Residential Loans Still Difficult for Some

It’s been two long years since the mortgage meltdown took full effect on the economy.  Many continue to bemoan the problems of the market.  Politicians point to the greed of Wall Street and the ‘evil’ bankers, but this jockeying for political gain and use of this crisis to foment class warfare misses a larger point.

The collapse of banking caused the recession and the only thing is going to truly lift us out of the recession is fixing the problem that caused the collapse in the first place.  For many Americans, we could care less about the petty power struggles of the ‘parties’, all we want to do is live our lives and be happy and free.

So what’s the answer?  For those Americans struggling with how to buy a home or how to refinance their current underwater loans there are few good answers.  One bright sign is that the government is finally making a solid attempt at fixing the Mortgage Modification process under the HAMP program.

If you are one of the many people who have attempted a modification and were not succesful, now may be the time to try again.  There are some things you should be wary of and things you should do:

1.  Never pay a fee upfront for the services. The reputable service providers will typically charge a fee as a percentage of the savings and that fee is usually charged at the end of the process.

2.  Avoid MLM style providers.  Time has proven that these companies don’t provide much in the way of help and can be a huge waste of time.

3.  Thoroughly check references!  Ask if you can speak with their clients and ask to speak with those that were successful and those that weren’t.

Now is the time to restart your process.  I know it’s frustrating but you an American!  We persevere, we endure and we move forward at all cost!  There’s your prep rally speech!  Now get out there and get it done.  Good Luck!

SCORE a Meeting

SCORE “Counselors to America’s Small Business” is a nonprofit association dedicated to educating entrepreneurs and the formation, growth and success of small business nationwide. SCORE is a resource partner with the U.S. Small Business Administration (SBA).

Anyone considering starting, expanding or purchasing a business should avail themselves of this free service.  SCORE councilors are very experienced, retired business men and women who give wonderful advice.  Before taking the leap to start the business visit a SCORE office.

After you take the advice of the SCORE corp of professionals it is time to check out a lendr to get an SBA loan.  Remember that SBA doesn’t actually make the loan.  The loan is made by a participating lender.

When starting a business you will need a lender that closes SBA 7a loans and when expanding a business you will need a SBA 540.  To get information on how to get your SBA loan started just ask Mortgage Answer Guy.  http://mortgageanswerguy.com then click on Ask?

Upside Down to Right Side Up!

The big question I receive a lot these days seems to revolve around the fact that many people owe more on their house than it is worth.  They make their payments on time and they do all the right things but they can’t seem to refinance because there is no equity in there home.

The good news is this, if your loan was originally sold to Fannie Mae or Freddie Mac you can refinance.  Refinancing a Fannie Mae loan is slightly easier but their LTV requirement is tighter.  Fraddie Mac allows a greater LTV differential but they are more restrictive on how you go about getting refinanced.

Let’s take a quick look at the differences:

Fannie Mae:  If you have a Fannie loan you can refinance with any company that sells loans to Fannie.  You are limited to 105% LTV but as long as you have been making your payments on time you can refinance without regard to income, assets or current credit score.

Freddie Mac:  If you have a Freddie loan you refinance even if your loan balance is up to 125% of the current value of the home.  That is a huge help in some markets!  However, it is tougher to get the refinance completed because you MUST go through your current lender for the refi.  The big complaint is that these lenders are not providing good customer service and it is very, very hard to get a call back.

So What is Next:

The first thing anybody needing a refinance to lower their mortgage payment should do is determine if their loan is a Fannie or Freddie loan.  The U.S. Government has set up a web site that will direct you to the appropriate sites for you to investigate who holds your loans.  Just go to http://www.makinghomeaffordable.gov/loan_lookup.html

Once you have completed the search and have determined who your loan is held by you are ready for step two.  If your loan is held by Fannie Mae you are in luck!  You can go to any lender that sells loans to Fannie Mae and apply for a loan under the Making Home Affordable program.  Just make sure to inform the loan officer of your situation.  If the L.O. doesn’t understand what program you need then move on!  Find one that does!

