Category Archives: Mortgage

Mortgage in Real Estate Investment

Investment mortgage, as it is generally called, is the mortgage that is invested in real estate property – either residential or commercial. You can find mortgage lenders, who are ready to provide real estate investors with money. Though applicable for both residential and commercial properties, mortgage lenders see residential property as ‘safer’. The collateral here is the home. The secure feeling by mortgage financiers can be the feeling that no one is likely to make default on payments on a loan, taken with their dwelling place as collateral.

Investing in real estate is always a good option. You can either make an initial investment on a home, that you would rent out for a few years and sell the property, once the value of the property makes considerable appreciation. If you prefer not to sell, you can also used the appreciated value to take additional mortgage loan, which you will invest in yet another property. This is the usual strategy. The key here is to find a mortgage that requires you to pay little to no prepayment fine. You close the loan when there is considerable capital appreciation and sells it off after taking your profit.

Since you are not a seasoned real estate investor, doing business with a mortgage lender for a long time, you need to shop for lower cost mortgage loans. Of course, the first thing in this regard is your credit score. Once you are found eligible to get a home mortgage for considerably low interest rate, you can start your investments in real estate. It is not actually a big deal to find a mortgage to make an investment on a home or commercial property.

It is always a good idea to go through a critical analysis of the possible appreciation of the property on which you look to invest. You need to repay the mortgage and still carve out a profit out of it.

You can start investing in real estate, even if you have bad credit score. Your low income or lack of financial support too doesn’t prevent you from creating wealth out of real estate property that you buy on mortgage. For the first time, don’t put your eyes on the success levels or strategies of big guns in the field. You are starting out as a newbie – make your small investments, and separate your profits. Soon you will find what works for you.

The safest route will be to put your eyes on capital appreciation, consider renting out as a second option only. Hold the winners and drop the losers – better still, don’t ever catch a loser.

Commercial Mortgage Financing

If you have ever wanted to know what the different types of Commercial Mortgage Financing are available…there are many. Each type refers to different types of properties and verification methods. Not all Commercial Lenders offer all types of Business Investment Services so be aware and get a good Commercial Finance Broker and they will be able to set you up with the appropriate Commercial Property Financing that fits your needs,

Apartments – These can be solid investment opportunities. Apartments are generally a great form of security for a Apartment Loan Company. So long as the property is managed well, apartment buildings will serve as a long term positive cash flow as well as generate equity as time passes

Health Care Facilities – A Commercial Mortgage can also be used to finance health care facilities. Commercial Investment Services like this type of investment for two strong reasons.  First, you are investing in a conventional business that is experiencing an incline in popularity as well customer base. Secondly, as with most real estate,  an investment in land and facilities will appreciate over time, regardless of temporary market fluctuations, which will create equity for you. Purchasing of building this type of property and business is very attainable when you see just how available a Business Property Loans really are.

Industrial – Most traditional Commercial Lending institutions have programs for Industrial properties which will permit investment in industrial properties. Reason being is that investments in industrial property is generally a solid investment as there will always be a need for industrial space, regardless of the up and downs in the market.

Manufacturing – Companies looking to expand by increasing your manufacturing capacity may find that a Commercial Mortgage may be the way to accomplish this. An Industrial Mortgage can help to finance the growth of your manufacturing facilities and thereby increase your business in the process.

Warehouse – Most companies can not continue to grow and be thriving without increased capacity for inventory. Should you find your business is ready to do just that… take it to the next level…a Commercial Mortgage may be just what you need. Several large Commercial Lending firms have Warehouse Mortgage Services designed to finance your warehouse expansion, so with that said, don’t procrastinate or hesitate to contact your Commercial Loan Broker today for your planned expansion.

Retail Structures – Building or buying a store? Retailers need financing to, increase their exposure and generate new business as well as maintain the business they have.  Retailers use Retail Investment Mortgage Financing when they are ready to fund projects as well.

 Office Complexes – One of the best rental opportunities is Office Parks and Office Buildings as they are less likely to be vacant as that of retail space. And yes, they are also users of Commercial Mortgage Financing

I am sure you see the trend here…Commercial Mortgage Financing can be used in practically any industry for any kind of commercial property. Speak with your Business Finance Broker when you are ready to invest in a Commercial Real Estate opportunity.

