Yesterday was another roller coaster ride on Wall Street and outside of your mutual funds, stock and bonds, what happened yesterday has a major impact on your real estate business. For months now we have been talking about buying and selling properties with seller financing. There was one particular article that now has a greater impact on your seller financing business in real estate: Balloon Payments

If you are the holder of a seller financed note and have set a balloon payment sometime in the near future, I want you to brace yourself for a hard reality. Your buyer is not going to be able to make that balloon payment! Sure there will be instances where the balloon payment is small enough where the buyer can gather the funds needed to pay you off but if you are expected the buyer to be able to get a loan in this market, you need to rethink your strategy.

Yesterday when the Fed decided to freeze rates until 2013 that was a signal to the market and the general public that there is a lack of confidence in this economy. Knowing that the government and the stock market has no confidence in this economy, do you think banks will have confidence in creating lending standards in the real estate market? What is going on in the economy is unprecedented and is a strong signal that real estate is going to continue to stay flat for some time in the future, and one of the strongest factors in keeping the market flat is the lack of lending on real estate there will be.

Knowing this piece of information you will want to be proactive with your notes that have an upcoming balloon payment.

Things to Consider for Notes with an Upcoming Balloon Payment

Contact the Buyer: The best strategy up front is to get an accurate analysis of the buyer balloon payment situation. If the buyer is confident they can cash you out then maintain the contract in its current format.

Refinance: If the buyer is less than confident that they cannot make the balloon payment at its due date, negotiate a new term contract. This is not an opportunity to raise the sales price, but is an opportunity to keep the balloon payment on both of your radars, but in a more realistic timeframe. Use the refinance to adjust aspects of the contract that are important to you, for example your late fee policy is 15 days and you would rather give a 5 day grace period. Make changes like this in the new contract, but make sure everything is fully disclosed to the buyer.

Enforce the Contract: Balloon payments are a good way to enforce the essence of the contract. If you have a buyer that has been very difficult, maybe you have taken then to court a few times only to have them catch up at the last minute, or they are habitually late and refuse to pay late fees. If you have buyers such as this, the balloon payment is your opportunity to enforce the contract as it was agreed upon at the outset.

Those are but a few suggestions to get you started proactively planning for balloon payments that will not occur if your buyer is expecting to use bank funds to cash you out. If you are a buyer of property with seller financing and have an impending balloon on your horizon, use this time to get in contact with the seller and work out an extension or a new contract. By being proactive you will be in control.

Photo Courtesy: Sebastien Bertrand

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Banks will not lend! What to Do With Balloon Payments

Thirty could be the new twenty.

Unfortunately, we’re talking about down payments instead of states of mind.

If the nation’s biggest mortgage lender gets its way, a 30-percent down payment would become the standard for the safest and most prized home loans on the market. That could make home purchases and even some refinances more expensive for hundreds of thousands of consumers nationwide.

Faced with an April deadline, government regulators and mortgage officials are hashing out new lending regulations in the wake of sweeping legislation passed last year. Part of the makeover includes a risk-retention requirement that banks retain 5 percent of a loan if it’s securitized. That expensive proposition has caused much consternation among mortgage lenders.

But lawmakers also carved out room for an exemption from the risk-retention requirements for loans that met certain criteria. There’s a general sense within the industry that government officials will set the cutoff at a 20-percent down payment.

But lending behemoth Wells Fargo made headlines recently by suggesting an even more stringent requirement — a 30 percent down payment. That’s a sizable hunk of cash for the vast majority of conventional borrowers.

Now, for the sake of argument, let’s say the government adopts the 30-percent standard. Does that mean borrowers without a huge down payment are out of luck?

No. But it does mean they’ll pay more to land their loan.

Here’s why: Lenders will have to pay more for those “riskier” loans because of the risk-retention requirement. The consumer will absorb those added costs, most likely by getting a higher interest rate.