If your loan is held by Freddie Mac then you are in for a challenge.  You will need to set aside about 4 hours.  Call your lender’s customer (no)service number.  Start with he (no)service representative that answers the phone and don’t take ‘No’ for an answer.  Climb the ladder from rep. to supervisor to manager until someone tells you how to appy for the Making Home Affordable refinance program.

If you find that your loan was not sold to Fannie or Freddie then you have to go a completely different route.  You will more than likely need to seek a Loan Modification attorney to assist.  …But that’s a different post all together…

….Coming Soon…. Loan Mods – Who to Choose

The Loan Application

There is no other thing in the world that strikes fear into mankind when they are searching for a mortgage than to hear the ominous phrase; ‘I need you to fill out the loan application…’ dunt-dun-don!

But have no fear; the loan application is an easy thing to do if you just take the time to prepare before you get started.  The 1003, as we call it in the industry, is really a logical progression of who you are financially.  It is divided into sections in a pretty systematic way.

The first section is about you?  Who are you?  Name, Social Security Number (SSN), phone numbers, addresses …all pretty simple stuff… don’t sweat it! 

Part two of the form is about your work.  In this section you are asked the name of the company you work for, how long have you been there, what the address is and what the phone number is.  Just a hint here, you want the phone number of someone that can confirm you work there and NOT the phone number at your desk.

Special Note:  If you have lived or worked somewhere less than two years, you’ll need to provide your previous address and/or previous employer information.  No big deal!

So far this all pretty simple stuff, (where do you live, where do you work), notice how it follows a logical progression?  Now comes the part that starts to scare people, the financial stuff.  This is where a little early preparation comes in handy. 

The Prep Work

To prepare for this section you need to do a little research.  Gather up the following items…  Go ahead and do it, I’ll wait right here …. Do-da-do, da-da-da … you still here?  Go on, I’ll be here when you get back…  Oh, the list.  Here you go:

1. You will need your most recent paycheck stub or, if paycheck stubs are not available, your past years W2 or 1099 will do.
2. Gather your most recent asset statements.  Asset statements are checking account, saving account, 401K, IRA, and brokerage accounts.  Do not worry if you can not find them all, just make sure you gather together most of them and make sure they are the most recent you can find.
3. Collect your most recent Credit Card statements, Car Loan payment coupons and any other loan payment coupons.  Don’t worry about utility bills; you just need information on payments you make on money you have borrowed.

Okay, now that you are back, we can finish up!  By the way, great job, finding all that stuff was the hardest part.

The Money Shot

The next section of the application asks you about your pay.  Many people make their first mistake right here.  Don’t put your gross annual salary or your net monthly pay.  You need to put your gross monthly pay here.  This is critically important so make sure you use your Gross Monthly Salary before any deductions for taxes, retirement or health care.

Next you will list your assets.  This section makes a lot of people nervous because they don’t want people or the government to know how much or how little wealth they have accumulated.  Let me just say this  …Big Brother is watching…

What I mean by this is that the IRS (the government) already knows what you have in your accounts.  It’s just a fact of life.  But, with that being said, the lender does not report any of this information to the IRS.  The information is just used to qualify you for the loan.

The more information you give the lender about how much you have in savings, the more comfortable they will be in making the loan.  Many people want to hold back here.  My suggestion is let it fly!  Be honest and show them as much as you are comfortable putting out there.  The more you show, the easier the loan process will go.

Finally you get to the hard part.  The debt, how much do you really owe?  In this section you want to be accurate.  The lender is not really concerned with the total balance of your debt as much as they are concerned with the minimum payments on that debt.

You don’t have to be exact on the balances on your loans in this section but it is important to be accurate when stating what your payment on the debt is.  Remember, you need to report what the lender says your minimum payment is.  Many people pay more than the minimum and they want to report that, but that causes problems.  Just write in exact payment amount.

There’s More?

