Do great rates and great service fail to impress you? Well you are not alone. We are in a time where you need to find out who can create value with their services and ideas. And what I mean by value is, attracting customers. A good number of investors plan to sell their property at some point and awareness of loan programs can help your potential sell.

Here are a few loans of value over the last few years:

• 100% purchase, non-owner, stated income, interest only
• 1% pay option ARM
• 100% cash out refinance
• 100% Jumbo Loans

There is great debate on whether these loans are good loans, but few can argue these loan did attract customers for Realtors, Builders, and Mortgage Companies.

What are the next generation of loans to attract customers?

• 3-2-1 buy-down
• PITI Abatement
• FHA/VA
• My Community
• Credit Repair

One might say that 2008 is the year of government backed mortgages. All the loans high lighted above are directly tied to the government through Fannie Mae, Freddie Mac or FHA/VA. Unfortunately the line is drawn right at $417,000 and some high cost areas have limits as high as $729,750.

3-2-1 Buydown
Sellers and Builders can use a temporary 3-2-1 and 2-1 interest-rate buy-downs as a sales incentive. In a 3-2-1 buy-down, the interest rate is reduced by 3 percent the first year, 2 percent the second year, and 1 percent the third year. A 2-1 buy-down lasts for two years, with a 2 percent reduction the first year and a 1 percent the second.

The 3-2-1 Mortgage Buydown

• This is a 30-year fully amortized mortgage.
• The interest rate increases 1% every year for the first three years.
• Then the interest rate is fixed for the remaining term.

Here is how it works. Your loan balance is $375,000 and the interest rate is fixed at 6.5% for 30 years. The seller incentive could buy down the interest rate by paying a lump sum of $16,764.

1. First-year interest rate is 3.5%, payable $1,684 per month.
2. Second-year interest rate is 4.5%, payable $1,900 per month.
3. Third-year interest rate is 5.5%, payable $2,129 per month.
4. Years four through 30, interest rate is 6.5%, payable $2,370 per month.

• First-year savings (as compared to $2,370 per month) is $686 per month or $8236.
• Second-year savings (as compared to $2,370 per month) is $470 per month or $5642.
• Third-year savings (as compared to $2,370 per month) is $241 per month or $2,892.

Add up the annual savings: $8,236 + $5,642 + $2,892 = $16,770. Therefore, it costs $16,764 to buy down the interest rate and payments for three full years. It costs approximately 4.5% of the loan amount to buydown.

Benefits of 3-2-1 Mortgage Buydown

• The borrower qualifies for this loan at the 3.5% interest rate and payment amount of $1,684 versus the real rate of 6.5% and the payment of $2,370.
• Instead of the payment jumping all at once, it goes up in smaller increments, about $200 each year, for the first three years.
• It keeps payments low for 36 months for borrowers whose income is expected to later increase. Perhaps a spouse is returning to work after a hiatus or a person expects to graduate and land a higher paying job with that newly earned degree.

The 2-1 Buydown Mortgage

• This is a 30-year fully amortized mortgage.
• The interest rate increases 1% every year for the first two years.
• Then the interest rate is fixed for the remaining term.

Here is how it works. Say your loan balance is $350,000 and the interest rate is fixed at 6.5% for 30 years. The seller’s incentive could buy down the interest rate by paying a lump sum of $8,063.

1. First-year interest rate is 4.5%, payable $1,773 per month.
2. Second-year interest rate is 5.5%, payable $1,987 per month.
3. Years three through 30, interest rate is 6.5%, payable $2,212 per month.

• First-year savings (as compared to $2,212 per month) is $439 per month or $5,268.
• Second-year savings (as compared to $2,212 per month) is $225 per month or $2,700.

Add up the annual savings: $5,268 + $2,700 = $7,968. Therefore, it costs $7,968 to buy down the interest rate and payments for two full years.

This loan program can help more individuals qualify from and income documentation stand point.

PITI Abatement
What is PITI Abatement?

• An incentive to the buyer to have the first 6 months of the mortgage paid by the seller.
• PITI Abatement program is a product designed specifically for home-buyers. You can give a 6% Seller Contribution that can be used for Principle, Interest , Taxes and Insurance payments.

What are the General Guidelines?

• Loan amounts up to $417,000
• Up to 100% of the purchase price (5% reduction for declining markets)
• Minimum score of 575
• Fixed Rates and ARMs
• Interest Only is available
• Income limitations may apply
• Closing costs can be paid by seller too
• No prepay penalty

What is the Realtor marketing element?

• 6 MONTHS PAID!
• BUY THIS HOME AND I WILL PAY YOUR FIRST 6 PAYMENTS
• 6 MONTH PAID MORTGAGE INCENTIVE
• BUY MY HOME AND I PAY CLOSING COST AND 6 PAYMENTS

FHA Loans

FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so your lender can offer you a better deal.

• Low down payments
• Low closing costs
• Easy credit qualifying

Benefits for your buyer·
Your down payment can be as low as 3% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.

FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan. Sellers and investors should be aware that FHA requires 90 days of season ownership of a seller in orders for a buyer to use a FHA loan.