The reality is even a 20-percent down payment requirement could prove challenging — and potentially devastating — to thousands of borrowers, not to mention the housing industry. Some observers worry that ultra-tight restrictions will stunt economic growth and unfairly penalize smaller lenders.

In a letter to regulators, the National Association of Realtors, the Mortgage Bankers Association and other organizations claimed that narrow regulations “would mean that millions of creditworthy borrowers would be deemed, by regulatory action, to be higher risk borrowers.”

The consequences could be traumatic.

Photo: MoneyBlogNewz

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Welcome to the High-Risk Pool: Evolving Down-Payment Rules Could Send Borrower Costs Soaring

Short and sweet today, as I’m pretending I’m an employee enjoying the three day weekend like everyone else.

A court in Utah has now ordered any record of loans previously recorded on a few homes to be eliminated. Put more plainly, the order left the home owners with their homes magically made debt free. Why on earth would a judge even consider such an act?

Simple, the use of MERS, (you can Google it) the lazy, convenient vehicle lenders and Wall Street used to keep investors from knowing what garbage was being sold to them, has come back to haunt them. I predicted this more than a year ago — to laughter and much rolling of eyes.

This isn’t like my last piece, which merely addressed the issue of ‘standing in court’. These rulings have leapfrogged a couple steps. By issuing court orders resulting in the removal of the home owners’ debt, they’ve pretty much told the entire system to put up  or shut up.

These rulings are no less than monumental in scope and potential economic and financial effect. Granting home owners a literal Get Outa Jail Free card will surely generate all sorts of predictable and unintentional consequences.

Next stop — the appeals. We’ll see if we’re a nation of laws or not.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Utah Courts Grant Home Owners ‘Get Outa Jail Free’ Card In Foreclosure Mess

Sunday was fun, as some of us at BiggerPockets enjoyed lunch together in Hollywood. It was cool talkin’ with investors — beginners up to battle scarred vets. One of them, an incredibly intelligent guy, was using as one of his strategies, what I’ve had clients do (me too) in markets like we’re currently experiencing. What’s he doin’? Pretty simple, almost boring — and very profitable. Also, I’m not gonna go into all the numbers crunching here — just concept.

He’s buying notes at a discount.

If you’re a flipper buying your properties for cash, or even (Maybe especially?) if your strategies are longer term, buying notes can be not only far more profitable, but less sweaty too. I loved the example he used to illustrate his point.

He’d bought a note at a healthy discount. He then approached the property owner, offering to reduce the interest from 8% to 6% if he’d agree to increase the monthly payments from $750 to $1,000 monthly. This lead to the note’s value being increased — the basis for a bar bet if ever there was one.

How’s is possible to lower interest while increasing the note’s value?

The increased payments, combined with the lowered interest significantly sped up the time the note was gonna be paid in full — it was fully amortized from the start. This resulted in the note’s investor being able to quickly flip that note for a $12-15,000 profit. Took him just over a week or so. Does that work for ya?

For the record, none of this is new. It’s just not widely practiced.

But what if instead of buying the note for the note’s sake, you bought the note about to go or already into default? Look around at all the upside down homes in your area. How many local lenders, some of them (very few) private, would love to take a discount to Get Outa Dodge? Here’s the example we used at lunch, with a couple changes.

House worth $400,000 — note amount 380,000. Buy the defaulting note for $240,000. What are you options?

1. Go ahead with the foreclosure. In the process, approach the home owner with an attractive plan to get them out. Pay for them to move, and remove all dings on their credit report. That last one can sometimes be done completely, sometimes not. You, as the note owner can certainly remove anything you’ve generated.

You’ve then created multiple options.

A) Sell to a flipper for say, $300,000. Even counting some expenses, you’ve made somewhere in the neighbor of $50,000 relatively quickly.

B) Make the property perfect yourself, then sell it to the end user. Even if you sell slightly below market value, maybe $385,000, AND paid a Realtor to boot, your net profit would be in the range of $70-90,000.

