About Mortgages For Real Estate Investments

In the event that you have to get a mortgage for your first real estate investment property, take your time to look at the different choices available. Of course, it helps to have great credit. The better your credit is, the better chance you have of getting the loan that you want. Here are some choices when it comes to getting a mortgage loan for your property:

Fixed Mortgage

A fixed rate mortgage usually lasts for 30 years and doesn’t change, hence the term “fixed rate”. This is the mother of mortgage loans. For a long time, real estate investors were only able to get this kind of loan. When they get this fixed mortgage loan, it comes with a fixed rate that remains throughout the duration of the 30 years or less if they pay it off quicker. Upon the end of the e30-year term, the loan will be considered paid in full. In the beginning years, the monthly loan payments are applied toward the interest of the loan. As the years pass, they are eventually applied to the principal balance. This is about the easiest loan for investors to deal with because the terms are simple.

You usually won’t find anything unexpected down the road as you continue to pay it off. Real estate investors would probably want to look at paying off the loan early so they won’t be saddled down with a lot of debt for a long time. The focus of real estate investing is to create wealth, not to always have financial liabilities. When investors get wealth from real estate investing, they can enjoy it as they continue to invest in more properties.

No-Money Down Loans (Zero Investment)

This is another type of mortgage loan that can be used by real estate investors. They won’t have a problem trying to get information about this kind of loan, because they are always advertised somewhere. It can sometimes be touted as one of the best loans since sliced bread. However, it’s important that investors know the risks about securing this kind of loan.
Real estate investors can get this kind of loan by securing a mortgage that is 100%, or they can get what is called a “piggyback” mortgage. A piggyback mortgage is when the investor secures two mortgages at the same time and put them together.

With a piggyback mortgage, the investor gets a perk by not needing a downpayment at the closing process. Also, the investor can benefit from getting the largest amount of interest available to include in their taxes as a deduction.

Being an investor, it is not always guaranteed that you will get the entire amount financed for the loan. There are many banks and other lenders that will not provide the entire 100%. If some do decide to provide the entire thing, then they will get their share by including higher interest rates. This way, they can cover themselves because you would not have provided a down payment.

As with anything else that is zero-down, your mortgage payments will be higher than usual. If you don’t have a lot of money as a financial backup, this kind of loan could hurt you in the long run. It would take you longer to have a comfortable cash flow because you would be paying a larger amount in mortgage payments. So, you may want to think about this loan option a little harder than you would others.

However, a zero-down loan could still work out for you in terms of securing an investment property. It’s up to you as to whether or not you’re willing and able to take the risk.

Adjustable Rate Mortgage

Adjustable rate mortgage loans, or ARMs, as they are commonly known as, are almost as popular as fixed rate mortgages. Real estate investors are known for using these as well. If you decide on this loan, you can be assured of having a variable interest rate.

A variable interest rate is the rate that lenders charge and it often fluctuates. The rates change in accordance with the increase or decrease of interest rates in the market during that time.
It would start off with a fixed rate for a few years. Then it would go into a variable period. This means that after the fixed rate period is over, your loan rate (and monthly payment) is subject to adjusting every year.

With that, the majority of ARMs have a stopping point of how much they can change. With this loan, the rate can increase or decrease to a certain amount as long as you have it.
In the beginning, this kind of loan may include a low rate of interest. For some real estate investors, this would work for them because they may not want to hold on to the property for an extended time.

Also, when the interest rates decrease, investors can grab at the chance to get in on them. On the other hand, this loan is very risky. When interest rates increase, the investor will have to go with the flow.

The bad thing about this is, they will not know in advance when the rates will increase. In reality, ARMs can be an unsure thing because you don’t know how much money you will continue to pay due to the constant fluctuations.

Interest-Only Loans

Another loan that is good for real estate investors in the interest-only mortgage loan. Investors can use this loan when they are having a hard time with getting positive cash flow. This usually happens when the value of the property. has increased.

Some investors normally get interest-only loans if they don’t want negative cash flow, if they want to use the cash for something else, or if they’re thinking about getting into property flipping for a future date.

When an investor has this kind of mortgage loan, they can hold off on principal payments for a certain period of time. It is usually no more than ten years, but could be less than that. The investor is only paying the interest and nothing else during this period.

