Archives for January 2012

President Obama’s Latest Proposal and It’s Effect On Investment Property Loans

Some potentially good news for those looking to refinance existing investment property loans

In his State of the Union speech last night, President Obama offered up a new proposal for helping the current housing crisis. While designed specifically for home owners, property investors who rent out part of their homes could take advantage of the new legislation if it were to get Congressional approval.

The hallmark of the new law would be to help out those whose mortgage debts are greater than the value of their properties. The program would benefit those who have continued to make payments on their existing mortgages, whose properties are not already in foreclosure proceedings, and who currently do not have loans backed by the government.

A potential windfall for some property investors

On the surface, Obama’s latest proposal appears to be a boon for property investors already living in their own multi-family homes that are currently under water, whose mortgages are held by private companies. Eligibility for refinancing existing loans that are held by either Freddie Mac or Fannie Mae was increased last October to help those property owners whose homes were already under water. And those changes did not require any Congressional approval. However, this proposal does, since the loans will be backed by the Federal Housing Administration (FHA).

Many owner-occupied property investors have taken advantage of historically low mortgage rates by refinancing their investment property loans in the past year. But others are still unable to do so because they don’t qualify for refinanced mortgages, due to their mortgages exceeding the value on their properties.

Requiring legislation

The new proposal by Obama will require legislation since the FHA is currently prohibited from making refinanced loans on properties that exceed the value of the owner-occupied property investor’s house. These types of loans are inherently of greater risk, mainly because the property owner has no further equity remaining in his house. So if the FHA were to not be paid back on any new loan due to this proposed legislation, taxpayers would have to bail out the FHA.

As part of the new law, and since the FHA currently has so few reserves, Obama is proposing that any potential default costs due strictly because of this program be covered through new fees to be levied on the banking industry. The Republican-controlled Congress will be a large obstacle in getting this legislation passed given the current antagonistic political climate in Washington. For now, it’s wait and see…

photos courtesy of outcomemag.com, articles.sfgate.com, justinperry.net, myweathertech.com

Investment Property Finance Update: Easy Credit Score Tune-Ups

Keeping score of the game – the FICO score

With the average 30-year fixed rate mortgage hovering around a 3.65 percent interest rate right now for investors with the highest FICO (Fair Isaac Corp.) scores, it’s a good time to review how to tune up your credit score to help qualify for the best rates.

As a reminder, FICO scores were created to measure an individual’s financial fitness. The score ranges between 300 and 850, and is used by the vast majority of lenders in the U.S. While there are other scores used by banks, FICO is the lending industry standard for assessing overall credit risk. The main use of this scoring tool is to simply show the risk of possible default by any individual borrower.

Who qualifies for the best mortgage rates

Before the financial meltdown of the last several years, FICO scores of 720 and above were considered uniformly as the scores that would qualify borrowers for a bank’s best mortgage rate. But more recently, that number has been pushed upwards, and now 750 and above tends to be the new standard for qualifying excellence. About a third of U.S. consumers fall into this top-ranked category, while the median FICO score was 711 last year.

So naturally, as part of your overall investment property finance plan, you’ll want to check your credit score to see where you’re positioned before applying for any new mortgage. You can find yours through sites like freecreditscore.com or freescore.com. If you’re already at 750 or above, trying to improve your score will be a pretty fruitless endeavor, since lenders don’t really create a pecking order of default riskiness once you’re in the top echelon, and you’re showing the least borrowing risk. However, the goal for most will be to try to take some easy steps to help improve your overall FICO number.

Try these simple, easy credit score tune-ups:

Pay your credit card bill early

That is, pay your bill several days before your statement closing date each month. (This is not the statement due date!) Paying early will ensure you show a zero balance going into your next statement period.

Try to get any late payments removed

First, make sure there are no errors, and second, if you did unfortunately make a late payment, simply ask to have it removed as a “one-time-only” courtesy. If your credit card company says no, well, at least you tried…

See if your credit card company will increase your credit line

Remember, you’re seeking an increase to ultimately boost your FICO score – not to actually use the increased credit line! This is accomplished by helping your “utilization” ratio, which weighs the amount of actual debt you have outstanding with the total amount of credit you can actually use on any given card.