C) You choose to keep the home, rent it out for market value, $2,000/month, and refinance it for roughly $235,000. At prevailing non-owner occupied rates, that allows plenty of room for it to easily pay for itself. You’re now operating on (Huge groaner pun alert.) ‘house money’, as you’ve almost completely recouped your original invested capital. Of course, you do it again. Duh.

D) This is my personal favorite. After spending maybe $10,000 sprucing things up — it was never a fixer — you sell it for market value. While in escrow you convert the sale into a tax deferred exchange. You net equity would be roughly $360,000 — possibly a bit more. That would allow you to easily acquire $1.25 Million (Possibly $1.5 Mil) in very well located small income properties in a solid growth region. In just eight to 13ish years or so, you’d be enjoying $90-100,000+ annual cash flow. (Assuming no increases to NOI ever.) You would’ve accomplished that enviable result with your original note purchase, which cost you lest than three times the amount of that lifelong annual cash flow. Moreover, your capital, even sans any appreciation whatsoever, would’ve grown to $1.25-1.5 Million.

Works for me. Does it work for you?

What if the note in question isn’t in default?

If you opt for the monthly income, you can do what the first guy did. Obtain an increase in payments in return for an interest rate reduction. Besides increasing your income, you simultaneously increased the note’s market value (Not always, but most of the time if structured correctly.). Furthermore, you’ve also moved up the date that the note is paid in full. When goin’ this route, many astute investors will convert the note from fully amortized to interest only or partially amortized, in order to enjoy a lump sum payoff at a time suiting their agenda.

Lastly, think about this one.

Make use of the concept of hypothecation. Simply put, you pledge the note as collateral for a loan. Let’s say you own a note with interest only payments at a decent interest rate, all due and payable in five years. The lender will loan you maybe 30-60% of the note’s face value at the same payment (more or less) as the note. The note payments still come to you, which you dutifully hand over to your lender. If your note was $100,000, and you borrowed $40,000, you’d make the payments for the five years. Since your loan was fully amortized, you’re paid in full. The original note comes due and you’re paid the $100,000 owed.

This maneuver isn’t a taxable event. It gets you some quick cash when you need it, but without coming outa pocket. It preserves the value of the lump sum payoff — all of which comes to you in full. Meanwhile, you had the use of the money, which no doubt made you more — or should have.

There are many more options when it comes to the use of notes to make hay in real estate investing. It’s truly one of the most productive methods I’ve ever employed. If you’re buying homes for cash, this approach should absolutely be in your arsenal.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Buying Notes at a Discount: Perfect for Real Estate Investors with Cash

Is the housing market turning a corner? Indicators show that not even the spiking interest rates are slowing the recovery. Also the government is considering programs geared towards assisting investors, and one bank is resuming 16,000 foreclosures.

Government to Consider Helping Investors

Real Estate Reporter for CNBC, Diana Olick discussed this week the potential for the government to start programs, specifically for the benefit of investors. Fannie Mae’s chief economist, Doug Duncan, confirmed proposals are on the table both at HUD and Fannie to help investors. This could come in the form of boosting liquidity but also protecting tax payers(meaning a conservative approach). The article hints at the possibility of either raising the cap on ten properties or considering the short refi program which reduces principal balances of those underwater.

The government offering incentives to investors or at least providing additional liquidity could be of huge benefit. While we’ve discussed this issue many times, investors are presently being overlooked and ignored by the government. Currently investors are making up nearly 20% of all transactions and are best positioned to improve the distressed inventory. Unfortunately, many of the programs currently are skewed against investors by offering introductory bid periods to owner-occupants or requiring 3-month seasoning periods on properties purchased. Investors need to demand equal footing at minimum. Many are in severely negative equity situations and should be allowed the same relief that owner-occupants are receiving to write down balances or receive loan modifications.

Interest Rates: Steep Rise

Freddie Mac reported this week that interest rates jumped on the 30-year fixed, rising from 4.46% to 4.61%. The 15-year fixed mortgage jumped commensurately from 3.81% to 3.96%. Rates are nearly 0.5% higher than November’s record low set at 4.17%.