Wade Henderson

Wade Henderson is a recognized Expert in the Business Finance World with over 14 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit IMMFinancial.com to put his experience to work for you.

Investment Property Loan Types

An investment property mortgage is a loan for non-owner occupied property. There are two main classifications of investment property mortgages. These classifications include: commercial and residential. A commercial property mortgage is for a dwelling that contains 5 or more units and/or is zoned as commercial. A residential investment mortgage is for a dwelling that is one to four units and is zoned residential. Commercial and residential mortgages are two completely different loan types and have significantly different qualification standards. The following is a basic description of each mortgage type.

Residential Property Investment Loans

Residential property investment mortgages have similar qualification guidelines as standard owner-occupied mortgages. Although, they do have higher down payment and credit score requirements. Below is a summary of the general guidelines for residential investment mortgages.

• Credit Score Requirement – The minimum credit score requirement is typically 680 or above for investment mortgages.

• Debt to Income Ratio – Typically, the debt ratio limit for an investment mortgage is 40% of the borrower’s verifiable income. Besides W2 income, the borrower’s last 2 years tax returns will be needed to calculate the income that can be used from other rental properties or other sources of income.

• Down Payment – Investment property mortgages require at least 15% down, but the down payment requirement increases with lower credit scores and the greater the number of units in the property.

• Income – Lenders typically will only use rental income if the borrower has a two-year history of owning rental properties. This is usually documented via the tax returns and schedules.

Commercial Property Investment Loans

Commercial loans typically have higher rates, greater fees, and shorter terms than residential mortgage. The two most important factors for lenders on this loan type include: a positive cash-flow for the property, and the borrower’s past commercial property management experience. Below is a summary of the general guidelines for residential investment mortgages.

• Credit Scores Requirement – The minimum credit score requirement is typically 720 to 740 for a commercial loan.

• Down Payment – The minimum down payment for a commercial mortgage is typically 30% or greater. When refinancing, the maximum equity position is usually 70% of the appraised value of the property.

• Debt Service Coverage – This is a ratio used by lenders to calculate the property’s ability to generate cash flow. It is a calculation comparing the net operating income minus the mortgage payment and the other debt payments.

Investments – Mortgage

Perhaps interest rates have increased since purchasing your house. In that case, you will not be able to save anything on this item.

However, another home mortgage matter whether to pay off your mortgage early or not. The main thing to consider if you are thinking about doing this is whether you need that interest payment which is a major tax deduction in order to keep from paying higher income taxes. That is, for most average families, that home mortgage interest deduction is your major deduction unless you have business deductions. If this is the case, you might want to pay your mortgage off early but not too early. For the usual 30 year mortgage, rather than concentrate on paying it off in the next 5 or 10 years which would put a very heavy burden on you financially, you might want to concentrate on paying it off in 20 years instead of 30 years. If you can pay just a small additional amount each month, you can end up taking a year or more off of the length of your mortgage.

One reason for deciding to pay off your mortgage early is to avoid being caught in the situation of wanting or having to sell your house but owing more on it then you can get for it. Therefore, you can’t sell it right now because you would still be paying off the extra amount. But you still want to move so you need to work at getting the remaining mortgage down below what your house is worth on the current market. If you will need to move to different locations throughout the next 30 years, it is a good idea to try to pay something extra on your monthly mortgage in order to pay it down.

If you still want to pay off your entire mortgage in 5 or 10 years, you will need to pay an additional payment each month. Paying two payments a month will cut your 30 year mortgage down to approximately 10-12 years. However, will this help you? That is, what happens in 12 years when you no longer have your mortgage interest payments to declare on your income taxes and thus have higher taxes to pay the government? If, at that point, you will be retired, you should be in a lower tax bracket and may not need the added deduction of mortgage interest. However, if by then you are in a higher tax bracket (usually our careers and pay checks advance as we get older), you may need that extra deduction even more then you do now.