What is the Realtor marketing element?

• FHA can provide 100% Financing when combined with gift, grant or down payment assistance program
• One loan with low fixed rate

  My Community Mortgage

  What is My Community Mortgage?

  • A conforming affordable housing program offering high loan-to-value/combined loan-to-value financing for income-eligible borrowers
  • Government backed mortgage program

  What are the General Guidelines?

  • Loan amounts up to $417,000
  • Up to 100% of the purchase price (5% reduction for declining markets)
  • Minimum score of 575
  • Fixed Rates and ARMs
  • Interest Only is available
  • Income limitations may apply
  • Closing costs can be paid by seller too
  • No prepay penalty
  • Allows “roommate rent” for income qualification

  What is the Realtor marketing element?

  • Automated underwriting = more approvals
  • Government backed loans available
  • Let us pay your closing costs

  Having all the tools to properly sell your property can be critical.

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Tags: cash out, community first financial, home buyer, home loan, jumbo loan, loan, Mortgages, option-arm, refinance loan, troy schuricht

Stated income loans have been a touchy subject for many regulators trying to blame some one for the mortgage meltdown. Some individuals go as far a calling these loans “liar loans” because in a number of instance the income was inflated. Right or wrong there is a need for stated income loan. Self-employed individuals see the biggest benefit from stated income loans, but as lending guidelines have tightened up over the last year, so has the language of the stated income loans. Stated Income Loans have now transformed into Asset Based Stated Income Loans. With these loans underwriters are now paying careful attention to assets, employment history, and reason ability of stated income.

For investors this will become very important because individual now will need to have legitimate companies with web sites, yellow page ads, and internet presence. They will also need to create cash reserves to help substantiate and protect their stated income amount. The other alternative is to use tax returns to qualify and for those that like to write off as much income as possible this can be a dead end.

Asset Based Stated Income Loans are ideal for self-employed/salaried borrowers with excellent credit. No tax returns or other written verification of income. Assets are required to be verified with at least two months statements.

What is often required for a stated income loan:

1. ASSETS - Liquid assets are now required to equal at least 6 times your stated income. If you state that you make $10,000 per month we will require at least $60,000 in your bank accounts.
2. EMPLOYMENT HISTORY – We look for individuals to be self employed or 1099 income for at least 2 years. We require a business license or a letter from your CPA verify your employment history.
3. REASONABLITY – If your income is over $25,000 per month underwriter will look to substantiate the dollar amount. They will look for your sources of business. Items like a website, yellow pages, dex pages, magazine advertising, and new paper ads are resources an underwriter looks at to determine the scale of your business.

Asset based stated income loans are designed to utilize verified assets to support the income stated on the application.

Tags: asset based stated income loans, financing investment properties, investment loans, mortgage meltdown, state income loans, troy schuricht

Negotiating the terms of your loan can be as important as negotiating the sales price of your new investment property. Interest rates and closing cost a huge part of cash flow and return on investment, with the proper due diligent and negotiations, investors can be rewarded on every real estate transaction.

What can actually be negotiated?

Closing costs and interest rates are probably the first thing investors try to negotiate, but there are others like, time, appraisal and title, volume discounts and pre-payment penalties.

Some investors have lots of money, but very little time, ask about streamline refinance and purchase transactions. They may require more money down, but less documentation and are very quick loans to complete. In some instances it can take half the time as a normal loan.

Just about everyone in real estate is looking for business. Appraisers and Title Companies are no different. I personally have renegotiated my fees with all the vendors I utilize and in turn passed that saving to my investors. Rates have been so good the last few months I had to reduce the cost of refinancing so my investors can break even quicker on their refinance costs.

I am a firm believer in building your power team, remember a loan officer should be part of your team, and ask for discounts only if you can offset that with volume or multiple transactions. Most investors realize that a good relationship with their loan officer usually saves either time or money, sometimes both.

Those investors that are holding on to the property long term ask if there is a prepayment penalty that will help lower your interest rate. Three year prepayment penalties are common on the right loan and could reduce the interest rate .5%-.75%. This is a situation you should have a clear exit strategy. If you try to sell or refinance before the penalty is expired, it could cost you up to six months interest.

Remember, there more than one way to save money in real estate and there is no reason you should not use all of them.

Tags: closing, closing costs, escrow, Interest Rates, Investor Loans, loan, mortgage, real estate, title, troy schuricht

1. What is the process for Hard Money Loans?
   Hard Money Loans provide Investors access to capital to purchase investment properties. They can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

2. What is the interest rate?
   The interest rate depends upon the Lender. The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.

3. What Loan-to-Value are Hard Money Lenders looking for?
   Typically a loan does not exceed 70% of the after-repaired-value (ARV). This figure is calculated by an appraiser and consideration of repairs.

4. How long is the loan for?
   Typically write the notes from 3 months to 12 months depending on the Lender and your needs. Longer the term can lead to increased costs or interest rate.

5. What are the costs?
   All loans will require Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 2 to 10 points.

6. Can I get money pay for repairs?
   Yes. Most Lenders require a “Draw Request” form to be filled out to identify the completed repairs to the property, copies of the invoices from the contractors or sub contractors. After work is inspected, draws can be dispersed. Typically work is not paid in advanced.

