Draw Me Self

Commercial real estate loans, and the industry in general, have gone through a tremendous amount of volatility in 2009. Huge banks have gone out of business and many more have ceased lending. Many of the banks that are still lending have created such conservative programs that very few borrower can even qualify. Many of those that can qualify won't accept the terms as they are to harsh. Borrowers have become baffled as they take their perfectly good loan request to their previous sources only to hear "no and no and no..."

The market is bad, you know this. We estimate that literally 80% of all previous banks and lenders are either out of business or are not lending. For example the conduit market was down 98% in 2008 compared to 2007.

However, there still are commercial real estate loan options out there. None of them are perfect but a few of them are viable. For folks that operate their small business out of their commercial building, or at least 51% of it, they will have some of the reliable loans in the nation.

These programs are government guaranteed and go beyond just SBA loans. As you probably guessed, because the government has step up and further guaranteed the loans, it makes it a much safer, and attractive for the banks to take on the risk of a new loan.

Further the secondary market for these types of loans has become stronger, year to date. We are currently back up to about 60% of where we were in 2007 (Up from about 10% of where we were in the beginning of the year). This is where banks sell mortgages to one another. So the returning of the secondary market and the stability of having the government backing has kept this segment of the industry alive.

As far as terms, by far the biggest benefit of these loans is high levels of financing available. For example, most conventional lenders will now only go up to 60% loan to value, while most of the government programs will still go up to 80% - 85% on refinances or 80% - 90% on purchases. This high level of financing makes a huge difference in a market such as this where property values are declining. Many conventional deals are getting killed as the bank lowers there loan to value guidelines and at the same time, property values decline.

Another benefit is the amortization schedule offered. Government programs are typically amortized over 25 to 30 years while most banks are reducing their amortization schedule to 15 or 20 years. The issue here cash flow for the borrower. The difference in payment between a 15 year amortization schedules vs. a 25 year is often 20 - 25%. Most businesses need to keep as much cash flow in their operation as possible. Aggressively paying down their commercial real estate loan is not as important as having enough cash to pay the rest of their bills.

The current market is frustrating for all involved. However, commercial real estate loans are still closing and often loan requests that keep getting declined are often fundable, if in the hands of the right lender/bank. Keep working.

Commercial real estate is valued differently from the way residential real estate is appraised. Commercial real estate value is determined by the amount of income it produces. With the economic slowdown businesses have failed and people have begun making more economically savvy business choices such as living with relatives to save on rent.

There are many factors creating lower occupancy rates, resulting in a decrease in property valuation. Many property owners are finding it difficult to maintain their current overhead while trying to operate competitively in today's market. Often personal savings is used to keep up the property with no solution in sight. This dismal situation of underperforming commercial real estate is all too common. Personal credit is often damaged and savings are wiped out with nowhere to turn.

These situations are typical in some areas of the county, and they put the banks in a predicament since they are holding a note for defaulting properties. The banks' investments into these at risk properties are counter productive since they force the banks to hold cash reserves for the mortgage amount when they could be invested in other areas that produce a return on their investment.

A commercial loan restructure (CLR) offers the advantage of transforming an underperforming or non-performing property into an income producer with a healthy ROI. If a commercial property is not generating enough revenue to afford its mortgage and operating expenses a lender may be enter into negotiations for a temporary or permanent interest rate reduction. Reducing the interest rates can help apportion cost and reduce high vacancy rates. On a commercial real estate loan a reduction of just 1% can save thousands of dollars each month and result in higher cash flow for the property.

The objective of a commercial loan restructure is to create stability in properties that are at risk of defaulting on their mortgage notes. A restructure can be more than just a rate reduction. Negotiations can extend note terms and maturity date. By doing so property owners can benefit by postponing balloon payments. In today's market there is a credit crunch with lenders, underwater mortgages, and borrowers with less than perfect credit. This has created an environment that is not conducive to a refinance.

If owners cannot afford a balloon payment or refinance they face the possibility of foreclosure. With declining values, and the reduction of revenue from commercial properties, even borrowers with good credit are finding it difficult to get their loan applications approved. There are over a trillion dollars worth of commercial properties that have mortgage notes becoming due over the next few years. Many of the commercial properties will not be eligible for refinance. Commercial Loan Restructuring is a win-win opportunity for both the borrower and lender since it creates financial stability with the property.

The FDIC is encouraging lenders to work to restructure loans to avoid the pitfalls of a failing real estate market. However, most lenders do not have the experience to properly restructure a note that is in the best interest of the borrower. Small and mid-sized banks lack the experience and know how to adequately handle the restructuring process in a timely manner. Nor can these smaller banks afford to withstand a borrower defaulting on a loan. Real estate professionals that specialize in commercial loan restructuring have insight into the market that can help avoid foreclosure and rescue property owners from a failing business. Don't wait until your note is called in. Take a proactive approach and speak with a CLR specialist before its too late.

Property in certain states is viewed as super valuable when seeking a mortgage refinance loan.  For example, the size of the economy in the state of California is attractive to lenders that are funding mortgage refinance loans. As home to the core of the entertainment industry, and boasting prosperous agricultural, aerospace, petroleum, computer, and information technology industries, California ranks among the ten largest economies in the world.

California's scenery is diverse including lush landscapes, vast metropolitan areas, gorgeous beaches, and rolling mountains. Property in California includes single family homes, multi-family units, beach homes, mountain homes, luxury estates, downtown lofts, urban living, and some of the most sought after and exclusive gated communities in the country. With a slightly younger population than the rest of the U.S., approximately 37 million residents call California their home.

So from a lender's perspective, in a state where there is a booming economy, a relatively younger demographic, and steady population growth, real estate in California is super valuable, and becoming more and more valuable as the years go by. Because of this trend, they are willing to offer residents a mortgage refinance loan in order to be named the mortgage lender for your property... why?

Well it's like this - the mortgage company technically owns your home until you pay the mortgage loan back, which takes an average of 15-30 years. During that time, your home becomes a great asset as its value increases. It is a lender's desire to have that asset (your home) as a part of their net worth, and not their competitor's. In exchange for the opportunity to serve you, lenders will refinance your loan and offer you the lowest interest rate they are able to offer.

Use their desire to your advantage. You may not know it, but you may live in a state where lenders see real estate as being extra-valuable too.  Check on a mortgage refinance in your area. You may find that by refinancing your loan, you can save a significant amount of money.  Why give your hard earned money away to a lender that is overcharging you interest, when you simply do not have to?

-Ken S.

© 2009

This past year of 2007 was a year of record-breaking real estate statistics in the United States. Unfortunately, most of those stats were bad. Just ask the hundreds of thousands of homeowners who faced foreclosure last year!

On the up side, there is a lot you can do to prevent this kind of real estate misery, and to avoid becoming a negative real estate statistic. Education goes a long way in this regard, and that's why I continue to publish articles like this.

So with that said, here are five ways to be a good real estate statistic in 2008, instead of a negative one:

1. Understand and Guard Your Credit

Good credit has always been important for home buyers who are shopping for a mortgage loan. But it will be even more important this year, and for the foreseeable future. Last year's subprime mortgage crisis has led to tougher regulation of the lending industry. As a result, most lenders (those that are regulated anyway) will be paying closer attention to the credit scores of borrowers.

So your first step is to understand the importance of credit in the real estate world. Your next step should be ordering a copy of your credit report so you'll know where you stand, compared to the average consumer in this country. You should also check your credit reports for errors and work to get them corrected if need be.

You are entitled to one free credit report per year, from all three of the credit-reporting companies. There are several websites you can use (including my own) to request all three reports at once, which is certainly the convenient way to do things.

Also, if your credit score is low -- lower than average, this is -- you should work on improving it. You can do this by paying down your debt, paying all of you bills on time, and being financially responsible in general.

2. Don't Buy Over Your Head

Many of the negative real estate statistics from 2007 were people who bought more home than they could rightfully afford. Of course, some of the lenders were to blame as well, mainly for offering ARM loans with low teaser rates during the introductory period, and glossing over the potential rise in monthly payments that would ensue.

Here's the bottom line. If you can't afford a home, you just can't afford a home. Instead of pursuing dangerously "creative" financing methods to purchase that new home, focus on improving your financial situation first. Reduce your debt. Save up some cash. Try to increase your income, if at all possible. You might even relocate to an area where the housing costs are more within your reach. Heck, that's the main reason I moved from San Diego to Austin!

Avoid buying beyond your financial means. It never ends well, and you will likely end up as a bad real estate statistic instead of a good one!

3. Choose Your Mortgage Type Carefully

In the previous point, I talked about the perils of the adjustable rate mortgage (ARM) loan, for people who don't truly understand the ARM.

Don't get me wrong ... an adjustable-rate mortgage can be a good idea, mainly if you have plans to sell or refinance the home within a few years. In that case, you could save yourself some money by paying lower interest rates in the short term.