Finally there are a bunch of questions about being a legal citizen, having gone through foreclosure or bankruptcy and about being a criminal.  Really, this section is no big deal.  Just check the appropriate boxes, be honest and move on.

The last little piece of business is the signatures and the ethnicity portion of the application.  Many people are afraid to fill this section in.  Just remember, the loan officer has to guess and check boxes even if you decide to refuse to give the information. 

Many people have their reasons for not wanting to fill out this section.  I understand those concerns, but I say fill it in.  …Unless you don’t mind the loan officer guessing your ethnicity.

Well, that’s it!  You are all done.  That wasn’t so bad was it?  Just remember to be prepared and to gather a few documents together before sitting down to complete the application and you will find that what seemed to be a daunting process only takes a few minutes.

Now on to the loan approval…  But that’s another blog.

The 4 Mortgage Rule

There is a lot of confusion out there about the rules regarding the number of mortgages an investor is allowed to have, so I hope to clear it up here.  The rule does not apply to the number of mortgages per se.  The rule applies to the number of financed properties.

Fannie Mae used to say that an investor can only have a maximum of 4 ‘financed’ properties.  Each property can have a 1st mortgage, a second mortgage and a third mortgage.  So technically, an individual can have up to 12 mortgages but only on 4 properties.

Recently Fannie Mae raised the number of financed properties to 10 but lowered the number of mortgages on each property to 2 per property.  However, many lenders have not loosened their underwriting guidelines to match Fannie Mae, we hope that will happen as the economic recovery continues. (written August 7, 2009)

We recently recieved this question from an investor and it fits with the topic of the day:

Thanks for your question.  It is tough for investors right now.  Even though Fannie Mae allows lenders to lend to people with up to 10 financed properties, none have chosen to do so thus far…  That makes situations like yours a little tricky…

You Asked:  I currently have 4 mortgages, and would like to do a cash out refi on #5 and possibly 6. My question is 2 fold: a)Are there any banks lending to someone in that situation? b)If not, what are my other options?

The Answer Is:  You can do a cash-out refinance on properties #5 & #6 but you would have to use some of the funds to pay off the loans on two of the other four properties.  In a perfect world you would owe less on two other properties than the cash-out you would receive on the paid off properties and after paying off two of your other loans you would still have some cash left over.  This would leave you with four financed properties again and some cash in your pocket…  Just a thought…

Let me take your questions A & B in order: 

1. Are banks lending to people with 4 or more financed properties?  The short answer is No, not yet.
2. What are your other options?  I started this answer portion with one option, but I figure that one is a long shot.  The only other options I know of is to find a small local bank that will give you a line of credit and take the two properties as collateral …or… do a blanket loan on the 4 financed properties in order to get them off your credit so that you can do a traditional cash-out refinance on properties #5 & #6.

Blanket Loan:  A blanket loan is one loan that covers several properties.  In other words, the bank uses the collateral of multiple properties to secure a single loan.

Hope this helps!

How Long Must I Own?

Many real estate investors purchase a home and then immediately repair it and attempt to sellthe home to someone else at a higher price.  This quick-turn strategy is often referred to as flipping.  We received an interesting question about flipping a home with regard to length of home ownership.

You Asked?  How long must a person own a home before they can sell it to someone else who wants to purchase the home using an FHA loan?

The Answer Is:  FHA guidelines state that the title must be seasoned for 90 days before they will allow a loan to be made to a purchaser of the property.  In other words, if a person purchase a home and wants to immediately resell they home, they must own it for 90 days.

This guideline is pretty standard accross the board and applies whether the home buyer is using a conventional, FHA or VA loan.  Additionally, if the property is being sold for significantly more than the orginal purchase price the lender’s underwriter may require proof that repairs were made to the home to justify the increase in value.

The Do’s and Don’ts of Home Buying

You’re ready to buy a home?

Before you buy, you need to be aware of the tricks that Sellers, Builders and some lenders play.  You may think that the Listing Realtor of a home you are interested in is looking out for you…..but are they really?  Did you know that the listing agent represents the seller and even though you might call them ‘your’ agent they are trying to get the highest price for the seller? 

