Have you heard about all the bad press about Cash Flow ARMs, Pay Option ARM, Smart Loans and all the other variations of loans with negative amortization? A lot of it is warranted! This loan is a tool and just like any tool, there is a right way to use it and a wrong way!
Most people that get Pay Option ARMs do it simply to get a lower payment on the house that they live in. They couldn’t afford it any other way. They finance the house to the hilt and suddenly they get upside down when that balance starts to increase!
Smart Loans are a good choice when your home is experiencing steady appreciation (5% or more) because this type of mortgage has the ability for negative amortization (the loan balance can actually increase throughout its history). In this situation, the rate of appreciation will simply out pace any increase in the loan balance.
Smart Loans are good for houses that you are financing under 90% of the appraised value or purchase price. In quickly appreciating markets you can get away with a higher amount but leaving 10% equity in the property is bare minimum. Why? Well, ff you get rid of the property through traditional channels, your selling expenses could be anywhere from 9-15% of the sales price! No one likes the possibility of coming out of pocket to sell a house! You want to make money!
Real estate investors may get some of the largest benefits in using Smart Loans. When you buy a property that conforms to a few of the criteria mentioned earlier, using pay options will let you get the following:
1. Payment Flexibility – Just like the name of the loan states, you have different payment options. One, you have the payment based on the start rate of the loan (which could be as low as 1%!). Two, you have the interest only payment. Three, there is an option to make a payment based on a 30 year term. Lastly, the fourth pay option is based on a 15 term. The last 2 pay options allow you to pay down on principle if you choose.
2. Maximize cash flow – Cash flow is the name of the game when dealing with rental property and pay option arms are one of the best ways to maximize it. Used correctly, pay options arms can over DOUBLE the cash flow on your property!
3. Minimize affects of vacancy - Everyone who owns rental property has had vacancies. If you haven’t yet, just wait you will! One month vacancy, depending on the property, can just about destroy the profit for an entire year! Don’t believe me? Go ahead and add up the holding cost for carrying the mortgage, utilites, cleaning, and a little touch up paint and see what you get. If you had a way to reduce the largest expense, the mortgage, by a third, wouldn’t that soften the blow? Again pay option arms are the way to go!
4. Stop worrying about unexpected maintenance costs – In the same line as the vacancy example, you will be better positioned to minimize the effects of an unexpected repair because your revenue has increased two-fold.
5. Give incentives to residents for good "behavior" – You can get very creative here. Credit for paying before the beginning of the month (for example, payment by the 25th). Discounts on longer term leases such as an 18-24 month lease, etc. The extra revenue from using a pay option ARM can smooth out you tenant churn and give you ability to assist you with tenant retention, particularly in a renters market!
6. Use the house to get rid of personal debt – If your cash flow from getting a pay option ARM increases from $250 to $500 a month, you can use that extra money to consolidate your car, credit cards, student loans, whatever.
7. Put aside the extra money to purchase more units! – You will be able to use pay option arms to buy even more property! That way your real estate investing feeds off of itself without you needing to use your the earning from your 9 to 5 to finance it!
Monday, May 14, 2007
The Aftermath of the Overnight Real Estate Lending Crash
Recently the most blogged about topic in the real estate industry, the abrupt end of the sub-prime mortgage industry. Ok, that is a little exaggerated. The sub-prime market isn't gone, just much more strenuous than it has been in the recent four years. Before this week, so long as you were breathing you could get approved for a mortgage loan. Now, with much tighter lending policies, many sub-prime borrowers are realizing they are either unable to refinance their homes or completely unable to buy a home at all.
Is this just the aftermath of the housing backslide? During the housing boom that ended in 2005, money was tossed with abandon into exotic home loans that let people to buy houses with little down or without submitting evidence their yearly income. This was the oil that stoked the housing boom fire. Lenders were well aware of what they were doing the whole time. They had no ethical right offering some of their loan products to people of sub prime credit and in the minds of many people the very act of doing so was an example of predatory lending. I mean let's be real, offering a person who barely makes above minimum wage an interest only 3 year loan? What do you think is going to happen in 3 years? But the banks didn't care primarilyhonestly because the investors didn't care and so long as there were people to buy the loans back there was no need to stop.