Here's the key to success when choosing a type of mortgage loan. First of all, you have to understand the pros and cons of the different mortgage types. Secondly, you have to be realistic about your future plans. If you'll be staying in the home for many years, you might be better off with a fixed-rate mortgage that can weather the financial storms of the future without being affected by them.

Research the different types of mortgage loans, and then match your loan to your home-buying situation and future plans.

4. Don't Trust Lenders ... Or the Government

Here's a real "shocker." Mortgage lenders are in the business of lending money to people, and making a profit while doing so. Surprised by this? I told you it was a revelation! Mortgage lenders will do everything they can to get somebody to borrow from them, as long as they don't get burned in the short term.

So you really can't trust a lender to tell you what you can and cannot afford to pay each month. The only thing a lender can tell you with certainty is whether or not you're qualified for the mortgage ... not whether or not you can realistically afford it. And if they sell the loan to the secondary market after granting it to you, then they don't really have to worry about your financial woes down the road.

But what about the government? Surely they are looking out for home buyers, right? Well, not always. You see, there are these people called lobbyists, and many of them represent the lending industry. They make big contributions to certain political campaigns (like Schwarzenegger and Bush, to name only two) in order to influence regulations -- or the lack of regulations -- on the lending industry as a whole.

So don't expect the government to come riding to your rescue if you get in over your head with a mortgage loan. You must be a smart consumer, an educated consumer, and a self-reliant consumer.

5. Be Proactive in Times of Trouble

Even if you adhere to the other four guidelines on this list, but you still find yourself in trouble, you should be proactive about finding a solution. In other words, don't procrastinate.

Here's an example of what I mean.

Let's say you buy a new home and take on a mortgage loan to pay for it. Everything is fine for the first two or three years, but then you run into some unexpected hospital bills and other expenses. So you get behind on your mortgage payments. But you fully expect to be back on track in a few months.

Here's where it pays to be proactive. If you contact your mortgage lender and explain that your financial problems are only temporary, they probably have ways to help you out.

Generally speaking, mortgage lenders want to avoid foreclosure as much as the homeowner does. After all, they are in the business of loaning money, not managing and selling properties. That's why most lenders will work with homeowners to come up with a solution to temporary setbacks. Some lenders have tools at their disposal to help in such cases, such as repayment plans and lump-sum reinstatements. But you won't know about them unless you're proactive about it.

Several years into the residential real estate crisis, another one looms just around the corner: Commercial Real Estate. Trillions of dollars worth of commercial mortgage loans are about to reset. Problem: Decreasing property values has prevented many commercial property owners from refinancing. But there is some good news.

According to a October 30th 2009 press release posted on the FDIC.Gov website, the "Prudent CRE Loan Workout Guidance" was adopted by various federal government agencies.

The FDIC press release stated: "This policy statement stresses that performing loans, including those that have been renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral declined."

This is good news to commercial property owners who are still creditworthy, but can't refinance due to current economic conditions. The Prudent Commercial Real Estate Loan Workout policy gives financial lending institutions the tools needed to be proactive in preventing loan defaults now and down the road.

The new Prudent Workout guidelines also stated factors that a bank would consider during a loan workout: "The borrower's ability to repay the loan, the borrower's willingness and capacity to repay the loan under reasonable terms and the cash flow potential of the underlying collateral or business."

Since a good number of commercial properties, such as apartment buildings have the cash flow but can't refinance and the owners have been paying the mortgage loan on time, they would make good candidates for a commercial loan workout.

Banks, facing a potential onslaught of loan defaults are more willing to help borrowers by performing commercial loan workouts. Commercial loan workouts are special arrangements lenders make with delinquent borrowers to avoid going into foreclosure down the road. Workouts can consist of making payment arrangements, lowering the interest rate, extending the maturity date or even lowering the principal balance. The whole process usually takes between 30 to 60 days.

An important thing to remember when seeking a commercial loan workout is whether or not its in the bank's or lender's best interest to approve a commercial loan workout or permit foreclosure. A key factor is the overall financial standing of the delinquent property owner. Does the owner have or will have enough cash flow to repay the loan? This and many other factors will determine if a commercial loan workout is the best solution.

Banks don't want the headache of having a non-performing asset on their books. Having a large number of non-performing loans on their books may gain the interest of government regulators who oversee the banking industry. Even the regulators have updated their guidelines to help commercial real estate owners facing foreclosure.

There are several issues that can hold up your commercial mortgage refinance. As the credit crisis deepens many of the typical issues have been exasperated as banks and lenders scramble to protect their own balance sheets and loan turn downs may be just a result of the banks issues and nothing to do with the borrowers commercial mortgage refinance, for example.

Commercial Mortgage Refinance - Issue 1.

Banks problems. Due to the stability of banks, most people never even consider that banks can fail. This is especially true of people that did not live through the savings and loans crisis of the 1980's. In the beginning of the credit crisis many people where simply shocked as the first few went under. There was definitely a lever of disbelief.

Like any business with problems, a banks problems maybe wide spread, but the most common currently is the lack of liquidity. This is a direct result of the credit crisis. What is happening to a lot of banks is that they are not able to sell commercial loans into the commercial secondary market. This debt is now clogging their books and tying up their cash. When they originated and closed the loans they had planned specifically to sell the debt. As a result, they have more capital tied up and less cash to lend on your commercial mortgage refinance.

In addition, as banks judge their risks of having to hold onto commercial mortgages long term, many are tightening their standards. If they have to portfolio the loan and service it, they want to be even more confident that the borrower is strong and will be able to survive the general economy .

Commercial Mortgage Refinance - Issue 2

Value. As a sub-segment to the general credit tightening, value or more specifically to commercial mortgage refinancing, loan to value is becoming more and more important. Obviously most banks have increased their loan to value standards. For example most banks wouldn't go beyond 80% -75% on a commercial mortgage refinance a year ago. Now 65% - 75% is the norm. For example if you purchased a property 5 years ago with 85% financing and now you can only get 70% financing on your commercial refinance AND the value has decreased, you've got a problem.

In addition, the problem is dynamic in that commercial real estate values are tied to financing. We are reading about this more on residential side, but it's starting to appear in commercial. For example the debt coverage ratio (which is a measure of the properties/business cash flow) has a direct impact on the level of debt that can be placed on the property. Without getting technical, most buyers for example (on a purchase) are only interested in putting 20 -25% cash into a property as their down payment. If they have to put more into the deal, just so the property cash flows, many buyers will just come to the conclusion the property is overpriced. So the seller will have to drop the price in order for buyers to be interested and in order to get financing.

Therein lies the problem. If the current owner has a 30 year amortization schedule, and the buyer can only find 20 year financing there will be a cash flow issue and the only way to overcome this is by 1. The buyer brings in a higher down payment or 2. The seller reduces the price.

As the sale price is registered, the capitalization rates and comps are noted by the appraisal company. When owners go to conduct a commercial mortgage refinance, that purchase price will have a direct impact on the property's value on the refinance.

If you don't have thick skin and don't want to know the truth, you will not want to read this.

As a relocation specialist I get asked questions about the housing slump daily. In fact I have been interviewed 10 times the past 2 months. It irritates me how facts can be manipulated. Again, if you don't have thick skin and don't want to know the truth, you will not want to read this. My research is based on countless hours of pouring through real estate sales, foreclosures and interviewing many professionals related to the real estate industry. Although most professionals will not state the obvious and prefer to give some long winded explanation that doesn't make sense, I'm going to give you the good, bad and ugly. I'm annoyed at all of the ridiculous reasons why the country is facing a housing slump and I'm going to tell the truth. Although there are some minor reasons causing the housing slump, one of the major reasons for the housing slump is abusive lenders. I will explain abusive lender have a huge part in the down turn in the real estate market.

To start, back in the 80's a mortgage professional most likely worked for a bank had an extensive educational back ground and had many years of mortgage experience. The laws didn't require experience and an education; the banks required their employees to have experience and an education. When the real estate market turned around in the early 90's, a mortgage company opened up on every other street corner. In some cases, they opened up in garages and basements. Not all of the mortgage companies were bad and in fact some offered good mortgage products with good service. The abusive lenders hired employees with no mortgage financing experience. Most of these employees were lured into the easy money of the mortgage industry from their low paying sales job. A perfect employee for an abusive lender was a salesman who could sell ice to an Eskimo. The average mortgage professional went from having 15 years of experience in the 80's to 1.5 years in early 2001. With the number of loan programs offered going from 20 to thousands and the number of wholesale lenders going from less than 50 to hundreds in the same time period, most mortgage professionals lacked the education to offer consumers the correct loan programs or the best advice. It was nothing for a higher risk borrower to be charged 6 points (1 point is equal to 1%) on a loan. In fact one lender bragged that they jammed a borrower at closing and charged 20 points on the loan. They said that they knew they would close because they were in a pinch. Borrowers looking for the best rate would settle for the lender who quoted the lowest rate not knowing that that lender would make up the rate somewhere else in the loan or change the rate at closing.