In order to get rid of the principal in the future, the loan is amortized again after the period of only paying the interest has ended. The investor ends up paying a higher mortgage loan payment. There are several ways that the investor can handle this situation: sell their property, stick with the higher payment or try to refinance.

Balloon Mortgage

Having a balloon mortgage is not one of the popular kinds of mortgage loans, but real estate investors have used them. This mortgage increases using a longer time than the actual mortgage term. The investor ends up with a smaller payment.

However, at the term’s end, there will be a balance that the investor has to pay in full or refinance the loan. If the investor can’t pay the lump sum in full or get refinancing, they will end up selling the property.

Even though there is an advantage for smaller mortgage payments in the beginning, at the end, the investor can come out as the loser if they can’t pay off the entire balance or refinance. Plus, with refinancing, the investor will have to deal with an interest rate increase, plus refinancing costs. That’s just more money coming out of their pocket than necessary.

Home Loan Refinance – Making Your Biggest Investment

Taking advantage

If you have been paying off your home on a regular basis you are building an investment in your future. You have heard it from the time you were younger. Buy a home and invest in your future. After a while you are perhaps wondering when that future will come to pass. When can you take advantage of all your hard work and diligence? Most people think retirement is the time to take advantage. If they choose retirement time to take advantage this is fine, but what about now? A home loan refinance program may be just right for you. Take the savings from a home loan refinance and pay off outstanding debt or make the repairs to your home that will ultimately increase its value.

Is the timing right for you?

New money has been pumped into the system, by the government, to make home loan refinance more accessible. If you’re considering some new additions to your property, a long needed vacation or help paying for a child’s education, this may be for you. Pay less and use the saved money more productively

Expand your holdings

Paying into your home means that that money is just sitting there working for the bank. Why should they be able to take advantage of the money when you can? A home loan refinance program could let you expand your investment portfolio with saved income. They can let you invest in other properties to diversify your holdings. A property investment in your primary residence was a smart move. If one piece of property was wise, two may be better. Make the first investment work even harder with a home loan refinance program by buying a second property.

A buyers market

In many regions, the real estate market has finally topped out. Prices are actually beginning to come down. Everybody knew it had to happen at some point. That’s just the way the economy works, in cycles. Being ready to pounce at the right time is critical to finding just the right second property for your needs. This type of program will let you make your move when you are ready. A home loan refinance program will enable you to act fast if you need to.

The market is in a state of flux. Taking your bargain shot could be here now. Don’t let that one opportunity slip past and consider your finance options ahead of time.

Cash Out Refinance Mortgage Loan Can Help Homeowners in Many Ways

Cash out refinance mortgage loans may be the best way for a homeowner to get cash they need or get cash out BEFORE they actually need it. There are now cash out loan programs available that allow 95% L.T.V.. A 95% cash out loan enables a homeowner to use up to 95% of the home’s value to determine the loan amount. For instance, a homeowner who owns a home with an appraised value of $200,000 may be approved for a cash out mortgage loan for $190,000.00. $200,000 X .95 = $190,000.

In obtaining a cash out loan, a homeowner can use the cash for anything they choose however if the homeowner wants to pay off debts or use the money for improvements on their property, they should tell the mortgage representative who is working on their loan that the cash will be used for these purposes. In both cases, this may help the approval process. Paying off debt with some of the loan proceeds may reduce the homeowner’s debt to income ratio and help them to qualify for the cash out refinance. A property improvement may increase the value of the property which may also help an approval along.

Some homeowners choose to use their cash out loan to invest in strong investments. A homeowner investing their cash out proceeds in this manner could better themselves financially and benefit their family for many years to come. A homeowner can take a cash out refinance and apply it to a 401K account or I.R.A. Some homeowner’s have been successful by investing in individual stocks. With today’s historically low interest rates available on cash out mortgages, it is much easier to come out ahead with a cash out refinance for investment purposes. Another popular choice for a refinance cash out loan is to use the money for a business start up. The reason for this is simple. If a homeowner were to apply for a straight business loan without the loan being a mortgage loan, there is much red tape to go through. For instance, a complex detailed business plan would be necessary as part of the approval process. The borrower’s ownership experience, management experience or years in the profession may also be heavily scrutinized by the underwriters when applying for a business loan. Contrasting the higher interest rates of a business loan with the low interest rates of a cash out mortgage loan, there may be considerable savings with a cash out mortgage loan. A longer term is also available with cash out mortgage loans and this will reduce the monthly payments as well.