How about the builder’s preferred lender’?  Why do you suppose the builder will agree to give you extras and agree to pay the closing costs for you if you’ll take the bait and use his ‘preferred’ lender? 

Today you are inundated with ads and information from all kinds of Associations who claim to have your best interest at heart.  However, many times the only thing on their minds is profits…..exorbitant profits! 

If that weren’t enough to drive you bonkers, you are hammered with a lot of hype from the ‘No Closing Cost’ loan guy that claims to be looking out for you!….right?  Wrong!  In many cases the No Closing Cost loan is a way for a broker or lender to make higher than normal fees on a loan without your knowledge.  (See our post on this blog about No Closing Cost loans to find out if this type of loan is right for you.) 

Many lenders with a No Closing Cost strategy simply hide their fees by raising the interest rate.  Over a period of 5-10 years you could pay double what your closing costs should have been.  The higher interest rate the lender convinces you to take means higher payments and that’s a real cost…..in the thousands of dollars!

So what’s the answer?

Knowledge is the answer.  By knowing a few key facts and asking a few simple questions you can protect yourself during the home-buying process.  Here are some do’s and don’ts.

DON’T – Don’t use a builder’s preferred lender without getting a competitive bid from another lender that you trust. – Many times the builder’s preferred lenders pay the builder huge marketing fees and leasing fees to have the privilege of being called preferred. 

Some builders even own the companies that you are being forced to use.  Even though you may get a lot of perks for using these lenders the rates they charge can be astronomical, sometimes a full ½ percent or more than a typical lender….that’s thousands of wasted dollars over just a few years.

DON’T – Don’t use Realtors that are ONLY concerned with ‘quick’ closings – Why?  Because these unscrupulous agents only want control of the process and don’t care about what is best for you!  After all YOU are the one spending the money so you should be able to have some control over the process. 

A good Realtor will advise you on your options, sometimes a fast closing is the way to get the best price on a home, but in other situations you can take a more normal route and get the best financing available for your transaction.

Bad agents derive a benefit from super-fast closings.   By insuring that deals close quickly, agents turn more property making more money.  Years ago agents wanted to help buyers get the best financing, now all many agents do is refer you to lenders that promise fast closes….not the best rates and lowest fees! 

Who are the Realtors really looking out for you, or themselves?  Make sure you deal with great agents who are professionals and are looking out for your best interest from start to finish!  That will ultimately save you lots of money on your bottom line!

DO – Do get pre-qualified early in the process – Remember that your purchase starts with the financing.  You need to get pre-qualified first, that way you know you’re not spending too much and will not be left house poor. In addition to this, quality lenders (those that understand real estate and the mortgage business) have great relationships with agents that know how to be Buyer’s Agents. 

DO – Do interview your agent and ask these three key questions. –  

1.) Are you prepared to make an embarrassingly low offer without regard to the personal feelings of the seller?  The answer doesn’t have to be an emphatic yes! but you should see a willingness to do what you want and a desire to fight for the lowest price for you. 

2.) Will you demand at every instance that the seller pay the closing costs?  This is critical to limiting your out of pocket expense and helps to insure that every dime you spend goes towards the down payment. 

3.) Do you believe that it is the home inspector’s job to point out every negative issue with a property and then to fight through the negotiation to get the seller to fix all major issues found in the inspection?  You shouldn’t ask the seller to fix minor problems in older homes, but you should expect that the agent will work on your behalf to make sure that major problems are compensated for in all situations. 

** MOST IMPORTANTLY** –

Do ask if you are in a buyer’s or a seller’s market. – Most markets today are buyer’s markets and in a buyer’s market you should be able to negotiate for the seller to pay your closing costs……This is the only true No Closing Cost plan on the market today…but nobody wants you to know that, right?  By the way, a good buyer’s agent knows this fact and will have already formulated that strategy for you!