Abusive lenders knew that they all they had to do were advertise the lowest interest rate, whether it was true or not. They ran TV ads, radio commercials and sent junk mail. Most of these abusive lenders only cared about profit and the turnover with their employees was very high in their offices. Many of them folded within a couple of years and opened up under a new name the next day. In the late 90's, the abusive lenders had to change their lending practices when real estate brokers started educating their real estate agents about the abusive lending practices. Real estate agents representing buyers changed the abusive lenders marketing. Soon after, many of these abusive lenders left the real estate purchase market and started going after the refinance business.

The abusive lenders were growing at unbelievable rates while mortgage interest rates it the 20, 25 and 30 year lows. It was easy to do mortgages, everyone wanted one. The consumers were borrowing at money at alarming rates. The abusive lender knew that the borrower was rate sensitive. You have seen their low interest rate advertising. They piled in the money and ran targeted advertising to draw more refinance customers. When borrowers got to closing and faced a switch and bait by the abusive lenders, the borrower closed because the lender had them over the barrel. A prefect referral to an abusive lender was a borrower who didn't do their research and didn't shop around.

In 2004 mortgage interest rates started edging up. In order to stay in business the abusive lenders had to change their business.

First the abusive lenders used good loan programs and bent the rules to lend the borrower more than what they could afford. An example would be a stated income loan program. In some cases these loan programs were good loan options. An abusive lender would take a borrower who couldn't qualify with other loans and get them to state an unreasonable income. I have seen cases in which a cashier made $75,000 on a loan application. The abusive lender knew that the chances the borrower would default but they didn't care because they got paid up front.

Next the abusive lenders offered vacations or some other type of inducement in order get more business. Some states, lately, have made inducements illegal; however, there are a few that say it is fair game to trick borrowers. To me, it is hard to believe that people still fall for inducements. These lenders make up the difference by creating another fee at closing. Abusive lenders started hiding the inducements by offering kickbacks to the people who referred them the business.

Lastly, the abusive lenders hoped to push borrower's credit risk higher. A higher credit risk means a riskier loan. The abusive lender invented ways to charge more fees or raise the interest rate. They would tell the borrower that a trade line which had been paid pushed their credit risk higher or they would give bad advice to the borrower. The abusive lenders goal was to push the borrower's credit risk higher so they could charge the borrower more points and fees, thus increasing their profits. If the credit risk couldn't be pushed up, the abusive lender would find a way to lend more money. In some cases, the abusive lender would lend more than what the home was worth. What could a consumer do when they have a $175,000 loan on a $150,000 home? The consumer can't sell their home and they can't refinance their home. What options do the borrowers have to get them out of the mess?

The mortgage market seems to be correcting itself. Wholesale lenders have started educating the commissioned sales agent. Wholesale lenders are dropping abusive lenders, low rate abusive lenders are leaving the business and the government has been following up on unethical and abusive lending practices. Currently, real estate foreclosures are at a high and wholesale lenders are working to make changes.

Recently, many state and federal government agencies understand how abusive lenders have negatively impacted the real estate market. Abusive lenders are being investigated for mortgage fraud as pointed out on http://www.mortgagefraudblog.com. Every day in the media a new case of mortgage fraud is stated. Some states have enacted laws that lenders are required to get a mortgage license and pass a background test. Other states have stopped the practice of inducements and have required education and continuing education for lenders.

If you are looking to obtain a mortgage in the future there are some safe guards to protect yourself. First ask for referrals from friends and family. Next do a Google Search and search for lenders. If you are looking to buy a home also search for real estate agents. Many real estate agents have good lenders that they would recommend. I did several real estate searches in Kansas City and found 2 real estate agents in all of my searches. I contacted both real estate agents and asked them who the lenders they referred out to home buyers. Chris Dowell, of the Dowell Taggart Team of Infinity Realty ( http://www.DowellTaggart.com ) is very well familiar with the mortgage industry. In fact, Chris has been in the real estate industry for over 18 years and a past Vice President to a large Kansas City lender. Chris said that he does everything possible to protect his clients and will not use a lender who does unethical mortgage practices. The next real estate agent, Jason Brown of Keller Williams ( http://www.JBPRealtyGroup.com ) , stated that most of his clients are very well educated and typically don't fall for poor mortgage practices; however, if a client would like a list of good loan officers he would be happy to provide them the list. Jason also pointed out that he doesn't accept perks from lenders of any kind.

After you have formed your list of mortgage lenders. Interview all of them on the phone. Ask for references, how long they have been a mortgage officer, what type of loans they do and what type of loans they originate. Even ask how many loans they do a month and why you should do business with them. After you have narrowed your list, schedule an appointment in person with the loan officer. Ask for all possible loan options. Once you have narrowed down the list of loan options ask for a Good Faith Estimate (GFE). The GFE will show you the cost on closing day for your loan. Send a copy of the GFE to the other lenders on your list and see what they recommend.

Make sure you understand what kind of loan you are obtaining and how it works. Make sure you understand the true cost of the loan over the course of many years by examining a Truth and Lending Statement and you are aware of possible future changes.

With the market being a buyer's market in most real estate markets, there is no better time to buy. In fact, many real estate investors interviewed are finding this is the best real estate market to buy a home in the past 25 years. Remember to do your research and you will most likely decrease your chances of falling prey to an abusive lender.

There is a simple misconception about how the process of lending works. This article will try and summarize some of the basics of the lending process. We'll start with the very basic question about getting loans in the name of a business entity, then discuss some of the fine points of lending.

Many investors consider asset protection a very important part of their beginning strategy. So, the first questions that many investors asks, is "How do I get a loan in the name of my company?" The answer to this question depends on things like credit and available assets...personal assets, namely cash or other liquid assets.

Many "rehab lenders" who specialize in lending money to real estate rehab investors will lend to a new business entity with a personal guarantee by the borrower who signs for the loan. Why do lenders require this? Certain business entities offer limited liability for business debts.

Have you ever purchased any stock in a company? Let's say you purchased 10 shares of Microsoft, how would you like it if you were personally held liable for the debts of Microsoft for the amount of your investment? You, as a shareholder of Microsoft, are not personally liable for the debt or the legal cases brought against it. So getting back to the original point, a lender is not about to fork over $150,000 and not have either a business with assets or an individual liable for the repayment of the debt.

Even though a mortgage is an asset for the bank, it is only an asset as long as that note is performing (being paid off by the borrower). Lenders want the ability to know that the money loaned will be repaid or that they will have the ability to seize assets of the borrower.

The next question many new investors ask is, "Can I transfer ownership from me personally to my business entity?" The smart answer is no. First of all, what purpose would this serve? The business does not receive credit for paying down the debt. Secondly, a quitclaim deed is considered a violation of a due on sale clause which is written into most (if not all) mortgage agreements and even though the not continues to be paid and in good standing, a lender will not take lightly to finding out a transaction like this has taken place, leaving them out of the loop. Lenders like to be in control of their assets. Many people will say that lenders just won't find out due to the nature and size of their business, but make no mistake, as a borrower, you've signed a contract with an entity that has loaned you a significant amount of money. They're not just going to ignore the fact that a borrower has violated the contract.

The consequences for conducting your investments in this manner do not mean you will go to jail. There is no jailhouse for violators of due-on-sale-clauses. The consequences though may very well be the loan being called due with no exceptions. This may cause the investment to be foreclosed on and great damage to your personal credit to result.

When other lenders realize this, they may start to sniff around and before you know it, all your loans are being called due, leaving you with little or no recourse. Personally guaranteeing a loan is definitely a way to accomplish obtaining a loan for your business entity to purchase things like real estate. By doing so however, you are putting your personal assets and credit on the line. This decision can only be made by the individual investor.

In order to obtain a loan for purchasing real estate, in most cases, the bank will be looking at the property itself and the borrower. For beginning investors especially, banks will require every detail of the property and borrower. To explain briefly the difference between a purchase and a refinance loan, it is important for investors to realize the big difference between these two types of financing.

A loan for a purchase of real estate is based in almost every circumstance on the agreed upon purchase price of the property. Bank certified appraisals will almost definitely match the purchase price. It does not matter if the investor is buying the property 50% below market. The bottom line to a bank is the price being paid.

Conversely, refinance loans are based on the true value of the property. Quite a few banks will provide a very high Loan To Value (LTV) on refinance loans. The difference is the owner already has rights to the property. A certain history is there that indicates the owner is paying the current loan (or paid it off).

Additionally, the equity in the property, if great enough, will be encouraging to the bank based on the value of the property. The difference is the risk the bank has to take. A buyer, technically, has no history of performance on a loan when it comes to buying a property. Thus, the risk must be evaluated and measured. An owner in most cases, even if it's only one year, has a history of actually paying his/her debts.

This works the same exact way for a business. "Credit history" means something to a bank. When they look at businesses to lend money to, they measure the assets, liabilities, and equity of the company, plus the type of responsibility the owners/managers take in paying back debts and bills. They just don't blindly loan money to anyone, without having a good idea of how their money will be paid back.

