Finance Tips

With Florida being hit so hard when the real estate bubble burst, it is no wonder that the state has so many short sales. Buying short sales in Florida can be very tempting to potential real estate buyers as they are priced much lower than other homes, but the process of buying one can be quite unclear. A short sale occurs when the owner of the home is hoping to sell it for less than he owes on his mortgage. The owner hopes that the bank is going to be okay with this and either wave the remaining amount of the mortgage or figure out some type of deal to help the owner repay the remaining mortgage. Either way the final decision does rest with the bank, not the owner. The owner is basically the middleman between the buyer and the owner’s bank.

Unfortunately, thanks the massive backlog that the banks are currently faced with, it can take several months before the bank responds to an offer. And, what’s important to understand, is that during this period the buyer and seller are actually under contract…even though the bank hasn’t yet approved the offer. The primary reason why it takes such a long time to hear back from the bank has to do with 2nd mortgages. These 2nd mortgages typically come in the form of home equity loans. When the real estate market was thriving and people’s homes were increasing in worth these people were building equity in their home and owners could quickly secure 2nd mortgages based on this equity. Well, even though the bank that holds the 1st mortgage accepts the short sale offer and a loss on the home does not mean that the bank that has the second mortgage is willing to do the same. It is these 2nd mortgage loans that are the main challenge in many short sales.

So what’s a buyer to do?

Well, if you are serious about buying short sales in Florida, there are few steps you can take as the buyer to make your situation a lot less complicated.

1. The very first thing you need to do is find out exactly how many mortgages the owner has on the home. This isn’t a secret. Just ask the listing agent for the information. In a nutshell: the more mortgages the owner has on the property the more difficult it will be to purchase that home.

2. Learn who is doing the negotiating with the seller’s bank. Just as before, ask the listing agent for this information. Dealing with the bank is usually a lengthy and frustrating process. It will require a considerable amount of time contacting the bank, being put on hold, being transferred from one person to another, day after day after day. So ideally, the sellers have hired a lawyer who specializes in short sales to do the negotiating. However, if it is listing agent that is in charge of the negotiating then make certain to ask about their success rate.

3. As it is usually the 2nd mortgage that holds up the majority of short sales in Florida, it is advisable for the buyer to have some extra funds to help pay this off. For example, if the 2nd mortgage is ,000 and the bank is not willing to let the owner out of their responsibility to pay on that loan then the buyer doesn’t have much choice. The seller is already out of cash so he isn’t going to be coming up with the cash, so if the buyer really wants the house then it is the buyer who must pay off that second loan. Therefore, it’s recommended that you have some cash reserved should this situation arise.

4. Occasionally whether a short sale is approved or not may come down to just a few thousand dollars. Once again the owner is already broke so if the buyer is not willing to make up the difference the only other option is to look towards the Realtors. If you have a Realtor who is willing to lower their percentage it may make up the difference. For example, in a traditional real estate deal the seller typically pays their agent 6% of the closing sale price with 3% of that going to buyer’s agent. In a short sale scenario, it’s the bank that typically pays the commission. Therefore, if the Realtors will take a cut in their commission, the bank can save several thousand dollars.

Clearly buying short sales in Florida isn’t for everyone. Yet, if you are successful you may be able to get a terrific deal on a Florida home. By following the strategies previously mentioned you’ll increase your odds of a successful short sale purchase while at the same time cut down the amount of frustration that comes along with buying one.

Most of the short sales end up in having lower amount and are not able to cover the seller’s mortgage charges. The seller usually do not covers the difference in amount. Short sales are always preferred over a foreclosure. In most cases, the homeowners are left with no option but to sell the property at a cheaper price than the actual market value. The home would have been bought when the economy was in the rise. But the underlying fact is that the properties have lost their value by 30 to 40%. The lenders are not interested in sanctioning loans if they  know about the other forms of investments like stocks, insurance and other asset management.

A CMA is the first indicator and the outstanding debt is calculated along with the cost associated with a sale. A net sheet is prepared with the details of this analysis. It is then fed in to the HUD-1 Settlement to find the total negative result at the closing.

The exact closing costs and other application costs must be obtained from the lenders and all the procedures must be executed promptly. A home inspection to determine the repairs needed is a good move by the sellers to determine the exact value of the asset.

Who should be considered?

If there exists a first and second mortgage, then it is better to consult more than one lender to get approval for the short sale. An approval from the authority that holds the pool of loans for secured mortgages is needed. Two lenders concept will be complicated in short sales because it is always the second lender holding the mortgage will have to suffer from major loss. Without a viable purchase offer, your deal won’t be considered by mortgagees,” says Margot Cole-Murphy, broker with RE/MAX Equity Group, Portland, Ore.