This is largely a result from better economic news, including rising consumer confidence, and the recent increase in pending home sales. Further, the jobless rate is falling and stronger Thanksgiving weekend sales (up 8% over last year) are showing signs of an improving economy. The era of super-low interest rates is likely over.

Mortgage Purchase Activity Continues to Rises

Rising rates are continue to force a decline in the Refinance Index. The drop was less than the prior week though, as people rushed to lock in rates. The Mortgage Bankers Association’s Purchase Index bucked the trend rising 1.8%. This leaves the 4-week Purchase Index up 2.8%.

Real demand is returning to the market as people originate purchase money mortgages in face of interest rate rises. Refinances were down 1.4% over the week causing the overall Composite Index to show declining mortgage activity. This is because refinances make up over 75% of the market. This is down off nearly 83% of all activity when rates were hitting record lows. As purchase money mortgages replace refinances, we’ll see the overall market activity recover.

Bank of America Restarts Foreclosures

After suspending foreclosures since October 1^st in 23 states, Bank of America cleared its attorneys to restart 16,000 foreclosures. Bank of America examined its processes and introduced methods such as modification and deed-in-lieu of foreclosure as first steps. This leaves foreclosure as the action of last resort.

This proves the robo-signing crisis was a blip on the radar for the housing recovery. Bank of America’s CEO mentioned that they expect 30,000 fewer foreclosures to be delayed in the Q4 and also that the average person they were foreclosing on was 560 days late. This slight delay in foreclosures likely won’t have a significant impact on the recovery. I would expect us to see any fallout from the robo-signing crisis to fade away.

Final Thoughts and Look Ahead

Rising mortgage purchase applications despite rate increases is a big indicator that demand is returning to the housing market. I suspect the worst is behind us at this point. Also I believe it is no coincidence that the robo-signing “crisis” wasn’t really a crisis at all. I’m sure we’ll see the government finally look at investors as a source of liquidity in the housing market and provide some incentives to them(us). Looking ahead this week we’ll see the following important housing market indicators; CoreLogic’s negative equity report, the National Association of Home-Builder’s Confidence Index, November housing starts, mortgage activity updates, and an update on interest rates.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Government Assistance to Investors, Interest Rates Spike, Purchase Activity Up

“We tell people to get out of deals every month,” says Bruce Norris, CEO of the California-based Norris Group, which brokers hard-money investment loans as well as valuable information to investors.

Even though Norris’ company extends millions of dollars in hard-money loans, they are even more concerned about not lending; put another way, they are careful not to lend to those who would not benefit. They take extra precautions to save their clients a house full of heartache that may not be foreseen due to desperation or the ticking clock of a foreclosure or bankruptcy.

Or if their eyes are bigger than their stomach.

“These would be people who would be buying expensive properties, to where, let’s say it doesn’t sell,” Norris says. “The interest payment on a high-dollar amount, like 12 ½%, is not good for cash flow. So that’s one borrower we don’t want to see. We don’t want somebody coming in with a $600,000 hot deal because it’s just the wrong time to aggressively pursue something expensive.

“Someone else who would be a bad hard-money candidate would be somebody without reserves, because things go wrong in investing. [For example,] you’re in escrow and you think it’s okay. You think, ‘I’m going to get a closing, I’m going to get a payday,’ and then you don’t qualify or you think twice about it, and then all of the sudden your payment continues and you didn’t think it was going to. And now you have three [loans] going. So someone without reserves we really hesitate to loan to, because it always ends up being more difficult than they think.”

Hard money loans are not for the faint of heart, involving serious stakes and high risks. The interest rates are higher than the ordinary bank loan, and usually made by private investors in local areas.