So as you consider buzz phrases like "asset protection" and "business entity", you must realize that there are certain paths you can take toward financing your business/investments. The possibilities and ideas you discover may not be as easy as you once thought. However, like anything else, once you start actually doing it, it becomes like a bicycle ride. Just don't ever forget to look both ways...twice, before crossing any path.

©2007 noobdogs.com

The quirks and perks of owning property differ from state to state, but one of the states where property is always hot is California. But that's not the only thing hot in California. Property insurance seems to always be on the rise. Gas is next to gold, and Californians need to drive in order to survive. Everything is just getting more expensive. So you need to save money where you can. Consider a California mortgage refinance loan.

What Is A Refinance Loan?

A refinance loan takes the place of your original loan. Banks, brokerages and financial lenders are just as competitive as supermarkets or auto dealerships. They will often have vastly different interest rates than other banks. And you are allowed at any time to get a California mortgage refinance loan. Don't just choose any old loan. Shop around as carefully as you did for your home.

Although there are many reputable national refinance institutions, you may wish to consider choosing a California mortgage refinance company. By specializing in just California real estate markets and interest rates, they will best know of any hints or quirks of California law that can help benefit you. These California

mortgage refinance lenders will not be found in any spam you get in your email or any pop-up advertisements on websites. You need to find them through traditional ways of looking through your phone book, an online directory or even asking your original mortgage company if they recommend any California mortgage refinance companies that they prefer to work with. They will not be insulted if you hint that you are thinking of taking your business elsewhere. It's just business, after all.

How It Can Benefit You

A California mortgage refinance loan can help you lower your monthly payments by getting you a lower interest rate. This is, of course, determined on how your credit rating is. You can get free credit rating reports from Equifax. If your credit report is good, you are a prime customer for a mortgage refinance lender. You also need to take a look at what type of interest rate you have. A fixed rate is more predictable, while an adjustable rate is a bit of a gamble. You might also consider adding more years to paying off your mortgage in order to lower your payments. If you want to pay the mortgage off quicker, you can also consider raising your monthly payments - but at a lower interest rate.

In the real estate industry there is always some kind of trend taking place that investors and even home buyers are quick to take advantage of. In the late '90's and early 2000's the refinance boom was all of the rage. It seemed that loans were freely given away at historically low rates. Then as interest rates started to climb, adjustable rate mortgages became all of the rage and everyone and their brother had to get the lowest rate possible. Not long after came the interest only loans where monthly payments were only applied to interest and not to the principal.

If you've spent anytime watching television the past few months you may have heard about reverse mortgages. Reverse mortgages essentially payout a homes equity in installments to the owners and are becoming very popular amongst retirees. As the backlash of many of these unconventional mortgages begin to take their toll, a new kind of mortgage is slowly starting to emerge. The forty to fifty year mortgage, I believe, will be the next great trend in home mortgages.

Rising energy costs and a general increase in the cost of living have caused a concomitant rise in the cost of housing (not very surprisingly). With housing costs steadily increasing it appears that the only viable means of keeping rates low enough to qualify is by extending the period of the loan. A forty or fifty year loan will of course have a much higher interest rate but the monthly payments will be substantially smaller than a comparable fifteen year of thirty year loan. At the time of this writing, only a few mortgage brokers nation wide offer forty and fifty year mortgages.

However, skilled and experienced lenders are downright experts when it comes to economics and they understand perfectly well that getting buyers into homes is crucial for the national economy or, for that matter, the world economy. Lenders understand that they need to keep the real estate market as liquid as possible and to do this they need to make mortgages as obtainable as possible. One of the keys to success in real estate is the ability to predict future trends. But because very few of us possess psychic abilities, predicting the future is not easily accomplished.

The next great trend in real estate financing may or may not be extended mortgages, although it certainly looks that way. It pays to be prepared and if you are interested in capitalizing upon the next great trend then you need to learn what's happening in the market. One way or another, with things being the way that they are now, something has got to give.

There is a significant interrelationship between personal investment planning, credit purchasing and real estate ownership. On the face of it that may seem obvious, but the complexity of the interrelationship bears some scrutiny.

During the last quarter of the 20th century there was an amazing proliferation of the use of credit card purchasing. Credit card purchasing continues to gain use as a means for medium term financing for larger household needs, as well as, a means to spread over time individual fluctuations of income and other changes in the economy. Unfortunately, many Americans caught up in the economic prosperity of the several past decades have used credit cards to amass debt beyond or challenging their ability to repay.

It has been over two decades since Congress removed from the federal income tax code the ability to deduct interest payments on most credit/debt instruments "except" home mortgages. This Congressional enactment immediately catapulted the home mortgage market to the forefront. Suddenly, 2nd home mortgages and complete home refinancing became an attractive tax-incentivized debt consolidation tool. Of course, the financial sense of using a home mortgage for debt consolidation depends on several key factors. Among them is the rate of interest in the home mortgage marketplace, personal circumstances and a willingness to trade short-term debt for long-term debt on the prospect of real estate appreciation.

There continues to be substantial debate regarding the financial sense of maintaining equity in a home. In the simplest terms the two sides of the issue are:

Equity in a home can be put to better use. Essentially this means home equity that could be turned into cash should be invested in financial instruments that will outpace appreciation in the value of the home. This assumes that home equity cash can be put to more effective financial use. Second home or investment property purchases, tuition for education and high interest credit card debt are the more common uses of cash out refinancing or second mortgage financing and can all be considered a more effective application of equity depending upon circumstances.

• Conversely, as the home loan is paid down and home value appreciation develops the equity that builds eventually becomes a retirement nest egg. A debt free home is can represent utopia for those entering their retirement years.

As the debate goes on, the truth of the matter is that the best approach depends on factors such as economic climate, personal timing, property value appreciation and personal investment discipline.

Then there are the tax issues that play into nearly all financial decisions. As previously noted, home mortgages and second mortgages are tax deductible. This factor can be a significant decision point. The interest paid to the lender, as part of a mortgage payment, is deductible from federal and most state income taxes. Lenders provide notification of the amount of interest paid on a home mortgage during the tax year, and that amount may be itemized as a "qualified residence interest" deduction on federal, state and local income tax returns. The interest deduction is applicable to debt assumed for home ownership up to $ 1 million. The deduction applies to first and second mortgages, as well as, other debt instruments used to finance a primary residence.

Debt that is assumed for any purpose, but financed through a home loan, is also deductible so long as the amount of indebtedness does not exceed the lesser of $100,000 or the fair market value of the home.

Refinancing an existing mortgage to release equity without the additional benefit of an interest rate reduction may not be the most frugal approach. As with any mortgage there are specific closing costs associated with the transaction that is mostly based upon the amount of the loan. Conversely, a second mortgage for the purpose of extracting equity would normally create a much smaller loan and consequently lower closing cost.

When considering a second mortgage there are two distinct structures that normally come into play. The "Home Equity Line of Credit" generally offers a low interest initial interest rate and only requires the payment of the accumulated interest each month. The advantage of this structure is that it is a line of credit with a limit and the consumer only pays interest on the amount actually used. The risk factor is that it is a floating interest rate adjusted to a particular financial index such as "prime" or "cost of funds". The option less adventurous borrowers elect is the standard fixed rate second mortgage amortized over 15, 20, or 30 years.

Regardless of the structure of the loan current lending criteria will likely restrict the amount of the mortgage to 80% "combined" loan to value (CLTV). This means that the maximum amount borrowed including the existing first mortgage cannot exceed 80% of the value of the property as determined by the lender's evaluation.

If you were buying or selling a house (or in my case, both) in the last few years, you are familiar with the term 'housing bubble'. If you are trying to sell a house today, you are most likely feeling the effects of its 'burst'. But for some reason, when you try to locate a clear definition by doing a Google search (i.e. "define: housing bubble"), the resultant page proudly declares: "No definitions were found for housing bubble." Can you believe that? American homeowners are feeling the effects of a term that has been used at least since May 31, 2005, when we were warned of its potential collapse on The NBC Nightly News with Brian Williams in a story by Chief Environmental Correspondent, Anne Thompson. The term was broadcast to tens of millions of households in America, remains in common speech, yet in the matrix of the country's biggest algorithm, there is "no definition". Wow.

So who, or what, is responsible for the housing bubble? Why did it occur? I did a web search to see what other people were thinking about the subject. I found that people are talking about the housing bubble burst, blaming the lending industry, the Federal Reserve, the government, zoning laws, teacher's unions, and even the weather. But I found little discussion about what caused the actual housing bubble itself in the first place. And so I ponder...