A bank’s mitigation department will decide upon the short sale acceptance.

Most experts favor the disclosing of property details in the comment section of the MLS. While others prefer to wait until they get the acceptance of the lenders or banks.

The average person juggles numerous bills each month–credit cards, auto loans, personal loans and more! If you’re getting buried beneath paperwork, you may want to consider a debt consolidation loan. Instead of dealing with multiple creditors, you’ll only have to pay one bill each month. And you can get a debt consolidation loan–even if your credit is not-so-perfect–if you secure it with some type of collateral. Here’s how to get approved:

1. Decide on your collateral

Whatever item you choose as collateral for your loan should be one you’re willing to risk, since the lender could take it if you can’t make your monthly payments. One of the least expensive options would be your home, since you could get a home equity loan, a home equity line of credit or a second mortgage. If you’re not willing to risk your house, you could also use an automobile or a boat. Some lenders will accept stocks or bonds, or even expensive belongings such as jewelry or electronics.

2. Find a lender

You’ll need to find a lender that accepts the type of collateral you’re using to secure your loan. Most major lenders and banks offer home equity loans, and many offer personal loans secured with a vehicle or boat. You may have to dig a little deeper to find a lender that will accept jewelry or other belongings as collateral. Check with your local banks and credit unions, and do a search online to find an appropriate lender.

3. Compare loan rates and terms

Before you sign up with any lender, make sure you compare their rates and terms with similar loans. Some unscrupulous predatory lenders may try to take advantage of your situation by charging you a high interest rate or extra fees. It’s always best to compare at least two loans to ensure that you’re getting the best possible rate.

Try using one of ABC Loan Guide’s Recommended Lenders For A Secured Debt Consolidation Loan.

Secured Debt Consolidation Loans are possible even for those with less-than-perfect credit. By using an expensive item you already own–house, car, boat, jewelry–as collateral, you become less risky as a borrower, making it more likely that you’ll get approved for a loan.

Unlocking equity that has built up in a property can be achieved through a number of means including remortgages.

Remortgages are carried out by home owners who want to release the equity in their home and apply for a new mortgage at the same time. They can either be carried out with the same lender that the borrower has their existing loan with, or with a different lender altogether.

All remortgages that release equity will result in the balance of the new mortgage being higher than the balance of the old loan. The old loan balance is paid off with the funds from the remortgage product and the excess is given to the borrower and will represent the amount of equity that has been released.

While remortgages are extremely popular in the UK, there is an alternative method of equity release that will not require the home owner applying for a new mortgage and redeeming their existing one.

Second mortgages are a popular and effective alternative. Second mortgages are also known as secured loans and are essentially loans that are secured against the equity in the borrower’s home.

Instead of applying for a brand new mortgage, the borrower will keep their existing product and secure a second mortgage against the releasable equity in their property. Secured loans must be issued by a different lender to the lender that issued the existing mortgage.

Both remortgages and second mortgages have advantages and disadvantages.

Because second mortgages are similar to personal loans in that they are issued for a short term, they may be the most sensible option when the finance is required for a short period of time.

However, remortgages can involve paying large application and brokerage fees. The longer the time period you stay with the mortgage the more value you will receive out of paying for those fees.

Secured loans usually incur smaller fees than remortgages. There is no need, therefore, to keep the second mortgage active for a long period of time to gain some pay-back from any fees that may be incurred in securing the loan.

Some second mortgages also offer facilities such as a cheque book and ATM card for draw downs, and a deposit book for making repayments.

Not all secured loans offer such options so it is advisable to shop around if you require them. Also keep in mind that extra fees may be incurred so ensure that you actually require the extra facilities before signing on the dotted line.

If you require any advice on remortgages, contact an independent adviser for help.

Everyone has heard a story or read about someone who bought a property without paying a single dime as a down payment. But how does this work?

There are several “classic” methods commonly used to purchase real estate with no money down. There are an infinite variety of situations in a real estate transaction that could lead to a deal with no down payment. But for the sake of reality, I will focus on those that are most commonly seen in the current market.

1. Seller second – The buyer obtains a new first mortgage for most but not all of the total purchase price. The seller finances the rest.

Purchase price: $100,000

Buyers loan: $90,000 (90% LTV) (new first mortgage)

Sellers finances $10,000 (in the form of a new second mortgage)

The buyer has borrowed 100% of the purchase price. Thus, you have100% financing, and no down payment was paid by buyer.
This is not a difficult strategy to employ if the seller has enough equity, is willing to hold a second, and the first mortgage lender approves.