And suddenly Freddie Mac made their statement. On February 27th, government sponsored loan and securities investment organization known as Freddie Mac told the real estate markets that they were tightening their standards and were no longer purchasing high risk mortgages made to people with low, or sub-prime, credit records. The shockwave of this announcement could be felt all the way around the globe as stocks began to almost immediately sell off. Without this government sponsored unit to buy back loans that lenders were developing, they would quickly run out of cash to make more loans. And with the rising rate of defaults on active loans, that capital would disappear even faster and soon take them under. Due to this neck snaping change, many sub-prime lenders have closed their doors. At last count 44 home loan lenders have shut down or radically scaled back their companies, including sub-prime monster New Century. Now, lenders, investors and purchasers of mortgages are stopping as well.
Is this just the aftermath of the housing backslide? During the housing boom that ended in 2005, money was tossed with abandon into exotic home loans that let people to buy houses with little down or without submitting evidence their yearly income. This was the oil that stoked the housing boom fire. Lenders were well aware of what they were doing the whole time. They had no ethical right offering some of their loan products to people of sub prime credit and in the minds of many people the very act of doing so was an example of predatory lending. I mean let's be real, offering a person who barely makes above minimum wage an interest only 3 year loan? What do you think is going to happen in 3 years? But the banks didn't care primarilyhonestly because the investors didn't care and so long as there were people to buy the loans back there was no need to stop.
And suddenly Freddie Mac made their statement. On February 27th, government sponsored loan and securities investment organization known as Freddie Mac told the real estate markets that they were tightening their standards and were no longer purchasing high risk mortgages made to people with low, or sub-prime, credit records. The shockwave of this announcement could be felt all the way around the globe as stocks began to almost immediately sell off. Without this government sponsored unit to buy back loans that lenders were developing, they would quickly run out of cash to make more loans. And with the rising rate of defaults on active loans, that capital would disappear even faster and soon take them under. Due to this neck snaping change, many sub-prime lenders have closed their doors. At last count 44 home loan lenders have shut down or radically scaled back their companies, including sub-prime monster New Century. Now, lenders, investors and purchasers of mortgages are stopping as well.
Home Loan Refinancing With Less Than Perfect Credit
If you have bad credit, attempting to refinance your mortgage loan can prove to be a frustrating, maddening and even a humiliating experience. Lowering your mortgage payments would be great you feel apprehensive because of your credit score. Resist the temptation to give up because you don't think your credit will make the grade.
Before you begin your quest to obtain refinancing for your current loan with poor credit, consider two things. Locating companies that work with people with bad credit should be your first step. Secondly, do whatever you can to clean up your credit report before you attempt to refinance your loan.
You may save yourself a lot of stress, frustration, and humiliation by working with a mortgage company that specializes in bad credit mortgages. Remember that the traditional lenders may be more reputable than some of the lesser known ones so make sure you do your homework. Keep in mind that there are traditional mortgage companies with bad credit programs. Companies like Lendingtree may be a good place to start as they are both traditional with programs for people with less than perfect credit. No obligation quotes are pretty much the norm now. Typically refinancing with a low credit score can mean higher rates.
Make sure that you repair any credit problems you can before you apply. You increase your likelihood of getting better terms on your mortgage. Make absolutely sure that you grab your report from all three credit bureaus. Carefully scrutinize your credit report for any inconsistencies. If you find any, notify your creditors or the bureaus immediately. Credit cards near their limit should be the first things you pay down. This makes you look better to the mortgage lender. Study the mortgage companies you plan on doing business with so that you can make and intelligent , informed decision.
Be prepared to be patient when you are looking to refinance with a bad credit score. Patience, persistence, and research are the keys to reaching your refinancing goals.
Before you begin your quest to obtain refinancing for your current loan with poor credit, consider two things. Locating companies that work with people with bad credit should be your first step. Secondly, do whatever you can to clean up your credit report before you attempt to refinance your loan.