The first time I heard the term "housing bubble" was from a real estate agent in early 2004 as I inquired about purchasing an investment home. At that time mortgage interest rates were low, mortgage brokers could create special programs to fund mortgages, and much of the real estate around me was being listed at continuously higher prices. Real estate investors were in a house flipping craze and new homebuyers were qualifying for home loans at record rates. The housing market was a real estate agent's dream. My real estate agent, anxious to make a quick sale, told me that I better not wait too long before I decided whether or not I was going to purchase the property I was interested in. She told me "the housing bubble has been blowing up for a couple of years and it won't be long before it bursts." I gave her a slightly confused look as she continued, "If you got in when the getting was good, you invested in property between 2002 and 2003. Investments were cheap to buy and easy to sell. The appraisers are helping us out with home values and the lenders are funding the loans. Homes are being sold at good prices today, but they are not going to hold their value for too much longer. The bubble is bound to burst. All good things must come to an end."

A real estate agent is the first to introduce me the 'housing bubble' term. Is it possible that real estate agents also had some hand in causing the whole housing bubble effect in the first place? When real estate agents sell homes, they are paid a commission. Although the average commission is currently 5%, it is down from 6% which was the average rate from 2002 through 2005. The higher the price of the home that sells, the more the commission that is paid. According to a recent study by Standard and Poors, home prices increased the most between January 2004 and December 2005. Now remember, lenders are lending more money to more people. A 6% commission for a home priced at $249,000 is $14,940. A 6% commission for the same home priced at $279,000 is $16,740. The difference is an additional $1,800. If loan funding is not an obstacle, why wouldn't real estate agents advise sellers to sell high in order to make more commissions?

If you think about it, real estate agents always advise sellers of listing prices, and most times those listing prices are based on the current state of the lending industry. If agents are noticing that more borrowers are being approved to borrow more money, they are going to encourage sellers to sell high. Of course, they will tell the seller that they can "take advantage of all the equity in the home" by selling high, but in the end, the higher the sales price, the higher the commission. Do you remember between 2003 and 2005 when becoming a real estate agent was a booming career? Now many licensed real estate agents have other "day jobs" because homes are not selling as frequently, or as pricey as they used to. I believe real estate agents definitely contributed to the cause of the housing bubble, and now they too are feeling the effects.

Fortunately, home loan interest rates have returned to low, pre-bubble levels and home prices are not as high as they used to be. It is a good time new homeowners to take advantage of low loan rates coupled with lower home prices. It is also a good time for current homeowners to save money each month, refinance their mortgage, and get a lower rate or better terms. And finally, if your home is valued at a lower price than what you paid for it and you are not ready to move, get your home reassessed. You may be entitled to a reduction in your property taxes based on the new assessment.

One of the most important parts of a real estate transaction is securing the right mortgage loan. Fortunately for today's borrowers there are plenty of types and options available. It is a matter of having good enough credit, earning enough income and deciding on which type best fits the situation.

Fixed Rate Loans

The most traditional choice for a real estate mortgage is a fixed rate loan. This is a debt that is fully amortized, meaning that the interest rate is fixed for the life of the loan and the interest and principal are spread out over the whole term making the monthly payments basically the same each month. These are very predictable real estate loans and often considered some of the safest mortgages. The terms can vary and can be anywhere in the range of 5, 10, 15, 20, 30, or even 40 years long.

Adjustable Rate Mortgages

Adjustable rate mortgages (ARMs) are popular because they often terrifically low interest rates, at the beginning. The initial period can last from one to ten years, but after it is over the interest rate is allowed to rise and fall based on certain market indexes.

These loans can be very helpful for getting first-time home buyers and those with poor income or credit into the real estate market, but the danger lies in the adjusting rate period. Without a constant rate it can be very difficult to know how much the monthly payment will be which means it can be hard to plan out in advance how much will be needed.

And sometimes the rates can really skyrocket making the payments unaffordable for some real estate buyers. These debts are best if buyers refinance before the introductory rate period is over or for those who are very financially savvy.

Balloon Real Estate Loans

Balloon loans act like fixed rate loans, for a period. During the 10, or 15 year term, the interest rate and payments are relatively low, but at the end of the period, the entire remaining balance is due in full. This might seem like a very impossible debt to repay, but they are really designed to be refinanced before the balloon payment comes due. The advantage is in the relatively low rates and payments.

Jumbo Loans

For those buying real estate in the pricier parts of the country, a jumbo loan will typically be required to cover the cost of the purchase. Conventional limits are set by Fannie Mae and the limit is the largest loan amount that Fannie and Freddie Mac will guarantee.

Because most lenders want the reassurance of these conventional loans, they charge higher interest rates for loans that are not backed by the government-sponsored agencies. That is the basic difference between jumbo and conventional real estate mortgages, although income and asset requirements are typically higher as well.

Owning your own piece of real estate whether as your residence or for investment purposes can be an exciting venture. Getting the best mortgage loan for your purposes can help make the journey much smoother.

There are many reasons why homeowners are seeking out a home mortgage refinance. These reasons vary from simply wanting to have more money to pay off debt, all the way to lowering your monthly mortgage monthly payments. While there are many different reasons why you may want to refinance your home mortgage, there are several things you must know about this process that could save you time and money. The first of these is to understand all of the benefits of refinancing your home mortgage. Even though you probably have a good understanding of why you want to refinance, if you don't know all of the benefits you may be missing out on some of them.

The first benefit to refinancing your home mortgage is to give you control over how much interest you will actually be paying. If you are like many homeowners, then your mortgage probably has an adjustable rate. While this may have seemed like a great idea at the beginning of the loan, throughout the years you have probably experienced an increase of interest, which can ultimately cost you thousands of dollars.

This type of instability causes many people to worry about their next month's mortgage payment, and whether or not it will stretch their finances too slim. When you have an adjustable rate on your home mortgage, you can refinance your mortgage to a fixed rate, which will allow you to have stability with your monthly payments.

Some individuals feel that an adjustable rate mortgage is the way to borrow your home loan, however, if you have experience an interest peak then you quickly understand why this is a hassle you just don't want to deal with. When you go with a refinanced, fixed rate, mortgage, you may have a slightly higher interest rate, however, you will have confidence in knowing that this rate will never rise.

One of the main reasons why you would want to use a home mortgage refinance for this use is if you are planning on living in your current home for quite some time. Otherwise, you may want to consider another benefit of a refinanced mortgage.

If you want to refinance your mortgage, but you don't want to settle with a fixed rate interest plan, than you can choose to have a cap put onto an adjustable rate mortgage. This is perfect if your current adjustable rate loan does not have a cap because it allows you to have semi-control over how high your interest rates will actually go. With a capped adjustable mortgage, you will be able to experience lower interest rates, and the interest will never increase past your pre-determined cap.

This type of home mortgage refinance option is perfect for individuals who want more security within this mortgage, but aren't planning on living in their current household for many years. When you refinance your home mortgage, you are able to help streamline your finances and are given an opportunity to grasp onto financial freedom. Whether you want to consolidate your various debts, or if you simply want more security, a home mortgage refinance is definitely a great way to do so.

Mortgage junk fees are all lender charges (not points) paid in advance. They include charges expressed in dollars, like a processing fee, lender attorney fee, endorsement fee, origination fee (one charge expressed as a percentage of the loan), etc.

Info about junk fees is very difficult to obtain early enough to be useful when you look for loans. Therefore, junk fees are very different from points, the other type of lender charge. Points are a direct lender charge expressed as a percent of the loan amount. They are viewed as part of the cost of credit and are showed wherever the interest rate is displayed. When you are quoted a price on a loan, it includes the interest rate and points. Rarely does it include junk fees!

Origination fees are the worst of the junk fees and are deliberately deceptive. Origination fees are expressed as a percentage of the mortgage, like points, but they are not disclosed as points. Their entire purpose is to allow the mortgage lender to appear to be charging fewer points than is in fact the case!

Itemization confuses borrowers. Junk fees are itemized fees. Financial companies are not required to itemize their charges and only a few don't. These lenders charge one fee. But most of the rest itemize because lenders believe that they can extract more in total from the borrower this way.

Also junk fees are never locked! When financial companies lock the rate, they commit to a specified rate and points known to the borrower. Lenders do not commit to a specified amount of total junk fees. The Good Faith Estimate (GFE) that lenders are obliged to provide borrowers shortly after receiving a loan application, shows all junk fees but doesn't bind lenders. They can revise the GFE right up to closing!

Mortgage junk fees are good to know about in order to ignore them. In addition to the points and rate, your focus should be the total of other fees. When you are mortgage shopping, ask the lender for that total in writing, if the lender will lock it at the time he locks the rate and points. Most financing companies will lock it in if you ask for it when you are in a shopping mode.

LendAdvisors.com - Blog that helps you with Real Estate, Mortgages & Refinance.

Real Estate Refinance can be a lot less stressful and can go a lot quicker with a basic understanding of the requirements of each type of loan.

Real Estate refinance using fha insured loans is generally restricted to two basic loan types. Regular fha and their "Streamline" loan program.

To qualify for any fha mortgage you must be of legal age, you must be a citizen or a legal resident and you must have a social security card.

If you are not a U.S. citizen you will have to document your residency status, either as a legal permanent resident or as a non-permanent resident alien.