Everything A Real Estate Agent Doesn’t Want You To Know, A Year In Review 2006

During 2006 I have written a number of articles known as the “Everything A Real Estate Agent Doesn’t Want You To Know” series which has been a consumer oriented series of information to help home buyers and sellers protect themselves when conducting a real estate transaction. These articles are a natural extension of books I have written known as “Everything A Real Estate Agent Doesn’t Want A Home Buyer To Know” and “Everything A Real Estate Agent Doesn’t Want A Home Seller To Know”.

The first book written during 1990 was called “Everything A Real Estate Agent Doesn’t Want You To Know” and it had a fair degree of national success, much more than I thought it would, when I introduced it to the media during 1991/92. We sold the book in every state in the U.S. including Alaska, Hawaii and as far as Pakistan and Japan. This was not a bad performance for a self-published under-funded author.

I wrote this book because I was a licensed real estate agent in the state of Ohio and, more importantly, I was a residential mortgage banker for a few years and I saw many home buyers and sellers experience financial damage from dealing with inexperienced and unethical real estate agents. Many of the agents were either totally incompetent or so self interested that they would mislead buyers and sellers, anything to get them to sign a purchase offer or a listing contract. Many of these home buyers and sellers who were cut through the neck and didn’t even realize they were bleeding because they lacked knowledge and insight into how the real estate game is played.

These books have always caused friction between real estate agents and myself because many agents resent the title of the books and the ill conceived premise that my position is that all agents are bad crooked people, which is false. In fact, whenever I did a media gig I always made it a point to clarify this is NOT a blanket indictment against real estate agents. There are good, honest, knowledgeable, full time real estate agents in the business who are highly professional. The problem is they are the minority and not the majority.

The major problem with the real estate industry as a whole is the ease with which a person can get a real estate license. While the educational requirements vary from state to state, in most cases, anybody can get a license to sell real estate in about 90 days. This just doesn’t make sense to me. Consider that many agents are little old women who operate part-time, have no business or selling background, go to school for 30 or 90 days and are licensed to represent home sellers in property transactions from around $50,000.00 and up. I mean, a lawyer has to go to school for seven years to get a license to write a fifty-dollar will or represent somebody in a petty traffic accident. But silly-sally can go to school for 30 days and list a $250,000 house for sale? That does not compute in my mind. What kind of representation will a seller get from a part time agent with one toe in the tub? And the full-time pros know what I am talking about.

I have had many close discussions with agents while I was in the business and the bottom line is that part timers are often the weakest link in getting a deal done, unavailable for showings, etc. The bottom line, part time agents give part time results whether you are a buyer, seller or a full time agent trying to make a living.

And the truth is that most people, especially first time home buyers and sellers don’t know what is going on…not really. How you select an agent to sell a home, the nature of contract law and the negotiable elements of listing contracts, purchase contracts, etc. is way beyond most first time buyers and sellers. The result is that sellers sign stupid long-term listing contracts with the wrong agents and the wrong companies and buyers pay way more for property then they would if they had more insight into the workings of real estate transactions involving commissioned real estate sales agents. I didn’t originate the problem, I just identified the problems and the solutions for home buyers and sellers.

CAVEAT EMPTOR is legal jargon which means “buyer beware” and it means what it says. Whether you are a home seller or home buyer, you better know what you are doing when you are making decisions and signing contracts because, it is your duty to know and ignorance is no excuse under the law. If you do a stupid real estate deal, it’s your fault. Which is a shame because buying or selling a home is a BIG business decision. It is a business transaction composed of people, emotions, contracts and cash and those are all the ingredients for legal and financial pain if you don’t know what you are doing, and most people don’t. And how are people supposed to get access to this information that will protect their legal and financial interests before they buy or sell a home anyway?

