the flattening market. The points made above is the foundation to investing in real estate, and should not be the sole factor guiding someone into a new investment property. There are other considerations to take into account like pyramiding, 1031 exchanges, property management, etc..

If anyone would like more information, or specific advise, I encourage you to comment.

peter@approved-online.com  

 - Bruce Barton

-Henry B. Wilson

ECONOMY
End of the Boom
 

Dark economic clouds are gathering ahead. After six years of booming home prices, the great American housing bubble has finally popped, and the market is now on the verge of collapse. Tens of millions of families who bought homes at bubble-inflated prices “now face the prospect of seeing their life savings disappear.” This development will have wide-ranging effects on the American economy. “Over the last few years,” writes Princeton economist and New York Times columnist Paul Krugman, “most good U.S. economic news has been the result of soaring home prices.” With this engine of economic growth now broken down, America faces a potential future of “rapidly falling house prices, rising default and bankruptcy rates,” lost jobs, fewer consumption, even a possible recession. The dark clouds ahead may be a perfect storm hitting the U.S. economy. (Read “The End of the Great American Housing Boom,” a new report by American Progress Senior Economist Christian Weller.)

THE GREAT AMERICAN HOUSING BOOM: Over the past decade, home prices in the U.S. have climbed to never-before-seen heights. Traditionally, home prices tended to rise at the same pace as rental costs (since both reflect the price of a roof over one’s head). In 1975, the home price index was equal to 108 percent of the rent index. By 2000, the ratio of home prices to rents had jumped above 130 percent for the first time. By the beginning of 2006, the ratio of home prices to rents had grown to a whopping 178 percent. Similarly, home prices compared to other prices remained relatively stable until 1999, when the ratio of home prices to other prices surpassed all previous ratios and grew to 208 percent at the beginning of 2006. 

U.S. ECONOMY DEPENDENT ON THE BOOM: “The economic recovery since 2001 has been disappointing in many ways,” Krugman writes, “but it wouldn’t have happened at all” without the housing bubble. The boom spurred the economy directly by surging spending on home construction and renovation, which created jobs and poured cash into the economy. It fueled the economy indirectly by making it “easy for consumers to spend freely by borrowing against their rising home equity.” Homeowners have been borrowing “more than $700 billion a year from the equity in their houses,” and economists estimate that “annual consumption is approximately $250 billion (2 percent of GDP) higher than it would be in the absence of the housing bubble.” This spending spree, bolstered as it was by home equity borrowing, had consequences: For the first time since the Great Depression, savings rates have fallen into negative territory. The average American is spending more than he or she earns.

THE BUBBLE HAS POPPED: Nationwide, house prices are down between 4 percent and 5 percent from their levels at the same point in 2005, adjusted for inflation, and “price declines in some of the most over-valued areas, like Washington, DC, and parts of Florida and California, have been considerably sharper.” The glut of unsold homes “is the highest since 1993 and the year-over-year price decline is the biggest since 1990.” The health of the U.S. economy will be determined by the direction of home prices in the next year.

PREDATORY LENDERS AND THEIR ‘NEUTRON BOMB’: Traditionally, mortgages have been low risk lending. That changed during the recent housing bubble, which was in large part driven by high-risk loans given to “subprime” lenders (people who have “troubled credit records or otherwise have difficulty obtaining a mortgage,” disproportionately black and Hispanic Americans). For instance, option adjustable-rate mortgages (ARMs) “have soared in popularity” particularly among subprime borrowers, jumping from as little as 0.5 percent of all mortgages written in 2003 to at least 12.3 percent through early 2006, estimates show. (In some booming coastal housing markets, they represent up to 40 percent or more of loans.) Today, as these subprime loans come up for renewal and are reset to even higher interest rates, delinquencies and foreclosures are rising. “Most of the pain will be born by ordinary people,” according to BusinessWeek. “And it’s already happening. More than a fifth of option ARM loans in 2004 and 2005 are upside down — meaning borrowers’ homes are worth less than their debt. If home prices fall 10 percent, that number would double.” Roughly $2 trillion in option ARMs come due in the next two years, about one-third of the $6 trillion U.S. mortgage market. The option ARM is “like the neutron bomb,” says George McCarthy, a housing economist at New York’s Ford Foundation. “It’s going to kill all the people but leave the houses standing.” Progressives have long warned against marketing these loans to a vulnerable subprime market. “Subprime lenders are fueling their business by aggressively marketing these risky home loans without considering whether families can truly afford them,” according to the Center for Responsible Lending.

WHAT A CRASH MEANS FOR THE ECONOMY: The downturn following the collapse of the housing bubble is “likely to be far more severe than the downturn from the stock bubble,” says Dean Baker, co-director of the Center for Economic and Policy Research. Housing construction and sales directly account for more than 6 percent of GDP, and housing wealth “is far more evenly distributed than stock wealth.” Declines in residential construction and housing related sectors will have a severe impact on the economy, and will be amplified by a decline in consumer spending. “With home prices falling, millions of homeowners will soon lose the ability to borrow against their homes,” which have lost their value. That means less money spent on cars, travel, appliances, and other goods. “The economic picture over the next couple of years is likely to be one of rapidly falling house prices, rising default and bankruptcy rates, which will be associated with job loss and sharply higher unemployment.” The problems don’t end there. “Other critical sectors are not picking up the slack,” Christian Weller writes. With the government mired in deficits, consumers running out of steam, and trade deficits at new record highs, “business investment must carry the economy forward. This will have to lead to job creation domestically, predominantly in the manufacturing sector, to be successful. This has not happened. Manufacturing employment also fell by a whopping 39,000 jobs in October.” Paul Krugman says “the odds are very good — maybe 2 to 1,” that the U.S. will teeter towards a recession in 2007. Renowned Morgan Stanley economist Steven Roach says the economy is “dangerously close to what we call stall speed. The odds of the U.S. economy tipping into recession are about 40 to 45 per cent.” The Swiss Reinsurance Co., “one of the world’s foremost experts on risk,” puts the chance of recession at 35 percent. And Dean Baker predicts “The Housing Crash Recession of 2007.”
 

www.americanprogress.org