So now you are prepared, the only thing you need to do is call a Loan Officer and get qualified.  AND….if we might be so bold, The Mortgage Answer Guy is a Seniour Mortgage Consultant who would love to help you on your journey.  Give him a call or an email, just go to http://www.mortgageanswerguy.com/The_Guy.html for all his contact information.

Happy House Hunting!

The Mortgage Answer Guy

Small Business Finance Basics – Part 3

Let Them Eat Cake

“Let them eat cake…” were the words supposedly spoken by Marie Antoinette when she was told that the peasants were in such a terrible state that they had no bread to eat and they were starving.  This one misstatement helped to fuel a revolution which would eventually lead to Lady Marie losing her head! …literally! Yikes!

However in our little example here on MortgageAnswerGuy.com, “Let them eat cake” has an entirely different connotation.  In order for the masses to experience our wonderful and delicious culinary delights, we must first finish our journey from baker to bakery!

We are close, just one more step and we are on our way.  We need funding for our little venture and that funding will come in the form of a loan, and good old Uncle Sam is here to help us on our way. Everybody needs a rich Uncle right?

SBA and the American Way

Many years ago the government realized that small business in America employees more people than all of the major corporations combined.  As a matter of fact, large conglomerates actually employee less than 40% of the population.

In order to keep the American economy fueled and growing our government decided to create a loan guarantee program for small business start-ups and to help small businesses grow.  The two main types of small business loans are the SBA (7a) and the SBA 504.

If you are staring a business then you will need the SBA (7a).  The 7a is designed as a loan guarantee program and works similar to the VA guaranteed for American veterans when they purchase a home.

How It All Works

The SBA does not actually fund the loan.  You will make application with a lender and then the lender will determine if you are qualified to receive a loan.  If you are qualified to receive the loan, then the lender will apply to the SBA for the guarantee.

This guarantee protects the lender in cases where borrowers default on the loan.  If the borrower does not pay the loan back then the SBA will pay the lender a certain percentage of the loan back to mitigate the lenders loss.

This type of guarantee program encourages lenders to make loans to start-ups at favorable rates!  It is good for the baker because it can give him the money he needs to buy the ovens, put a down payment on a lease, and have money for buying the flour, eggs and other items he needs to start the business.

The funds from the loan also give the business owner money for market, as well as a cushion to pay employee salaries.  And remember, employee salaries include a little money for the baker, the owner of the business!

So Let Them Eat Cake Already!

So how do you get started?  The first thing you have to do is contact a lender that works with the SBA.  You can do this by sending us a request at The Mortgage Answer Guy!  He does SBA loans in all 50 states!

So let’s get that bakery, that shoe store or that auto repair shop going.  It is time to leave that corporate behemoth behind and let your entrepreneurial spirit sore!  And SBA 7a is the loan that can get you there!

Make your request here:  http://www.mortgageanswerguy.com/Ask_.html

I have 4 Residential Multi-Family Dwellings…

We recieved this question on MortgageAnswerGuy.com:

You Asked:  I currently have four (4) each 30 year mortgages on 4 Residential Multi-family dwellings.  The rate is currently at 10.8 percent, the loan is seasoned, 2006 with excellent historical repayment status.

 The Answer Is:  You have several options available to you.  If you only have 4 mortgages, then you are still eligible for traditional conventional financing and should be able to refinance the properties into long-term 30 year fixed mortgages.  These are full doc loans that will require a 680 or higher credit score and an LTV of 65% or lower.  If you do not qualify for conventional financing you still have another option.

 The second option is to obtain a commercial loan called a Blanket Loan.  Blanket Loans cover multiple properties under one loan.  They typically have three to 10 year fixed rate terms with 20-25 year amortizations.  Rates on these loans are typically in the 7.5% range and the LTV can be as high as 70% depending on the lender.