The streamline loan requires less documentation so is much faster. Under this program your credit history and your income and employment need not be verified. However, because of the lack of credit and income history the program does have some restrictions.

The qualifications you must meet before you can apply for a streamline loan are as follows:

A- Your current mortgage must be an Fha insured loan.

B- You have been making payments on your current loan for at least six months.

C- All your payments are up to date on your current mortgage loan.

D- The new loan will lower your rate of interest and your monthly payment.

E- You are not seeking to receive any cash back or to consolidate any other bills.

You can however, include excess funding to rehab or remodel your home up to $15,000, but this can not include any structural rehabbing.

If you want to get some cash back or consolidate some of your bills or currently have a sub-prime or conventional loan you will be held to the requirements of the basic real estate refinance loan with fha worksheet:

A- Has it been at least two years since any bankruptcy has been released?

B- Has it been at least three years since you have been in foreclosure?

C- Are payments on your student loan current?

D- Are there any judgements currently outstanding against you?

E- Is your home loan payments up to date?

F- How many times has your mortgage payment been late in the last two years?

G- Excluding your student loan and mortgage payment, list all loans that are currently late or that have been over thirty days late frequently during the last two years.

H- Total amount of your monthly household income. Include yours, your spouses, alimony, child support, etc.

I- List all of your monthly payments. On credit cards list the minimum

monthly payment.

J- Estimate the amount of funds you have in bank accounts, checking accounts, retirement fund contributions, etc.

I know this seems like an awful lot of information but, really it is not. Once you get all your data together it is not so bad. A lot of lenders use a pretty fast pre-qualifying rate quote form that you can go through in 2 or 3 minutes.

Just remember that the success of your Real Estate Refinance depends almost solely on you. The better you understand the different types of mortgage loans, and the more thorough your search, the better the odds of you getting the best terms and rates available to you.

Creative and exotic mortgage programs scare the H#@& out of the Feds, Wall Street and consumers alike! Are the lenders themselves liable for the fallout?

Interest-Only Loans; Interest-Only Adjustable Rate Loans; Short-term Adjustable Rate Loans; Optional Payment and Payment Options Loans; and Negative Amortizing Loans... the list is long and nearly every one of these mortgage programs has as many negative risks to them as they may have positive and beneficial aspects.

The Federal Regulators, Wall Street Mortgage Securities Firms and Mortgage Bankers know this as well. Each entity has recently issued guidance concerns to address the risks posed by these residential mortgage products that allow borrowers to delay, defer and even with some of these programs, not even pay the amount of interest that may be due in any given month. More often than not, the primary similarity in each loan program is that the terms will allow the borrower to pay a lower monthly payment at the onset of the mortgage, for a specific period of time, in exchange for higher payments and/or rates later in the term of the loan.

Many of these types of programs have been available to the consumer for quite a while. What has changed over the past few years though is that the number of lenders offering these programs and the number of consumers choosing them has significantly increased; some experts estimate by as much as 300 to 500%. In previous years, the more financially sophisticated, higher income professional or self employed business owner were targeted for these programs. The real risk and concern is that it has become the median income, standard W-2, typical middle-America borrower that has been 'sold' these programs more than ever before. These, for the most part are borrowers that can least afford to take on the risks.

The greatest risks lie in a couple of arenas: Real Estate values are presumed to be flat and even declining in many areas of the country. It has been the gamble of many of the borrowers that they would see continued escalating values and growing equity that would offset any possible negative implications or costs to these programs they might encounter in the future and the borrower could simply refinance or sell before those potential risks might come back to haunt them. The press has made us well aware of the changing markets and just how much of a gamble this has truly become.

Secondly, many borrowers just assume their income will grow over time and this sense of personal optimism would offset the inherent risks. What happens then, if their income grows at an atypical historic rate of 1 to 2% and the negative costs to the loan program coupled with possible rising interest rates and flat values or even declining values is even slightly worse than a borrower expected?

But, that is not where the risks end! Now factor in the bludgeoning rate of second and equity mortgages (many too with adjustable rates tied to a much more volatile prime rate index) that the borrowers have added on to their homes as a means of trying to pay off their ever climbing consumer debt. The risks in all these mortgages just climbed even more.

The results have yet to be felt by either the consumer, Wall Street or the mortgage industry. The fear is a rise in foreclosures and bankruptcies. In 2007 and 2008, it is anticipated that over $1 Trillion in adjustable rate, interest only and optional payment loan programs will be coming up for their rate adjustments and the consumers will be forced to refinance, sell or just try as best they can to make house payment that could very well go up between 30% and 50% over what they were paying when they initially closed their mortgage.

So the real question?

Is the mortgage industry itself at least partially to blame for the possibility of the real estate bubble bursting in the near future? Armed with loan programs disguised as creative alternatives to help the consumer and the housing industry, one could easily accuse the mortgage industry as a whole of not only designing programs specifically to fill their own coffers with future refinances, but also of forcing unsuspecting consumers into taking on financial risks and even ruin by recommending these high-risk loans.

The mortgage industry and their predatory pursuit of more and more business and profits has blinded them to their responsibilities and in that, are the lenders liable at all for what may be coming around the corner? Time will tell.

Whether you are new to pre-foreclosure real estate investing or are a seasoned pro, knowing all the ways to slow and stop the foreclosure process in your area, for your clients, is critical. Each property and each situation is unique, so the more options you can offer your customer, the better.

Some foreclosure avoidance options are available everywhere, others are only available under certain circumstances. Different states have different laws regarding foreclosure. Judicial states and non-judicial foreclosure states have very different time lines.

Besides each state having different ways of handling the foreclosure of property, each lender, investor behind the note or mortgage, private mortgage insurance company, and county or municipality may have their own way of doing things that must be adhered to.

The main ways to stall or stop a foreclosure are as follows:

• Re-instatement
• Refinance
• Forebearance
• Loan Modification
• HAFA
• List With Realtor & Sell Home
• Sell Home FSB0 (For Sale By Owner)
• Short Sale
• HAMP
• Forensic Loan Audit
• Produce the Note
• Bankruptcy

Re-instatement involves catching all overdue payments, interest and fees up. Generally someone who is behind on their loan can pay all arrearages and re-instate their loan. This option is available at anytime during the foreclosure process, up to the sheriff or foreclosure sale. Most homeowners can not do this. If they had the money to catch the loan up, they would not have gotten behind in the first place. Legal fees, late fees, charges, interest, and expenses charged to the homeowner add up fast. This makes this a hard option for most distressed property owners. Unless they can borrow money from relatives, get money from a retirement or savings account or win the lottery, the home owners usually are not in a position to make up all the past due amounts and charges.

Refinance-This option involves the distressed property owner going out and securing a new loan for the property in order to pay off their existing delinquent loan. The problem is, they are already behind or delinquent on their present loan. No lender is going to lend them the money or write them a new mortgage unless there is a substantial amount of equity in the property. Some homeowners do have good credit and are able to secure alternate financing before they get behind on payments. In times of declining property values, like most people find themselves in today, it is virtually impossible to refinance for the amount owned.

Forebearance-This option is available to most borrowers. It is when the lender agrees to allow the home owner to make up the entire amount they are behind, by splitting the amount delinquent over a short period of time (usually 6 months to 2 years). They then divide the entire delinquent amount by the payback period and add the amount to the regular monthly mortgage payment amount. So, if someone's regular payment was 2000 and they were 12000 behind, with a 6 month payback period, they would be expected to make 4000 per month payments for the next 6 months. Most of these plans fail. If the borrower was having trouble making a 2000 per month payment, how can a lender reasonably expect them to be able to make a 4000 per month payment.

Loan Modification-Most lenders have the ability to modify the terms of a borrowers original note or loan. There are many creative and flexible ways of dealing with such modifications. Some lenders will reduce the interest rate, extend the amount of time to pay back the loan (to as many as 40-50 years), and on rare occasions, reduce the amount of principle that the loan is based on. Each lender and investor has a unique process for determining which loans they will modify and how they will modify it.

HAFA-Making Home Affordable Government Loan Modification Program-These programs have been an immense failure. They have taken the amount of time required for lenders to process a loan modification to an average of 470 days. The program has no enforcement provisions, rendering it a bureacratic/paperwork/labor intensive waste of time, energy and resources.

List With Realtor & Sell Home-Borrowers who have equity in their homes or the ability to pay closing costs, may be best off listing their home with a realtor and getting it exposed on the MLS for a quick sale.

Sell Home FSB0 (For Sale By Owner)-Home owners with little equity may opt to try and sell their home themselves. They will also have to negotiate and handle the closing themselves.

Short Sale-This is the option for distressed property owners who owe more than their home is currently worth. If they are not able to sell the home for what they owe and make up the difference, they need to get their lender's permission to accept less than is owed, as payoff of the loan (so clear title can be offered to the new buyer).