You may save yourself a lot of stress, frustration, and humiliation by working with a mortgage company that specializes in bad credit mortgages. Remember that the traditional lenders may be more reputable than some of the lesser known ones so make sure you do your homework. Keep in mind that there are traditional mortgage companies with bad credit programs. Companies like Lendingtree may be a good place to start as they are both traditional with programs for people with less than perfect credit. No obligation quotes are pretty much the norm now. Typically refinancing with a low credit score can mean higher rates.
Make sure that you repair any credit problems you can before you apply. You increase your likelihood of getting better terms on your mortgage. Make absolutely sure that you grab your report from all three credit bureaus. Carefully scrutinize your credit report for any inconsistencies. If you find any, notify your creditors or the bureaus immediately. Credit cards near their limit should be the first things you pay down. This makes you look better to the mortgage lender. Study the mortgage companies you plan on doing business with so that you can make and intelligent , informed decision.
Be prepared to be patient when you are looking to refinance with a bad credit score. Patience, persistence, and research are the keys to reaching your refinancing goals.
The Rosetta Stone of Home Loan Terms
When visiting a foreign, exotic location, you always try to learn at least the basic terms of the country. Well, one could argue that the mortgage industry is definitely a foreign world. Before visiting, you should have an understanding of the following terms.
Amortization occurs with every loan, but is a misunderstood concept. It simply refers to the repayment of the loan on a schedule. The schedule is typically monthly payments over a term of years.
If you are cash rich at the closing, you might want to investigate paying a discount point. It is the equivalent of one percent of the loan amount. By paying it, you can pay down the interest rate on the loan and save money over time.
As a buyer, you are going to be asked to put down an earnest money deposit. This essentially tells the seller you are serious about the purchase. The deposit then becomes part of the down payment when closing occurs. Make sure to notify the lender of the amount.
The mortgage application is pretty much what it sounds like. It should be viewed, however, as only the first step in the process. You can expect the lender to ask for additional information and documentation.
Perhaps the simplest term to understand is equity. Equity is simply the amount you own free and clear of any debt obligations on your home. Equity grows as you pay down the mortgage balance. It also grows as the home appreciates. Over time, it can become a large amount.
There are a number of quasi-government lenders. Fannie-Mae is one. It does not lend to the public directly, but guarantees loans made by lenders to certain types of lenders, often first time buyers or low-income borrowers.
A mortgage loan is really a calculation of risk. Some lenders try to lower their risk by requiring borrowers to maintain a “cash reserve”. This is an amount of money held in a bank account and is often equal to three months of your total expenses.
Amortization occurs with every loan, but is a misunderstood concept. It simply refers to the repayment of the loan on a schedule. The schedule is typically monthly payments over a term of years.
If you are cash rich at the closing, you might want to investigate paying a discount point. It is the equivalent of one percent of the loan amount. By paying it, you can pay down the interest rate on the loan and save money over time.
As a buyer, you are going to be asked to put down an earnest money deposit. This essentially tells the seller you are serious about the purchase. The deposit then becomes part of the down payment when closing occurs. Make sure to notify the lender of the amount.
The mortgage application is pretty much what it sounds like. It should be viewed, however, as only the first step in the process. You can expect the lender to ask for additional information and documentation.
Perhaps the simplest term to understand is equity. Equity is simply the amount you own free and clear of any debt obligations on your home. Equity grows as you pay down the mortgage balance. It also grows as the home appreciates. Over time, it can become a large amount.
There are a number of quasi-government lenders. Fannie-Mae is one. It does not lend to the public directly, but guarantees loans made by lenders to certain types of lenders, often first time buyers or low-income borrowers.
A mortgage loan is really a calculation of risk. Some lenders try to lower their risk by requiring borrowers to maintain a “cash reserve”. This is an amount of money held in a bank account and is often equal to three months of your total expenses.
Business Loan Solutions - Commercial Mortgage Loan Strategies
Commercial borrowers are likely to be confused when they are turned down and will probably be unsure as to why it happened and what to do next. For each of the five major reasons that a bank might decline a commercial mortgage, a practical strategy is provided for converting the declined commercial mortgage loan into an approved business loan.