“A hard money loan is typically not conventional and it’s fairly expensive,” Norris says. “Now you are hearing of loans of 4 and 4 1/2 %, but hard money loans are probably 12 ½%, with three and a half points. It’s really just to facilitate the funding of a deal. The people who are in the buy-and-sell business, like we are, are used to having that money be expensive, but we just need it available. Availability is much more important than the cost of it. Usually we’re getting a margin. We’re buying a deal where there is going to be a profit at the end of it, [even though we are] paying high interest.

“The alternative is to get partners, and partners take fifty per cent of the deal, which is almost always more expensive than hard money.”

If not from a bank, then where does hard money come from?

“The funding force [of a hard money loan] is somebody’s savings, usually,” Norris says. “The Norris Group acts as a middle man between the borrower and the source of funds — for instance, a family that has a hundred grand and wants to earn 12% instead of 2%. And we have a clientele who we have trained to do the business well, so we have a very good group of borrowers waiting for the funding of their next deal. That’s what goes on about 30-40 times a month inside of our operations.”

The Norris Group has been making hard-money loans since 1980. They also produce award-winning educational programs and resources for real estate professionals, including a radio program and free podcast.

Norris says, “In 1980, I went to work for a company that bought and sold homes. I wasn’t selling anything, I was buying, and I had the infrastructure to fund it. Inside that company they had a hard-money lending department. I was just procuring the deal. Right out of the gate, I was pretty good at that. I got paid 3% for every purchase and I was buying enough to make about $30-33,000 a month. And at the time, that was all I made. I felt like I had died and had gone to heaven.

“For some reason, I was able to do it very quickly. I was on commission. I made three years worth of salary in three months. And I went out on my own after that. For about thirty years now, that is what I’ve been doing.”

They also actively invest in California real estate, with good reason. The Norris Group wants to be seen as practicing what it preaches.

“One of the things I really encourage,” Norris says, “is for [hard money loan seekers] to borrow money from somebody who understands the buy-sell business completely. The guy who appraises your property should have bought over one hundred properties himself. He understands through the eyes of an investor what somebody shouldn’t do. So when you have a hard money loan company that’s owned by a guy who bought and sold hundreds of properties and is an appraiser and an investor as well, that [creates] levels of protection for the borrower.”

As well, Norris is confident about the state of the real estate market in California, and the role of hard money in that market.

“Ours in particular is extremely busy,” he says. “California, and Riverside and San Bernardino County in particular, are hot spots for foreclosures, even though the lenders have been dragging their feet. So we’re very busy. The people who are buying and selling are not having trouble finding the next deal and not having too much trouble getting rid of the ones they bought.”

For more information on The Norris Group and their additional services, go to www.TheNorrisGroup.com.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

An Interview with Bruce Norris, CEO of The Norris Group: Hard Choices About Hard Money Loans

Thinking about buying a home from someone you are related to or do business with? FHA will allow FHA financing on the property, but under certain circumstances and with some modifications to typical FHA rules.

Generally speaking, if you are buying a home from someone you do business with or are related to, FHA will allow a maximum loan-to-value of 85% unless the circumstance is one of the following:

• Someone who works for a home builder is purchasing one of the builders new homes to be their primary residence
• Someone who has been renting the property they want to buy for at least 6 months predating the sales contract
• A company transfers an employee to another city, buys that employee’s home and then sells it to another employee
• A family member has rented the property for at least six months immediately predating the sales contract

Identity of interest transactions are typically something that underwriters will look for in the normal course of underwriting a file – and if the property has been a buy-and-flip property, it may come under more scrutiny.   And in the worst case – if you are at risk of being identified as a party to a transaction with identity of interest concerns and want to get FHA financing, be prepared to put more money down.

Identity of interest: it isn’t anything a bigger down payment can’t fix.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Identity of Interest Transactions When Getting An FHA Loan

From time to time, when you are working with a lender to get an FHA loan, a reason arises that you decide you want to work with another lender.  The reason that you decide to work with a different FHA lender once you have started the loan process isn’t all that important, but what happens next can be.