HAMP-The is the government short sale program. Like HAFA, it has no enforcement and has some inherent flaws that make it a very unattractive option for distressed home owners. One problem is that homeowners are required to begin making payments on their property in order to be part of the HAFA short sale program. Most home owners who need to sell their property short have not been making payments for some time. It is unrealistic to expect them to start making monthly payments on a property they are losing. Another problem with this program is that home owners are required to sign a Deed In Lieu of Foreclosure, meaning that if they "fall out of the program", their house immediately becomes the property of the lender.

Forensic Loan Audit-This is primarily a stall tactic used to make the lender prove that they have the right to foreclosure on a property by proving that they have the original note in their possession. The foreclosing lender must be legally entitled to take action against the home owner. Such audits usually involve all sorts of RESPA and lending practice verifications, as well. Almost every loan and real estate transaction contains some sort of error, so this has proven to be an effective strategy for many borrowers.

Produce the Note-Also, mostly used as a stall tactic, at the end of the foreclosure process, this strategy requires that the foreclosure lender prove that they have the right to foreclose on the loan/property.

Bankruptcy-Filing bankruptcy in federal court will immediately put a stop (albeit temporary) to the foreclosure process in all areas. Normally, lenders will petition the court for a stay to release the property from the foreclosure. These are often granted, unless the home owner has significant equity in the property and it is considered an important asset to the Bankruptcy court. Once the property is released from the bankruptcy, the foreclosure process will pick up right where it left off.

Deed In Lieu = Foreclosure without the lender having to go through the expense and time of the foreclosure process.

Knowing what options are available to a distressed property owner and how they work in your area, gives you the ability to explain each of them to the people you work with, so together you can decide what is the best option for them and their particular circumstance.

Serving your customers in many ways builds trust and relationships that will lead to more business success.

One of the first steps before you start looking for your dream home is to ask yourself what you can afford to spend on a monthly house payment. Real estate financing has its secrets and you'll gradually learn them by continuing to research everything you can find online and offline about home mortgages, mortgage loans, commercial mortgages or investment mortgages, current interest rates; get quotes too. If you have monthly obligations such as car payments, credit card payments, personal loan payments, student loan payments, etc., make sure to take all these into account when you're determining your bottom-line affordability figure.

A fixed-rate mortgage means the interest rate and principal payments remain the same for the life of the loan but the taxes may change. Most adjustable rate mortgage programs offer "rate cap" protection, which limits the amount the rate can be increased, both each year and over the life of the loan; all adjustable rate mortgages are amortized over 30 years. 30-year fixed-rate mortgages offer consistent monthly payments for all of the 30 years you have the mortgage; if the market is good, you can benefit from locking in a lower rate for the full term of the loan.

15-year mortgages are an ideal option if you think you can handle the higher monthly payments and if you'd like to have the loan paid off in a shorter period of time, for example, if you plan to retire. Loan programs for down payments of 20% or less require you to buy Private Mortgage Insurance (PMI). The disadvantages of a fixed-rate mortgage include a possibly higher cost; these loans are usually priced higher than an adjustable-rate mortgage.

If you're buying a second home or property, you will need to identify the sources for your down payment, since you'll not be selling your current house and using the proceeds, and you'll need to expect larger monthly payments for housing or any other expenses too. Check with your CPA or accounting professional, you may be able to deduct the interest you pay on the mortgage loan and some of the financing costs of the home, such as points on your income tax return. The interest rate for an adjustable rate mortgage may be adjusted up or down at predetermined times; the monthly payments will then increase or decrease.

15-year fixed-rate mortgages mean consistent monthly payments for all 15 years that you have the mortgage; you build equity even more quickly than with a 30-year or 20-year loan, and paying less in interest, you save money in the long run. The 30-year loan is your best choice if you're looking for a long-term stable loan; for instance, if you're planning to stay in your house for a long time. A mortgage application can be resubmitted several times; it's not uncommon for this to happen either, I've seen it many times.

Be careful when working on your real estate financing; if you make too many loan inquiries, with applications, it may look like you're shopping for credit; this can be a glaring red flag for many lenders. Borrowers can submit information about income, assets and equity to determine how much a down payment should be, which is usually processed through an automated underwriting system. The real estate financing situation for each buyer is unique.

If you're a first-time home-buyer it's possible that you may qualify for a lower down payment or lower interest rate; check with mortgage brokers, online mortgage companies, your county housing department or your employer to see if they know of any programs available. Advantages of adjustable rate mortgages include: lower costs - because they are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments and if the interest rates go down, you'll have lower payments.

You have to be careful to not assume you can cut back on your expenses and stretch yourself into a house payment; you don't want to be cutting into good, healthy eating habits by eating fast food or junk food for a house that you may not be well enough to live in for a long time; make sure to consider this when you first start out searching for the best real estate financing. You also have to feel comfortable with the reality of the amount of the monthly payment on your house or other real estate. Try not to get overwhelmed with all the different investment, commercial and home loan and mortgage choices available.

Being a real estate investor is not really that hard, Sometimes you do not need any money down. Other times you do not need any of your own money down. Below are 7 Methods to buy property and earn money.

1 - Buy and Flip

This is a Method where you buy Real Estate at below Market Price and sell quickly and make some fast profits

2 - Buy Fix and Flip

This is Similar to method 1 except you would typically hold the property a little longer so you could do some fix ups, This method is designed to yield a higher profit then Method 1.

3 - Buy and Hold

You buy the property and find a renter. If you were to buy 2 Properties a year for 10 years you could have 20 Properties all earning you a positive cash flow when you retire. Even a modest positive cash flow of $500 a Month per property in Todays dollars would equal a $10,000 a month retirement income

4 - Wrap Mortgages

This method works well with people who have a hard time getting a mortgage because of income or credit or both. You sell them the property on a contract. You keep the existing mortgage and stay on title.
You then wrap the old mortgage with a new mortgage. Let's say you have a 30 year mortgage at 6% for a $100,000 with a monthly payment of $599.55. You Give them a 30 Year Wrap mortgage at 8% for $125,000 with a monthly payment of $880.52. You could have provisions where if they refinance in 3 - 5 Years
and pay of your mortgage and become sole owner.

5 - Lease Option

Lease with an Option to buy is similar to a wrap mortgage but they are renting the property at an above market rent. They do have a right to buy at some fixed priced in the future. As an Example you could rent them the property in Example 4 for $900 a Month. They will be able to purchase the property in 3 years at 5% below the appraised value (from an agreed upon appraiser). They also agree to keep the house in good repair. If they make all payments in a timely fashion $100 of each months rent would go towards the purchase price.

6 - Equity Share

Equity share involves and investor and a Homeowner. The Investor will put down the down payment and the homeowner will live in the house and make all the monthly mortgage payments. The investor will own 50% of the House and the homeowner will own 50% of the House. After 3 - 5 years you will either sell the house payoff the mortgage and return the down payment to the investor and then divide what's left or the homeowner will refinance the house and buyout the investor. (Sometimes the investor will record a 2nd trust deed with low or no interest against the house to secure there interest)

7 - Buy Low Refinance High

Another popular method is to buy low and refinance high. You buy a property for $70,000 with $5,000 down leaving You a $65,000 mortgage. You do $10,000 worth of improvements to the property and then refinance it for $110,000. The Difference between the new loan at $110,000 and the old loan at $65,000 would be $45,000 cash in your pocket. Your net cash would be $30,000 since you have placed $15,000 cash in the property already. You can now use method 3 find a renter and hold the property long term. You could also use methods 4,5 or 6 to have a positive cash flow now and lock in a profit in 3 to 5 years.

The above are just some of the many 100's of methods successful real estate investors use to earn money. The key component in any of the above methods is finding the right financing. A loan for the buy and hold method may be very different then the loan for the buy and flip method. The wrong loan could be the difference between a nice profit and a modest profit or maybe even a loss. (You wouldn't want a loan with a large prepay penalty in the buy and flip method) make sure you work with an experienced loan professional who can Tailor a loan to meet your needs

Qualifying for a real estate purchase requires different credit than auto financing or credit cards. In fact, you may be able to go out and buy a new car today, but you might be turned down for a home mortgage. On the other hand, you could go out and buy a house and be turned down for an auto loan.

Perhaps you recently applied for a line of credit and were told that your credit score was excellent. When you apply for an auto loan or a consumer credit card, the scoring model computes a different credit score than when a mortgage lender runs your credit. Your credit scores differ for different types of loans. Plus, mortgage lenders run all three credit reports and usually take your middle score as their basis for your loan requirements.

However, some mortgage companies, especially non-prime lenders, will use your highest credit score. For a mortgage refinance, some lenders don't even run a new credit report if all your mortgage payments were made on time. They use the credit score from when you first applied with them.

Besides your credit score, mortgage lenders consider your debt-to-income ratio and other credit matters, unlike other types of credit grantors. Your debt-to-income ratio is the comparison of mortgage payment, including taxes, interest, and insurance to your total gross monthly income.

Real estate lenders also consider:

• Your education
• Your income
• Your employment qualifications
• Your overall monthly debt payments

Understanding the difference between good credit and the credit needed for real estate mortgages helps you refinance your mortgage or buy your dream home.