THE POWER OF THE NAR OVER GOVERNMENT AND MEDIA

What many people don’t know is the National Association of Realtors  (NAR) is one of America’s largest special interest groups who have incredible lobbying power over our politicians to write real estate laws that benefit the real estate industry, not consumers. Thus, the caveat emptor clause… state and federal real estate laws are written in the interests of your local real estate company and not you.

Something else people are not aware of is the tremendous advertising influence the NAR has over print and electronic media to manipulate the news you read, hear and see because of their advertising dollar power. There is an article written by Elizabeth Lesley of the Washington Journalism review called Demand Happy News And Often Get It and it exposes the corruption and manipulation of the news consumers count on to make decisions about buying or selling a home. I strongly urge everyone to read this article.

Real estate is like the stock market in some ways. When you hear of a fad like “flipping” you are probably at the tail end of that gimmick bubble, kind of like the dot.com days… everybody jumped in because they thought it was hot and it was really the end of the dot.com bubble. A lot of people have gotten caught with their pants down on the flipping angle.

Home foreclosures are up across the U.S. because real estate agents and the lenders who cater to them (the real estate industry has tremendous influence over the lending industry because the are the source of so many home loans) have qualified otherwise unqualified borrowers, by putting them in gimmick loans. In the mad dash to milk the market, people have been steered in to interest only loans, negative amortization loans or attractive teaser loans like low interest adjustable rate mortgage (ARM) and other stupid financing that is NOT in the best interest of the buyer. That’s why many of the foreclosures are happening. Naïve and gullible people were sold a bill of goods based on unrealistic property values. The market got hyped and the agents and lenders were right there to exploit buyers and sellers. Did some people make money? Sure. But many people have found themselves against the wall with too much “house”, too big a payment and a housing market that looks pretty bleak for a while…

All it takes is one ripple in our fragile economy to turn the real estate market into a landslide. Here’s a news flash: The economy is on shaky ground. The economy has been kept strong by housing sales and corporate profits and both are an illusion. The real measure of the economy is durable goods, like automotive sales, which are in the tank causing massive restructuring and layoffs. People can’t afford to buy cars because they are scraping the enamel off their teeth trying to make house payments…

So, whoever you are, and you read my real estate articles, keep in mind that the reason I have done what I have done, and will do what I do, is because I am on the side of the consumer. I am on the side of the person who wants to be a better, more informed consumer. I am on the side of the person who wants to save a few thousand on their real estate transaction by being smart and on a more level playing field with real estate agents.

And you know what? By educating people and teaching them how to do deals more intelligently, how to weed out the part timer agents from the pros and save a few bucks in the process, I am actually helping the professional full time agents. The truth is that honest agents won’t have a problem with my position because it will get rid of the riff raff.

Thanks for reading!

Jim Hart

Copyright © 2006 James W. Hart, IV All Rights Reserved

Houston Real Estate Brokers

There are a number of Houston real estate brokers who are all willing to help interested clients. Major Houston real estate players include John Daugherty Realtors, Martha Turner Properties, and Greenwood King. Although most real estate companies are closed by brokers from these companies, there is no question that other real estate brokers may also offer great deals. Still, there are deceptive real estate brokers who are only keen in making money out of every business deal they make.

Houston has a local real estate brokers association of which credible realtors and realties are members. The association protects both real estate brokers and prospective buyers alike from fraudulent brokers. Consumers are free to check on the list of real estate brokers made available by the association on whether or not their brokers are deceptive. The local Houston real estate brokers association also offers free home ownership assistance as well as counseling to low to moderate income generating individuals searching for real estate deals in Houston. The association also encourages friendly competition among Houston realtors through healthy exchange of selling strategies and ideas that amount to reasonable and popular real estate deals.

Houston real estate brokers all believe in the founding goal of their association: Every consumer must be ensured of equal housing opportunities, and all possible buyers must not be subject to discriminatory real estate practices. This springs from the fact that minority races were banned from equal housing opportunities in earlier days, confining them to insubstantial properties at unfavorable locations. The founding of the real estate brokers association improved the then unjust treatment to African Americans residing in Houston and provided them opportunities to better qualify themselves and make it good in the real estate industry.

Certified Houston real estate brokers continue to promote equal housing opportunities by offering the best real estate deals. Consumers are sure to find contentment in the properties acquired from these brokers.