Anytime you start the process of getting an FHA loan with one lender and then decide to switch to another lender, the first lender must actually “transfer” the FHA case number to the new lender by logging into FHA’s website and transferring the case number to the new lender.

It is a simple process really – it takes all of less than a couple of minutes and is usually done by one of the people processing the loan.

When your case number is transferred from one lender to another, typically there are no fees “allowed” (although technically, one lender could collect a lock fee from another) and I haven’t seen any lenders request money to transfer a case number.  The transferring lender will typically provide a copy of the appraisal if requested and will NOT provide any of the processing documents that are associated with the loan unless negotiated by the new lender.

An FHA case number transfer is usually something that is done behind the scenes when you switch from one lender to another – and only occasionally does it need to involve the borrower formally requesting their documents be transferred to the new lender.

But should your new lender tell you that you need to call your old lender and request a case transfer, one thing is certain:

It didn’t go as smoothly as it should have.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

FHA Case Number Transfers

Military communities are booming nationwide, according to a fascinating analysis by USA Today.

Eighty percent of the country’s 20 fastest-growing metro areas in terms of per-capita income have a military base or are near one. The staggering growth in these places represents an burgeoning opportunity for real estate and mortgage folks.

As a demographic, military members have higher levels of homeownership than their civilian counterparts. Thousands of service members are set to return from abroad in the coming months. The vast majority will be able to take advantage of the government’s tax credits for first-time and existing home buyers — eligible service members have until April 30, 2011, to purchase and until June 30, 2011, to close.

Otherwise, the requirements are the same as they were for civilians.

At the same time, military borrowers in these communities may be increasingly better equipped to meet the underwriting rigors that now shape both conventional and government-backed loans, especially VA loans. As USA Today notes, military compensation has consistently outpaced that of federal employees and private workers.

The average compensation for military members in 2009 was just above $122,000, more than double the level at the start of the decade. That figure includes both pay and benefits, which range from health and pension to housing and enlistment bonuses.

Real estate agents who can cater to this deserving demographic can carve out competitive advantage in these communities. The growing need for off-base housing and temporary housing also represents an opportunity for investors.

The military continues to hit or even blow past its recruiting goals. Real estate and housing needs are only going to intensify in the coming months and years in these communities.

Image: Allan Ferguson

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Booming Military Towns Present an Real Estate Opportunity

I didn’t realize that underwriters cutting appraisals was still a problem.  I mean, I remember it being a big deal when it seemed that everyone I knew wanted to refinance and take their equity out to spend on whatever they wanted.

But I thought those days were long gone.

Turns out maybe not.

It must still be happening because recently Fannie Mae came out and announced that they are outlawing the practice of appraisal cutting by underwriters.

Appraisal Cutting – How The Game Works

A typical example that shows how appraisal-cutting game works might look like this:

Joe Homeowner wants to refinance his house and take cash out.

• He gets an appraisal done and the appraised value of the property is established by the appraised value of $200,000.
• Old loan payoff + fees for refinance = $110,000.
• 85% of $200,000 = $170,000
• $170k – $110k = $60 available for cash / debt consolidation / whatever

The deal is put together by the loan officer and turned into underwriting. The underwriter might look at the deal and decide (for whatever reason) that they don’t like the appraised value and somehow decide that the property is really only worth $190,000.

So because the new underwriter said so, the appraised value of the property is now $190,000.

What does that mean to Joe Homeowner who thinks that he is going to get $60,000 in cash to do whatever he wants with?

It means that the new calculation looks like this:

• $190,000 x 85% = 161,500
• $161,500 – $110,000 = 51,500
• $51,500 < $60,000 by $8,500.

So just because the underwriter had a hunch/feeling/idea that the property should be worth less than what the appraiser thought Joe Homeowner gets $8,500 less than he thought he would get.

Appraisal cutting.  It is a good thing it doesn’t happen anymore – there were quite a few surprised Joe Homeowners when they got less than they thought they would.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Fannie Mae Outlaws Appraisal Cutting

Many people have money set aside that can help them buy a home or save their home – in a spot they don’t think they can access easily.