Two reasons (tax returns and business plan requirements) could impact virtually all businesses. Many business loan officers will begin their commercial loan review process by stating "We will need to see at least three years of tax returns" and "Can you show me your business plan?" before
Commercial property loan requests are sometimes too unique for a traditional commercial lender. In these situations (even if a business owner has an adequate business plan and favorable tax returns), it is not unusual for commercial borrowers to be declined for a business loan by a traditional commercial bank.
The reasons provided below represent commonly-found issues. It is likely that several of the reasons will be relevant for most business loan scenarios.
Commercial Mortgage Loan Disapprovals: (1) Limited Use Properties
Reason Number One for commercial mortgage loan and business loan disapprovals: The commercial lender does not typically make commercial loans for the kind of business involved or imposes special conditions that make the commercial property loan impossible for the borrower. As one common example, fewer lenders are providing commercial real estate financing for restaurants and bars.
Similarly, auto service businesses are frequently given unnecessary (and expensive) environmental reporting requirements. There are many "special purpose" properties such as funeral homes, campgrounds and churches that most traditional banks will not include in their business lending portfolio.
Strategy Number One for converting the declined commercial mortgage into an approved commercial real estate loan: For most business borrowers, there are prudent business loan options beyond traditional commercial bank choices.
There are capable commercial lenders that are interested in business financing for special purpose properties. The best business loan might be available only from a non-traditional commercial lender when traditional banks won't make the requested commercial mortgage loan.
Commercial Mortgage Loan Disapprovals: (2) Tax Return Requirements
Reason Number Two for commercial mortgage rejections: Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when business loan underwriters look at tax returns, there are many other possibilities which produce a similar result.
Strategy Number Two for converting the declined commercial mortgage into an approved commercial real estate loan: Business borrowers will never have this reason to worry about if they are applying for a "Stated Income" commercial loan. Very few traditional banks use Stated Income (no tax returns, no income verification, no IRS Form 4506) for a business loan.
Two reasons (tax returns and business plan requirements) could impact virtually all businesses. Many business loan officers will begin their commercial loan review process by stating "We will need to see at least three years of tax returns" and "Can you show me your business plan?" before
Commercial property loan requests are sometimes too unique for a traditional commercial lender. In these situations (even if a business owner has an adequate business plan and favorable tax returns), it is not unusual for commercial borrowers to be declined for a business loan by a traditional commercial bank.
The reasons provided below represent commonly-found issues. It is likely that several of the reasons will be relevant for most business loan scenarios.
Commercial Mortgage Loan Disapprovals: (1) Limited Use Properties
Reason Number One for commercial mortgage loan and business loan disapprovals: The commercial lender does not typically make commercial loans for the kind of business involved or imposes special conditions that make the commercial property loan impossible for the borrower. As one common example, fewer lenders are providing commercial real estate financing for restaurants and bars.
Similarly, auto service businesses are frequently given unnecessary (and expensive) environmental reporting requirements. There are many "special purpose" properties such as funeral homes, campgrounds and churches that most traditional banks will not include in their business lending portfolio.
Strategy Number One for converting the declined commercial mortgage into an approved commercial real estate loan: For most business borrowers, there are prudent business loan options beyond traditional commercial bank choices.
There are capable commercial lenders that are interested in business financing for special purpose properties. The best business loan might be available only from a non-traditional commercial lender when traditional banks won't make the requested commercial mortgage loan.
Commercial Mortgage Loan Disapprovals: (2) Tax Return Requirements
Reason Number Two for commercial mortgage rejections: Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when business loan underwriters look at tax returns, there are many other possibilities which produce a similar result.
Strategy Number Two for converting the declined commercial mortgage into an approved commercial real estate loan: Business borrowers will never have this reason to worry about if they are applying for a "Stated Income" commercial loan. Very few traditional banks use Stated Income (no tax returns, no income verification, no IRS Form 4506) for a business loan.
Get to Know All about Mortgage Refinancing
Lowering down expenses may cost you. It is always wise to save money and to decrease expenses. Nevertheless, if you're in a hard financial circumstance, you'll find keeping aside money indeed hard.
Individuals settle for refinancing if they want a simpler loan payment scheme. Mortgage refinancing is replacing a recent loan with a new debt that has more agreeable terms. These may include lower interest terms. These do not fail to entice house owners. Particularly when we consider the fact that regular house owners have other debts (such as auto loan, credit card debts) to worry about.