If you want to pay your mortgage off early but not quite so quickly, say in 25 years, just pay an additional amount onto the equity each month. If your mortgage payment is $1,198 per month, you could write a check for $1,225 each month remembering to list on the payment slip the additional equity amount you are paying. This is a particularly good method for someone who is older and is buying a home. If you are 35 years old, you will be paying on your mortgage until you are 65. What about saving for retirement? In this case, it might be better to pay it off even a couple of years early so you will have less expense when you retire.

However, if you are reading this article in order to cut back on your expenses today, refinancing at a lower rate of interest is the only viable option (also see the section on increasing your income for ways to use your mortgage to your advantage). If you cannot refinance at this time, you need to look at changing your life style, hopefully for the better, by selling your house (if its current market value is more then you still owe on it) and moving into an apartment.

Smart Investment

When it comes to making a smart investment in real estate, there’s really only two ways to go: mortgage foreclosures, or tax foreclosures. Everything profitable is some offshoot of one of those two things. Certain aspects of both are profitable, but hands-down, the smart investment is in tax foreclosures, one of two ways. Which way you go depends on whether or not you’re interested in owning property – and we’re not talking liens or deeds here.

First, if you want to own property, you’re not going to have much luck at the tax sale. There’s too much competition, and too much risk associated with buying property you can’t inspect first. Would you ever buy a home to live in you couldn’t inspect? Obviously, if you want to make a smart investment, you’re going to have to know what you’re getting into – and it doesn’t hurt if there’s little to no competition for it.

It’s simple: wait until after the tax sale, and then buy directly from the owners during the redemption period (where they can still get their property out of foreclosure). Most investors don’t realize that this is legal – in most places – and thus, you’re not going to find a lot of competition for these deeds. Owners that can pay off during this period, will, and those that can’t need to do something, to avoid losing everything.

You can easily buy up these deeds for a few hundred dollars – no strings attached, with a lot of owners. With other owners, maybe of nicer properties, you can make a deal with them to give them a percentage of whatever you can make off the property. This is an amazing way to make a lot of money without having much money to start with – the definition of “smart investment.”

Second, if you don’t want to own property, you can still make money hand over fist from the foreclosure process – both mortgage, and tax, by going after the overages. When more is paid for a property at auction than is owed in debt, usually that money is available for the owner to collect. But frequently, the owner just assumes that he’s lost everything and doesn’t realize it.

Unfortunately for him, if he doesn’t collect it, after a year or two it becomes legal property of the government. He will lose it permanently. Your knowledge of the location of these funds is valuable, and you can easily make a deal with this owner to collect the “found money” that you know about. Here’s the best part: these funds aren’t subject to money finder fee caps in most states. This means you can collect up to a 50% finder’s fee – or more, depending on the complexity of collecting the money.

While maybe not a “smart investment,” since it’s not exactly an investment, any business that can make you six figures a year and needs about $1000 in operating capital is arguably rocket-science level intelligent.

You’ve got to know how to find lists of these funds, and how to find and approach these owners so that they don’t try to collect without you and avoid your fee.

Cost of Low Deposit Investment Mortgages

Interest rates on home loans in the UK have been steadily dropping since 2012 assisted by competition between lenders and government schemes such as Funding for Lending and Help To Buy. Rates on residential loans are sitting at historic low levels as the UK economy begins to display signs of recovery and a boost in confidence.

The government program’s were implemented in order to encourage banks to lend to households and small businesses at more affordable rates and with less stringent lending criteria. However, these schemes are also having the positive effect of increasing the supply of highly competitive ‘buy to let’ mortgages. It appears that many lending institutions are much keener to offer landlords good interest rates for higher loan to value mortgages meaning that landlords can borrow with a smaller deposit than has been the case since the start of the recession in 2008. This has resulted in an increased supply of buy to let mortgage deals available with smaller deposits.

So just how are landlords benefiting from improved buy to let home loans secured with a smaller deposit?

Many of the major lenders and also smaller building societies and private banks are increasingly targeting buy to let mortgage borrowers at increasingly high loan to value percentages and at competitive interest rates according to a report by specialist company Mortgages for Business. This report revealed that the difference between interest rates on 75 per cent buy to let mortgages and 65 per cent loans is half what it was in 2012.