When times get tough, many people will drain their savings accounts and checking accounts of their savings – but I don’t hear very many people asking me about the right way to utilize their individual retirement account to combat a financial crisis.

As a general rule, I am not a big proponent of taking money out of a retirement plan – especially if you do this before it’s time; time being you are 59 1/2 years of age.

That said, I think there are some instances when it might make sense to tap into your individual retirement account to correct your financial situation.

The first such instance in pulling money out of a retirement account would be in the event that you are a first time buyer. In certain instances, the IRS allows for IRA account withdrawals of up to $10,000 for buying a first home without penalty. In the case that you don’t want to drain your checking and savings, or you haven’t saved enough in those accounts, using money from your individual retirement account may make a lot of sense if you can get access to this money without penalty.

The second instance where tapping into your retirement account may make sense has to do with being a homeowner. If you have gotten behind on your mortgage payments because of financial hardship due to a medical condition you may be able to pull money out without penalty if you meet certain requirements. In some cases if your physician has declared that you are not able to do any gainful or substantially gainful activity because of your physical and/or mental conditions you may be able to withdraw money without penalty from your individual retirement account(s).

Does it make sense to withdraw money from your IRA to buy a home or to save your home from foreclosure?

Maybe.

Be sure to consult with your financial advisor for a professional opinion.

Disclaimer: I am not a licensed financial advisor, attorney, accountant or anything else that should make you consider this to be official financial advise.  Be sure to check with a licensed professional for your situation.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Using An IRA To Save Your House

If you are looking at buying a (big) home and possibly financing it with a jumbo loan, this may be your lucky day if you have documentable income and a good credit score…

Interest rates on jumbo loans are at their lowest levels since 2003.

So for those borrowers who are shopping for houses that are above the conforming loan limit that have a good job, good income and a healthy down payment – you are about to save a lot of money each month on the amount you finance in interest.

Courtesy WSJ

According to the WSJ:

Just a year ago, the average rate on a 30-year jumbo mortgage—a loan of more than $729,750 not backed by government-sponsored agencies Fannie Mae or Freddie Mac—was 6.86%, according to Greg McBride, a senior financial analyst at Bankrate.com. Now it is 5.48%—a rate that rivals those available during the height of the credit bonanza.

“In just the past couple of months, jumbo loans have really started to be competitively priced,” says Keith Gumbinger of HSH Associates, a publisher of consumer-loan information.

The recent low rates on jumbo loans has caused an uptick in refinancing activity – with some jumbo lenders reporting that jumbo refinancing up as much as 50% vs. what it was last year.

How Much Can You Save?

The more money you borrow, the more you can save when it comes to reducing your interest rate.  For larger loan amounts, it isn’t uncommon for borrowers to save thousands on their monthly mortgage payment simply by reducing their interest rate a point (or two!).

A simple example used in the WSJ article pointed out that for a  homeowner with a 30-year fixed-rate $800,000 mortgage at 6.86% pays $5,247 a month. If he were to refinance at 5%, his monthly payments would be reduced by $952.

Jumbo Lenders: Harder To Find

It used to be that you could throw a rock and hit 3 subprime mortgage brokers, 1 FHA mortgage broker and 1 jumbo mortgage broker – all with the same rock on the same throw.  But as industry regulations have tightened up and mortgage loan officers have been reduced in numbers, finding a loan officer who has experience with jumbo loans may be tricky.

A few good places to start to look is at the bank where you currently bank to give you an idea of what is possible – and then to follow up with a Realtor who can give you a recommendation of a great loan officer who works at a mortgage bank in your local market.  The difference will be that your current bank can offer you their products and the loan officer at the local mortgage bank can usually offer you mulitple banks jumbo products.

But no matter where you get your jumbo loan, one thing is certain:

Rates on jumbo loans haven’t looked this good since 2003.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Interest Rates On Jumbo Loans At 2003 Levels