Apply for new credit cards sparingly

Each time you apply for new credit, your FICO score will drop a little bit. So avoid applying for a credit card for every store you walk into that’s offering a “10% off” promotion if you sign up for one of their store cards on the spot.

Don’t close old, unused accounts

Even if you haven’t used a credit card in some time, do not close the account. By remaining open, the available credit line helps to effectively lower your utilization ratio (mentioned above), and your FICO score won’t be adjusted downward.

Set up automatic bill payments

Good, on-time payments can help bump up your FICO score, by as much as 50 points if done regularly on all your cards for at least six months. If you don’t like the concept of automatic deductions, you can arrange for your credit card company to send you timely email alerts as payment reminders.

Pay down some debt

If you receive a windfall, tax refund, bonus or the like, consider making a sizeable dent in your debt load. Any outstanding debt over 35% of your existing credit line on any one credit card will drag your score down. However, paying the debt down to get the ratio under 35% will yield a nice boost to your FICO score.

The key to your bottom line

Try utilizing some or all of these credit score tune-up tips, and get your FICO score up over that 750 mark. That way, when you next apply for investment property financing, your score will help qualify you for the bank’s best mortgage rates, ultimately either saving you money on a monthly basis, or allowing you to purchase more house for the money.

photos courtesy of anchoragehomesearch.com, lgfcunewsworks.org, infinitecredit.com, southwaterfront.com, credit-qna.com, money.cnn.com

Buy Investment Properties Now

OK – now the writing’s officially on the wall

With the latest events in the Euro zone, it’s time to flip the calendar, and look at 2012 in a fresh new light. For real estate investors in the U.S., it’s definitely time to hurry up and act by locking in property purchases before (in the inimitable words of Jim Morrison) “the whole shithouse goes up in flames.” That is to say, before lenders tighten credit to record levels here in the U.S. in response to the coming overseas recession. I for one see the nasty effects of the European sovereign debt crisis hitting our shores by late this year.

Why am I so pessimistic?

Well, in the past several days European investors showed a high level of concern over the safety of their money in European countries. They did so by purchasing six-month bills on German debt that carried a small but negative interest rate. That’s right – overseas investors are now willing to lose a little principal on their investments in the short run just to protect themselves from further economic deterioration, and the potential for far greater losses.

It’s now been shown that Germany, Switzerland and the Netherlands are currently the most stable of all the economies in Europe. And investors are scared enough to lose a little money buying up debt in these three robust economic countries, rather than take their chances on Greece, Italy, Spain and other European Union countries that are so economically fragile right now.

The latest talks…

Further talks are scheduled this week between Germany and the head of the International Monetary Fund, Christine Lagarde, as well as leaders from France and Italy. These talks are designed to bring about more consensus on a plan to keep Euro zone countries from seceding from the Euro’s usage.

Unfortunately, the latest economic data shows further leveling off in European Union countries during 2012, if not a complete fall into recession. In all, it is estimated that European countries will need to raise the equivalent of roughly 2.4 trillion dollars this year just to stay afloat. Needless to say, it’s a daunting task, given the tremendous fears of overseas investors.

The bottom line for property investors

So as much as I would like to hope for and see a positive outcome from the latest talks, as well as an increased economic stability throughout the Euro zone and European Union countries, investors buying debt at negative interest rates are just too big a smoke signal to ignore.

Protect yourself. Buy investment properties now. Don’t be so concerned with obtaining the greatest, absolute rock-bottom price you can get on your investment real estate. Just make sure you invest in positive cash flow income-producing properties while you still have lenders here in the U.S. willing and able to offer mortgages. Believe me, by this time next year, you’ll be sorely missing the leverage you’re able to obtain right now, with mortgage funds that are still available in 2012.

Photos courtesy of nmnewsandviews.com, the666.com, eurocoins.co.uk, senegal-business.com, mediacenter.dw-world.de

Tips For A Trouble-Free Investment Property Mortgage Process

Consider some of these tips for a painless investment property mortgage process:

#1 – Get a pre-approval letter

Before you go out looking for your next investment property, always obtain a pre-approval letter from a lender first. This way, if you find a property you want to make an offer on, you can act quickly, and make the offer with your pre-approval in hand. This always makes your offer stronger and more appealing to any seller.