We also answered a follow up question!  Read on…

You asked this follow up question:  

Thanks Michael for your response which I will review in more depth and respond.  Another question I have relates to Florida real estate.  Our company owns a residential 3 BR, 2 Bath home that it purchased on 10/13/2006 for $310,000 based upon a listing price of $340,000.  The house has a swimming pool, aluminum pool cage, electric hurricane shutters, hurricane proof windows, a new a/c unit, new kitchen appliances, cabinets, two car garage, in ground sprinkler system, well and previously rented for $18,000 per year plus utilities.  It now rents for $12,000 per year plus utilities and more than likely will appraise currently in the $250,000 range.

Given I own a summer home in South Dakota and a winter Condo in Florida, what type of real estate mortgage would the company be eligible for in your opinion?  It doesnot have an existing mortgage on the property.

The Answer Is:  About the only option for you on that property is a conventional real estate investment loan.  However, with the property deeded in a company name instead of the name of an individual you will not be able to find a lender in this market (07/2099) to finance the property.

You would need to take the following steps in order to refinance the property and pull cash out.

1.  Transfer title of the property from the company to an individual’s name.  (it should be one of the individuals that has an ownership stake in the company.)

2.  Make sure the individual that receives title doesn’t have more than 4 financed properties

3.  Make sure that you don’t apply for a loan that is more than 70% of the homes current market value.  (Remember, the LTV allowable could be reduced by 5% at the underwriter’s discretion if the appraiser makes the determination that the home is located in a declining market.)

Also remember these fine points.  Al underwriters will require recordation of the title name change so that the proper persons name shows on title in the ‘chain of title’ at the local court house.  Furthermore, so underwriters may stipulate that the individual title be ‘seasoned’ for 90 days.

I hope this information helps.  We can do commercial loans in all 50 states and we can do residential loans in GA, FL, AL, SC and TN.  If I can help, please let me know.

Thanks,  Michael Gross

Small Business Finance Basics – Part 2

Bake Great Cakes, don’t Cook the Books!

So you are off and running.  You have decided that you are a great baker and you have someone that can handle the business side of things.  This ‘business’ minded person will be your partner.

Or, you’ve decided you can bake the cakes and handle the books.  The next thing you need to is to make an assessment of where you stand financially.  The bank will require some reserves if they are going to loan the money for the start up.

 Here’s what most banks want to see.  They want to see a business plan that includes enough money to stabilize the business.  Many people think; ‘Oh, I’ll just go without a paycheck until the money starts rolling in.’

Admirable, but unacceptable!  The bank wants you to have income.  You see, they know that you need the income to survive and they want to know that you’ve planned on paying yourself until the business is stabilized and able to support your salary. 

Why do they care if you get paid as long as they get theirs?  Because they know that if you don’t get paid then at some point you will be forced to take a paying job somewhere else.  Then your focus will not be on the business they just financed and eventually they will end up losing!

So don’t cook your own goose and don’t cook your chances of getting the loan.  Make sure your plan includes enough money in it to pay salaries through the stabilization period.

Last Things First!

Which brings us to another very good point, the last thing you want to do is to run out of money or to start a business that will not pay you what you want to make.  While most people decide how much the business can make and then try to determine how much of that money can be received as income, I say switch it around.

Decide how much you need or want to make and then develop a business plan that will pay you what you want.  Many peoples final thought is how much can I make out of this plan when it should be the first thing you should think.

You may be a great baker of cakes, but can you really make the kind of money you want to make being the owner of a bakery?  That’s a great question, who makes more money, the owner of the bakery or the guy that develops the recipes and sells the ingredients to the baker.

Is it the owner of a single retail bakery or the owner of a wholesale bakery with one retail outlet who sales mostly to other stores that resale his baked goods.  Owning the bakery might be the most profitable, I don’t know.  The point here is that you have to ask these questions in order to determine if the business you are choosing is going to meet your minimum income requirement.

So even though the responsible business person takes a salary last because he’s paid his employees and his vendors first!  He or she should consider their salary first when deciding what type of baking business they will go into.

Hope this all makes since… If you’ve gone this far and are still interested then now its time to talk about that financing!

Proceed to Small Business Finance Basics – Part 3