In early 2012, 75 per cent loan to value mortgages for landlords had interest rates approximately 1 per cent higher than 65 per cent mortgages. Now, the differential in the average rates between these two types of loan is only 0.46 per cent.

The report also suggested that banks and building societies were also offering more competitive arrangement fees to entice borrowers seeking buy-to-let products. The only exception noted was that interest rates on long term fixed rate loans were rising, perhaps as a reflection of the expectation that the base rate will rise in the next few years.

Taking into account all the costs of buying a property: arrangement fees, valuation and legal fees, the average buy-to-let mortgage rate dropped by 0.25 per cent between 2012 and 2013.

Naturally, this is good news for existing or aspiring landlords in the UK because it suggests that banks and building societies have an increased appetite to offer buy to let mortgages at higher loan to value percentages. With many investment borrowers looking to borrow as much as they can in order to retain control of their capital this is certainly a positive development.

It is preferable to only put down a 25 per cent deposit rather than a 35 per cent deposit when purchasing an investment property if the difference in interest rates between the two deals is less than half a per cent, which is what investment borrowers are currently seeing with large mortgages in the marketplace. However, it is likely that lenders will increase fixed rate offers on buy to let mortgages in the near future, in particular those over longer terms such as 5 years or more in an attempt to improve their profit margins.

Investment Mortgages Property

When it comes to your investment strategy there is nothing more important than protecting your assets you have worked so hard to acquire and build up.

Insurance is a vital part of your asset protection however for many it is neglected and has terrible consequences.

Insurance is a real financial pain as it is not cheap when you may be starting out with your first investment property. It’s hard to justify the cost when there is a very low chance you will ever need to claim. Depending on your local taxation regulations (speak with your qualified tax professional) it may be tax deductible though which helps.

There are two types of insurance that would apply to an investment property.

– Building and Landlords.
– Personal Insurance (Life, Trauma, TPD, Income).

Building and Landlords Insurance

Building insurance covers total building loss/replacement as to agreed policy amount. This is usually required for any mortgage that a bank holds over your property. They would want to see the valid certificate of insurance before settlement.

Landlords insurance on your investment property is optional however highly recommended. It covers two main things – loss of income and tenant damage. Loss of rent cover for up to 12 months if property become unfit for letting due to an insurable event. Rent default by tenant cover, Cover for theft, malicious acts or vandalism by tenants. $20 million legal liability cover for injuries to people, or damage to property. Electric motor burn out and power surges. Accidental glass breakage.

Most insurers also have pay by the month premiums at no extra cost.

By needing building insurance to satisfy the banks lending, you have covered the major risk -losing everything (your capital).

The second risk is cash flow and outgoings – Your rent and property damage. If you lose rent you lose cash flow, if your property gets damaged, it can dramatically increase your outgoings and temporarily halt your cash flow.

Now the third and not thought of risk is being sued by a tenant for accidental injury or the like. This is uncommon however in our litigated world lawyers love this kind of thing (court battles, court proceedings and suing people in general).

Being sued because your tenant tripped over a wet and twisted board on your balcony because the gutter was leaking over the top of it is an all too real circumstance which could leave you seeking your lawyers protection in court. Having legal liability included in landlords insurance allows you to sleep at night.

Having insurance does however lift your game as a professional property investor, as the insurance companies that are billion dollar risk insurers will only insure events that are actual accidents. They will investigate as to whether or not you for-filled your policy requirements and provided a fit and safe dwelling for your tenants to live in.
Gone are the days of just “getting in some tenants”. You have to run it like a business and ensure it has all the makings of a well run and maintained house fit for tenants that lives up to the tenancy requirements. Leaving that balcony railing with some termite damage might not seem like a big deal however who would be sued if your tenant fell off the balcony because of that lack of maintenance. I’m sure you would also be thinking about how thorough your managers are now too. As some insurers also require regular inspections as to maintain the required level of maintenance.

Personal Insurance

Personal Insurance is not everyone’s cup of tea however if passing on debt free assets to your siblings, next of kin or desired charity is a priority on your unfortunate passing then you will need personal insurance.