Refinancing though could be complex. You must not be deceived by a discounted interest charge. To learn of the outcomes, you need to evaluate the benefits out of refinancing.
The Gains of Refinancing
This is the process of refinancing. A new borrower is willing to offer you the payment for your recent debt. The new terms shall include decreased interest charges and longer payment schemes. To better evaluate your refinancing options, you have to have the break-even time. It's basically the number of days you may stay compared to the debt you used for refinancing. This is used to cover the refinance costs.
Furthermore, you could help yourself better if you could keep aside a couple of savings every month. Investing it will be a bright suggestion.
Downsides of Refinancing
Homeowners are prone to analyzing their savings only after they refinance. They do not realize that in the long run they may spend more. And before you start get to refinance, there are costs that you need to incur.
One charge that you need to shoulder is the closing fees. These cover fees and fees incurred in the closing of a real estate as well as mortgage transaction. Other fees are lawyer's fees, title searches, survey fees, and recording fees, to name a few. Closing charge is normally about 1 percent of the entire amount being lent by the new lender.
You may be deceived by the too low interest costs lenders may offer you. It is possible that you will end up in dire straits than you will have had you not gone through the procedures. You should hence not overlook anything in your calculations and look all aspects. For example, you have a good amount left from your first mortgage debt. You have ten years to pay it off. You opt to refinance. The new alternatives allow you pay lesser every month, and in a longer period. You should regulate if your mortgage debt will be decreased after the longer period, than the amount that you should currently pay. Furthermore, you need to be wise enough to invest the funds that you set aside from the lower mortgage payments. If you spend more though you're in an uglier condition
Prior to opting for refinancing, you need to take note of all the ways that it may go wrong. The borrower you have picked should be able to explain it to you. Do not opt for the convenient way. Occasionally you end up simply wrong. Remember, with regards to money problems, it doesn't hurt to be wise.
Individuals settle for refinancing if they want a simpler loan payment scheme. Mortgage refinancing is replacing a recent loan with a new debt that has more agreeable terms. These may include lower interest terms. These do not fail to entice house owners. Particularly when we consider the fact that regular house owners have other debts (such as auto loan, credit card debts) to worry about.
Refinancing though could be complex. You must not be deceived by a discounted interest charge. To learn of the outcomes, you need to evaluate the benefits out of refinancing.
The Gains of Refinancing
This is the process of refinancing. A new borrower is willing to offer you the payment for your recent debt. The new terms shall include decreased interest charges and longer payment schemes. To better evaluate your refinancing options, you have to have the break-even time. It's basically the number of days you may stay compared to the debt you used for refinancing. This is used to cover the refinance costs.
Furthermore, you could help yourself better if you could keep aside a couple of savings every month. Investing it will be a bright suggestion.
Downsides of Refinancing
Homeowners are prone to analyzing their savings only after they refinance. They do not realize that in the long run they may spend more. And before you start get to refinance, there are costs that you need to incur.
One charge that you need to shoulder is the closing fees. These cover fees and fees incurred in the closing of a real estate as well as mortgage transaction. Other fees are lawyer's fees, title searches, survey fees, and recording fees, to name a few. Closing charge is normally about 1 percent of the entire amount being lent by the new lender.
You may be deceived by the too low interest costs lenders may offer you. It is possible that you will end up in dire straits than you will have had you not gone through the procedures. You should hence not overlook anything in your calculations and look all aspects. For example, you have a good amount left from your first mortgage debt. You have ten years to pay it off. You opt to refinance. The new alternatives allow you pay lesser every month, and in a longer period. You should regulate if your mortgage debt will be decreased after the longer period, than the amount that you should currently pay. Furthermore, you need to be wise enough to invest the funds that you set aside from the lower mortgage payments. If you spend more though you're in an uglier condition
Prior to opting for refinancing, you need to take note of all the ways that it may go wrong. The borrower you have picked should be able to explain it to you. Do not opt for the convenient way. Occasionally you end up simply wrong. Remember, with regards to money problems, it doesn't hurt to be wise.
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