#2 – Work with only one lender

For best results, work with only one lender/loan officer over and over again. You’ll find each succeeding mortgage loan application will get smoother and smoother.

#3 – Make your lender your “partner”

Tell the loan officer or mortgage broker what you’re trying to accomplish with your next investment property acquisition. Make them your de facto partner. You’ll find that in short order, you will develop a nice, quick “shorthand” relationship with them. And they will be able to help cut down on your overall paperwork, as well as speed up the loan approval process for you. In addition, they can foresee any potential underwriting problems from the bank’s perspective, and either offer you tips on how to correct these issues, or advise you to not waste your time applying for a loan at this time.

#4 – Know the score – your score

Always know your credit score. Periodically check it, and double check it with each new investment property you acquire. Consider it like taking your financial pulse.

#5 – Keep good books

Get in the habit of keeping excellent bookkeeping on all of your investment properties. Think about your next mortgage application, and what the bank will require on it. It’s best to constantly be updating your income statements for each property, so you won’t have to scramble to look up records when you want to move quickly to place a full loan application. Keep in mind that your mortgage loan officer can help you with how best to present it on any new mortgage paperwork.

Also remember that banks traditionally will not use 100% of your overall rent roll when considering your income. Most will ascribe only 75% of your gross income before expenses for each of your rental properties. They do this to lessen their overall risk in deciding whether to offer you their mortgage.

#6 – Use an all-in-one lender

Work with a lender that does it’s own in-house loan processing and underwriting. Your application may be moved along faster. But more importantly, any problems that arise as to accuracy of information or grey areas can be dealt with more directly by your loan officer when it’s all handled in the same company.

#7 – Understand the mortgage process

After your loan officer takes your completed application, it will go to loan processing. As the next step in the approval process. Loan processors are the nuts and bolts operations of any bank. Processors are responsible for checking and re-checking for accuracy all statements and numbers you put down on your mortgage application. Does your actual income match up with your stated income? Are the value of your assets truly what you claim? Are your debts exactly what you’ve represented on your application?

The amount of checking work done for any application is voluminous, and must be done thoroughly and accurately to insure the bank’s decision to offer you credit is based on reality. (Yes, today’s version of lender fact-checking is a far cry from what occurred during the heady years just before the great financial meltdown, beginning in 2008.)

#8 – And understand the underwriter’s role

Once your loan has gone through loan processing, it next goes to underwriting for an ultimate decision as to whether to make the loan to you or not. A loan underwriter’s chief concern is keeping the bank safe. Unlike your mortgage loan officer, they are not paid on commission, so they have no financial interest in whether the bank makes the loan to you or not.

Their main goal is to ensure safety for the bank’s lending position in all it’s mortgages, while at the same time allowing the bank to grow by approving relatively safe loans. (Of course, there is no such thing as a risk-free loan from the perspective of the lender. But the loan underwriter tries to straddle the opposing objectives of total safety and growing the bank’s business.)

#9 – Avoid a disapproval ahead of time

Once you’ve gotten an approval by loan underwriting, the bank’s attorney is given an all-clear to close, and a closing date can be set up with all the attorneys involved in the transaction. If you get denied the loan, always ascertain why. (Of course, if you’ve been using the same loan officer on many occasions, the likelihood of being denied is greatly reduced – they won’t let you waste your time applying if they think there’s going to be a problem.)

These days, the biggest issue facing investors is an appraisal on the subject property that comes in too low. It’s always best to make sure your lender is using a local appraiser before placing your application, and doing your appraisal. Now more than ever, appraising is an art that demands an extreme knowledge of the local area where a property is being appraised, in order to get truly accurate appraisal valuations.

photos courtesy of mediafire4u.com, khicorner.blogspot.com, answers.yourdictionary.com, startbookkeepingbusiness.net, psdgraphics.com, ocdwellings.com, ehow.com, appraiserjobs.com