A burden many face is being laden with their next of kin debt upon their untimely death or passing. Having debt is sometimes essential to buying investment property however passing this on to an unready sibling or family member could be a horrifying ordeal.

Also most children do not fully realise that if their parents insure their lives for the full amount of debt owing they could get a free hold property portfolio.

Personal insurance usually covers two things.

– Life, Trauma and TPD Cover
– Income Protection.

Life, Trauma and TPD cover is about insurance covering accidents/circumstances which cause death (life cover), a serious health issue like cancer and illnesses that impede your ability to work for a certain time (trauma cover) or a serious impairment that would take away your ability to ever work again (TPD cover).
These all are usually paid out by a lump sum amount.

Income Protection Insurance cover is a cash flow protection method to ensure you can fund your outgoings of daily life and the possible shortfalls of your property portfolio.

Most would view this is a must have if you need your regular income to pay the bills etc. Living with out your income could be a dire situation and the last thing you want is to start selling up your assets to pay short-term bills. This sort of cover is by regular payments for a predetermined time period with the intention of you recovering and retaining your income.

Real Estate Investing

I just went to a continuing education class in South Carolina and the topic was Mortgage Fraud. Having taught mortgage fraud I thought that it was going to be pretty much the same old thing.

Sure a lot of what they taught I already knew but I not only learned a few new things but it was also good to be reminded of a lot of things that you can forget about. I have talked to a lot of people that when they start explaining the transaction it is very evident that it is not legal.

The sad part is that they are usually fairly new investors that are relying on an experienced investor or seller to handle all of the details and they assure the newbie that the transaction is “totally legal”. Here are some basics that you can keep in mind when making investments even if you are just starting out to avoid questionable people and transactions.

1: Avoid deals that sound “Too Good To Be True”. If a seller (especially another investor) promises to sell you a property, manage it for free, handle all of the financing details, get you cash at closing and send your check every month I would be careful. If real estate investing was easy everyone would be doing it. I’m not saying that all sellers that do this are fraudulent but I am saying that you need to do your homework.

When you get involved in a transaction be sure to do some due diligence on your own. Do this by asking several people that are unrelated to the transaction about not only the transaction but the people. Also don’t take the word of your seller as to how much you can rent a property for, or what it will appraise for.

2: Make sure that the entire transaction is on the closing statement or hud1. Remember if there is money going back to someone or credits given to someone and it is not on the hud1 then it is considered fraud to the lender. I have even seen some investors that want to list an assignment fee as a consulting fee or some other fee. Just call a duck a duck!

3: Know the people you are dealing with. Ask for references and also seek and get your own. Remember to always go with your gut feeling. This may sound funny but you can always trust a woman’s intuition. If you are a married man let your wife meet the people you are doing business with. If you’re not married find a woman that you know and let them meet the people you’re doing business with. If you’re a woman you have it made. I like to use the philosophy of Ronald Reagan “Trust but verify”.

4: Be Honest. Don’t let anyone talk you into submitting anything on an application that is not true. Intentionally submitting false information on a loan application is fraud and is a federal crime. Just because the loan was closed does not mean that you will never get caught. Lenders and mortgage insurance companies re-verify items on applications as a standard procedure for quality control. They will look for patterns and inconsistencies throughout the application. It’s not a matter of if but when you will get caught.

5: Always be fair and honest in all of your transactions. Remember to make every transaction win win for everyone. We subscribe to a philosophy of full disclosure in our office. When we assign a contract to a buyer we tell the buyer how much we are paying and how much we are making in the transaction. Buyers don’t mind you making money as long as the deal works for them.

Always leave some profit on the table when wholesaling a property. I hope these things have helped. If you suspect any transaction to be fraudulent you can contact the banking commission in your state or the FBI as they investigate mortgage fraud.

Real Estate Investing Mortgage Brokers

As a real estate investor it only makes sense that you understand what a mortgage broker can do for you. A mortgage consultant, agent or specialist are all basically the same thing. Unless you are buying all cash or you are making a deal with the seller for 100% financing the mortgage process will probably come up.