7. Does my credit matter?
   Maybe. Hard Money Lender do check credit, not necessary for credit scores, but to check for bankruptcies, foreclosures, charge offs and collections. They look for ability to repay. The loan is more collateral based, which means they look really closely at the property.

8. Do I need to put any money down?
   In most cases, Yes. Most lenders want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Expect to pay all origination/discount points and other costs at or before closing. If you cannot afford to close you typically cannot afford to take out this type of loan.

9. Can interest to be deferred to the end of the loan?
   Sometimes. Most have interest payable monthly. Again, if you cannot afford to close you typically cannot afford to take out this type of loan.

10. How does Hard Money compare to a traditional non-owner occupied investor loan?
    This would be like comparing apples to oranges. Hard Money has a very specific purpose. Typically these loans are for quick turn around or after repair situations. Conventional financing is used for your traditional rentals and long term hold scenarios. As the foreclosure market increase you will find investors to use Hard Money as way to secure the property in a short period of time then refinance into Conventional finance.

Tags: After Repair Value, ARV, community first financial, Conventional financing for investors, Hard Money Loans, HML, Investor Loans, troy schuricht

Fannie Mae & Freddie Mac Mortgages

Nearly every Bank, Credit Union, Mortgage Banker and Mortgage Broker can offer the loan products backed by the federal charted companies Fannie Mae and Freddie Mac. Investors that have good credit, can document income and are ready to put money down can acquire a loan from either Freddie or Fannie. Investor’s utilize this loan because they are the most competitive loans when it comes to interest rates and closing. These loans are underwritten through an automated system which takes credit, assets, loan to value, and debt ratios into consideration. Because the loans are underwritten by a computer there are certain compensating factors that can help approve your loan. Let’s say Joe investor has ok credit, high debt ratios (60%), but has lots of reserves and can put 30% down. They could approve this borrower because there are assets reserves to compensate for his high debt ratios and just ok credit. Believe it or not Freddie Mac even has a Stated income program. That’s right, a federal charted company has a stated income program. It truly is designed for self employed borrowers, but salaried individuals can use it as well.

Below is a thumb print of what you can expect from Freddie Mac on investment properties:

Full Documentation: Ideal for borrowers looking for conforming loan amounts who have good credit and assets:
1 unit: 90% LTV / 85% 1st Lien / 90% TLTV - $417,000
2 unit: 90% LTV / 85% 1st Lien / 90% TLTV - $533,850
3 unit: 75% LTV / 70% 1st Lien / 75% TLTV - $645,300
4 unit: 75% LTV / 70% 1st Lien / 75% TLTV - $801,950
Cash Out 1 unit: 85% LTV / 80% 1st Lien / 85% TLTV - $417,000
Cash Out 2 unit: 85% LTV / 80% 1st Lien / 85% TLTV - $533,850
Cash Out 3 unit: 70% LTV / 65% 1st Lien / 70% TLTV - $645,300
Cash Out 4 unit: 70% LTV / 65% 1st Lien / 70% TLTV - $801,950
Not available IO

Stated Income: Ideal for self-employed/salaries borrowers with excellent credit. No tax returns or other written verification of income. Assets are required to be verified.

1 unit: 90% / 90% - $417,000 - 720 75% / 90% - $417,000 - 680
2 unit: 90% / 90% - $533,850 - 720 75% / 90% - $533,850 - 680
3 unit: 80% / 80% - $645,300 - 720 75% / 80% - $645,300 - 700
4 unit: 80% / 80% - $801,950 - 720 75% / 80% - $801,950 - 700
Cash Out 1 unit: 75% / NA - $417,000 - 680
Cash Out 2 unit: 75% / NA - $533,850 - 680

A-minus; Ideal for borrower who don’t meet “A” paper credit standards. Allow borrowers to obtain a conventional product at a slightly higher rate.

1 unit: 90% LTV/85% w/sub. financing/90% TLTV - $417,000
2 unit: 90% LTV/85% w/sub. financing/90% TLTV - $533,850
1 unit:* 90% LTV/85% w/sub. financing/90% TLTV - $417,000
2 unit:* 90% LTV/85% w/sub. financing/90% TLTV - $533,850
3 unit:* 75% LTV/70% w/sub. financing/75% TLTV - $645,300
4 unit:* 75% LTV/70% w/sub. financing/75% TLTV - $801,950
Cash Out 1 unit:* 85% LTV/80% w/sub. financing/85% TLTV - $417,000
Cash Out 2 unit:* 85% LTV/80% w/sub. financing/85% TLTV - $533,850
*Borrowers may not own any other financed investment properties

This is great news for the investors that rely on the Fannie Mae and Freddie Mac loan products to finance your properties. Rates are down and Congress has passed legislation to increase the minimum loan about. The details are currently be worked out but some figures are has high has $739,000 in some markets. This increase will only be for 2008

Tags: community first financial, Conforming loan amount increase, Fannie & Freddie Mac Loans, Investor Loans, Stated Income investor loans, troy schuricht