One thing that is not mentioned in most articles about this strategy is the requirement for lender approval. The lender who is making the 90% loan will have to agree to allow the seller to take back a second mortgage. In cases where the buyer has better credit, this is usually OK with the lender. But if the buyer has a lower credit score, the lender may not approve of this. If your credit score is on the lower side, but you have good documented income, you may still qualify.

Herein lies the fundamental issue that makes it so difficult to write about your financing options and what to expect:
The fact is that lenders who are making the first mortgages on a property can change the rules or make new rules in the middle of a deal. Therefore every deal is different. Every buyer’s credit and income are different and lenders vary in their underwriting requirements.

It is a moving target. So while it can be said that you can get a 100% loan to buy a property, there are usually specific credit requirements, income requirements, etc. It makes this game rather unpredictable.

Talk to your lender ahead of time and find out if creative financing options such as a seller second would be allowed. Make sure you have a lender who is used to working on investment property loans. Some mortgage companies only have programs for owner occupants. You need to go to a lender who specializes in loans for investors.

2. Another common way to obtain a no down payment loan is to utilize one of the many low or no down payment programs that exist. Many of these are intended for owner occupants, but some are available for investors. Again, it is important to talk to the right lender.

If you have an investment property that you want to sell, consider taking back a second mortgage for 5-10%. This is not a huge amount, and it can help you sell your property faster.

When it comes to finding a seller who will help you create a no money down deal, consider buying from an investor who is willing to be flexible. Some investors are willing to do creative financing simply because they understand that it helps them sell houses. It never hurts to make an offer that includes a seller second. You never know until you ask.

There are some points to remember when purchasing investment property with no money down. A key point is the comparison of monthly payments to expected rental income. When you are financing 100% of the purchase price, your payments will be higher. If you have a second mortgage payment to add to a first mortgage, your payment may be even higher. Be sure your rental income will cover the entire monthly payment.
3. More common among professional investors is buying wholesale properties, using hard money to purchase and rehab.

When the rehab is done, you get a new mortgage that pays off the hard money loan. Since this is a refinance, you can take cash out of the property. You may have to bring some money to closing on the hard money loan, but you get it all back when you refinance, so you end up with no money out of pocket. This becomes not only a “no down payment” deal, but also a “cash back at closing” deal.

It works like this:

Purchase price $100,000

Repairs $15,000

Hard money loan $115,000

Purchase and repair, then get new loan to pay off hard money.

New loan is based on 90% of After Repair Value.

For our example, the ARV is $150,000

90% of $150,000 is $135,000.

New loan for $135,000. Subtract hard money loan pay off of $115,000 leaves $20,000.

You keep the extra $20,000 in cash, tax free since it is a loan, rent your house out and let the tenant pay the loan back.
Your gross profit is $20,000 cash and $15,000 equity. Total gross profit $35,000. Not too bad for a couple months work.

Down payment by definition means specifically money that is used to “pay down” the total purchase price. This does not include money for closing costs, points, interest, and other items such as insurance. But if you are buying wholesale properties, fixing them and refinancing to pull cash out, you should be able to pay all your expenses and have a nice profit at the end of the day. (Just keep some of that cash in reserve for emergencies)

If you do 3 houses per year, and you only net $25,000 total, after paying all expenses on each of the 3 houses, you are still netting $75,000 cash and equity in about 6 to 8 months. Plus, if you are renting these properties, you are also creating additional streams of income through monthly cash flow as well as accumulating equity in each property.

This is a solid strategy to achieve a retirement nest egg and ongoing income for life in less than 10 years. If you look around at the real estate investors who are wealthy, the vast majority own rental property, be it residential or commercial.

They understand the concept of buying at a discount, then holding their properties for years. They get to the point where their holdings are worth double or triple the price paid. This is free money that you can earn simply by buying and holding long term.

There are wholesaling companies in every major city that specialize in selling fixer upper properties that fit with strategy number 3 in this article.

Look for their signs on the side of the road, their ads in the paper, or ads in local thrifty nickel type shopping papers.
Most deals do require some out of pocket cash, even if it is only temporary, until you refinance.

True no down payment opportunities are pretty rare these days, with interest rates at historic lows. If interest rates go back up, (and they will), we will see more creative financing and more “no down payment” opportunities in the future.

If you are in the Atlanta, GA area, or wish to buy property in the Atlanta area, you can contact me at service@realestatewholesaling.com
I have properties, land, financing sources and property management services for Atlanta investors.