A mortgage broker usually owns the company or franchise while the above work under the mortgage brokers license. Mortgage agents have access to the same mortgage products as his/her broker.

When you go to a traditional bank you are limited by the mortgage products that the bank offers. If you do not meet the lending criteria of that particular bank you will have to look elsewhere. What most investors do not realize is that every time they go to a different bank, a credit check happens. The result is that each time a credit check happens your FICO or Beacon score goes lower. This may affect the rate you could get or stop you from being able to get qualified for a mortgage at all.

A mortgage agent checks your FICO or Beacon score one time and can have access to 40 or more lenders and their products. Traditional banks are limited to only their own products.

A mortgage agent takes the intimidation out of the mortgage process. They will negotiate aggressively with lenders on your behalf. That is what they do every day. If you’re buying an investment property you should have a mortgage agent pre-qualify you. It’s a smart idea to know how much you could qualify for if this turns out to be your only financial option.

They will simplify the entire mortgage process; negotiate the best possible products and lowest rates on your behalf. They do the paperwork and provide you with the peace-of-mind that you are getting the best solution possible. You will be given an explanation of the entire process and have all of your questions from beginning to end answered. It is very common to have a mortgage agent show up at your house for a 9:00 p.m. appointment for your convenience (try to get a banker to come to your house). They will provide maximum flexibility in financing choices and counsel you on credit and mortgage qualifications.

A mortgage agent gets paid a finders fee from the lender that the mortgage was arranged with. Sometimes there is a brokerage fee which is paid by the borrower, depending on the circumstances. Mortgage agents also have access to profit lenders in which case a brokerage fee is added. More often than not the lender pays a finders fee and there is no brokerage fee.

Investment Mortgage Strategy

The “Dream” of Trump like investing. Your goals and plans require action! Perhaps the easiest way to implement your action could be in the area of “small” rental residential investing.

The mortgage will be the single biggest expense that you will incur. It’s critical to have the Best Mortgage Strategy evolving, to help minimize your expense and maximize your cash flow.

In this chapter, we are going to arm you with information that will help you both understand and also seek more professional guidance in this crucial step. I trust that you have begun to surround yourself with your professional “team” of trusted advisors, including a qualified mortgage broker or banker who has years of real estate investing experience themselves. It’s obvious, that aligning yourself with a team that has this investing experience is important in that they will better understand your needs and help you develop some of the strategies necessary for your success.

THE BENEFITS OF RESIDENTIAL INVESTING:

I often get asked, “Should I invest in residential or commercial real estate?” This often depends on one’s level of experience and sources of investment capital available. The quickest start in the real estate investing arena will be in smaller residential properties.

Essentially, less of your down payment capital is going to be required for a small rental. This makes the concept of investing more realistic for not only the first time investor, but also the experienced.

BENEFITS:

-It’s a wonderful place to engage in your first investment property and continue to learn from your experiences and gain that “track” record that can help you get to the “Next Level”.
-You can quickly become an Expert and duplicate your efforts for success.
-Once considered an Expert, you can attract Joint Venture capital that will give you infinite returns.
-Requires less investment (down payment) capital.
-Mortgage financing up to 95% is potentially available.
-Mortgage interest rates are often much lower than commercial, allowing for a lower mortgage payment and stronger cash flow.
-The government continues to provide “liquidity” into the residential lending marketplace, keeping lending capital more readily available.
-Management is fairly straight forward, whether personally or professionally managed.
-The pool of properties to buy is large.
-Conversely, the pool of buyers to buy your investment (after many years of ownership) is large, providing liquidity for you.

KNOW THE FUNDAMENTALS:

Having a solid understanding of the basics of terms of mortgage financing will help you strategize your current and future real estate purchases and refinances. Certainly your trusted mortgage professional is also there for advice and strategy development, but learning the principles of mortgaging will guide you in your initial Property or Cash Flow Analysis. Here, we will cover the basics to ensure you have a foundation of mortgage terminology. Some of this information may seem dry to some, but is really important in developing the Best Mortgage for your needs. Later in the chapter we expand on these basics and incorporate them into some of the advanced concepts and strategies.