Copyright © 2005 Jeanette J. Fisher All Rights Reserved.

If you have a lot of bad credit because of consumer debt like credit cards or personal loans, you'll want to try to eliminate or reduce this debt before you apply for any real estate financing, since it will affect your ability to qualify for a home mortgage and to make the estimated monthly payment. When you're buying a home, getting a home loan and the best mortgage rate is the most important step in the whole process; you'll need to understand the basics about real estate, loans, mortgages, current mortgage rates, and points to get your real estate financing in place.

The first step, even before you start looking for your dream house, is to ask yourself what you can afford to spend each month on a house payment. Find out if there is a mortgage broker or lender mortgage network in your area or check online.

Keep in mind that whether you're financing or refinancing that most people move or refinance within seven years. And insiders know that the advertised mortgage rates you usually find are not always what you'll actually get from the lender. Market fluctuations, economic news or any other of a dozen reasons can influence interest rates throughout the day.

One of the advantages of adjustable rate mortgages includes lower costs. They are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If the interest rates go down, you'll have lower payments. However an ARM is usually not the best choice.

One of the disadvantages of an adjustable rate mortgage is the possibility of the monthly payments increasing if interest rates go up. Make sure to keep in mind that adjustable rate mortgages are best for homeowners who are not planning to stay with a property for a long time.

Note that any money that you receive from any lending institution will appear on your credit report and your monthly payments will factor into your debt-to-income ratio. Now if you're working with a local builder in a sub-division or housing development and only making the carpeting, lighting and appliance selections for your brand new home, you'll probably be able to get a standard mortgage loan. But if you're hiring contractors, electricians, plumbers, and painters for example, you'll probably need a construction loan, which provides funds so you can pay the subcontractors as the work goes along.

Most of all you'll need to determine what you can afford to buy. A mortgage application can be resubmitted more than once. If you're having a problem getting a home mortgage and the seller still owes money on the home you can check with your lender and see if you can get a wraparound mortgage on it. Although they are not legal in all states, it'll allow you to pay the monthly payment on the existing mortgage and an additional payment to pay the difference. But make sure that the wraparound mortgage won't trigger a due-on-sale clause.

The disadvantages of a fixed-rate mortgage include a usually higher cost than other types such as an adjustable-rate mortgage. If you borrow any money for a down payment it must be disclosed to the lender or if any of the money for your down payment was a gift, you'll need to provide proof. You'll also need to consider the closing costs and the escrow account for taxes and insurance.

The property taxes may be deductible. Check with your CPA or other tax advisor for the newest tax information. The advantages of a fixed-rate mortgage include consistent principal and interest payments making the loan stable so your rate won't change. This is a good choice if you think you'll stay in the house for many years. The interest rate for an adjustable rate mortgage may be adjusted up or down at preset times so the monthly payment will increase or decrease based on this.

When financing real estate it's also important to know that a low FICO credit score doesn't mean you won't qualify for a home loan or home mortgage.

Before you complete any real estate financing read over every real estate contract or home mortgage contract carefully before you sign on the dotted line. Look for anything vague and don't be afraid to ask questions about anything you don't understand.

Whatever you do don't get yourself into a situation where you can't make the home mortgage payments; think ahead. You have to be careful not to assume that you can cut back on your expenses and stretch yourself into a house payment; you don't want to be cutting into healthy eating habits by eating fast food for a house that you may not be well enough to live in for a long time. There is much to think about when you first start out searching for the best real estate financing.

Conventional loans are typically the hardest to obtain for real estate investors. Some lenders don't allow income from investment properties to be counted toward total income, which can make global underwriting a problem for certain investors, especially those who already have several existing conventional, conforming real estate loans reporting on their credit. In these cases, the investor must look outside conventional funding for their investments. Two of the more popular choices for alternative financing are portfolio loans and hard money loans.

Portfolio Loans

These loans are loans made by banks which do not sell the mortgage to other investors or mortgage companies. Portfolio loans are made with the intention of keeping them on the books until the loan is paid off or comes to term. Banks which make these kinds of loans are called portfolio lenders, and are usually smaller, more community focused operations.

Advantages of Portfolio Loans

Because these banks do not deal in volume or answer to huge boards like commercial banks, portfolio lenders can do loans that commercial banks wouldn't touch, like the following:

• smaller multifamily properties
• properties in dis-repair
• properties with an unrealized after-completed value
• pre-stabilized commercial buildings
• single tenant operations
• special use buildings like churches, self-storage, or manufacturing spaces
• construction and rehab projects

Another advantage of portfolio lenders is that they get involved with their community. Portfolio lenders like to lend on property they can go out and visit. They rarely lend outside of their region. This too gives the portfolio lender the ability to push guidelines when the numbers of a deal may not be stellar, but the lender can make a visit to the property and clearly see the value in the transaction. Rarely, if ever, will a banker at a commercial bank ever visit your property, or see more of it than what she can gather from the appraisal report.

Disadvantages of Portfolio Loans

There are only three downsides to portfolio loans, and in my opinion, they are worth the trade off to receive the services mentioned above:

• shorter loan terms
• higher interest rates
• conventional underwriting

A portfolio loan typically has a shorter loan term than conventional, conforming loans. The loan will feature a standard 30 year amortization, but will have a balloon payment in 10 years or less, at which time you'll need to payoff the loan in cash or refinance it.

Portfolio loans usually carry a slightly higher than market interest rate as well, usually around one half to one full percentage point higher than what you'd see from your large mortgage banker or retail commercial chain.

While portfolio lenders will sometimes go outside of guidelines for a great property, chances are you'll have to qualify using conventional guidelines. That means acceptable income ratios, global underwriting, high debt service coverage ratios, better than average credit, and a good personal financial statement. Failing to meet any one of those criteria will knock your loan out of consideration with most conventional lenders. Two or more will likely knock you out of running for a portfolio loan.

If you find yourself in a situation where your qualifying criteria are suffering and can't be approved for a conventional loan or a portfolio loan you'll likely need to visit a local hard money lender.

Hard Money and Private Money Loans

Hard money loans are asset based loans, which means they are underwritten by considering primarily the value of the asset being pledged as collateral for the loan.

Advantages of Hard Money Loans

Rarely do hard money lenders consider credit score a factor in underwriting. If these lenders do run your credit report it's most likely to make sure the borrower is not currently in bankruptcy, and doesn't have open judgments or foreclosures. Most times, those things may not even knock a hard money loan out of underwriting, but they may force the lender to take a closer look at the documents.

If you are purchasing property at a steep discount you may be able to finance 100% of your cost using hard money. For example, if you are purchasing a $100,000 property owned by the bank for only $45,000 you could potentially obtain that entire amount from a hard money lender making a loan at a 50% loan-to-value ratio (LTV). That is something both conventional and portfolio lenders cannot do.

While private lenders do check the income producing ability of the property, they are more concerned with the as-is value of the property, defined as the value of the subject property as the property exists at the time of loan origination. Vacant properties with no rental income are rarely approved by conventional lenders but are favorite targets for private lenders.

The speed at which a hard money loan transaction can be completed is perhaps its most attractive quality. Speed of the loan is a huge advantage for many real estate investors, especially those buying property at auction, or as short sales or bank foreclosures which have short contract fuses.Hard money loans can close in as few as 24 hours. Most take between two weeks and 30 days, and even the longer hard money time lines are still less than most conventional underwriting periods.

Disadvantages of Hard Money and Private Money Loans

Typically, a private lender will make a loan of between 50 to 70 percent of the as-is value. Some private lenders use a more conservative as-is value called the "quick sale" value or the "30 day" value, both of which could be considerably less than a standard appraised value. Using a quick sale value is a way for the private lender to make a more conservative loan, or to protect their investment with a lower effective LTV ratio. For instance, you might be in contract on a property comparable to other single family homes that sold recently for $150,000 with an average marketing time of three to four months. Some hard money lenders m lend you 50% of that purchase price, citing it as value, and giving you $75,000 toward the purchase. Other private lenders may do a BPO and ask for a quick sale value with a marketing exposure time of only 30 days. That value might be as low as $80,000 to facilitate a quick sale to an all-cash buyer. Those lenders would therefore make a loan of only $40,000 (50% of $80,000 quick sale value) for an effective LTV of only 26%. This is most often a point of contention on deals that fall out in underwriting with hard money lenders. Since a hard money loan is being made at a much lower percentage of value, there is little room for error in estimating your property's real worth.

The other obvious disadvantage to a hard money loans is the cost. Hard money loans will almost always carry a much higher than market interest rate, origination fees, equity fees, exit fees, and sometimes even higher attorney, insurance, and title fees. While some hard money lenders allow you to finance these fees and include them in the overall loan cost, it still means you net less when the loan closes.

Weighing the Good and the Bad

As with any loan you have to weigh the good and the bad, including loan terms, interest rate, points, fees, and access to customer support. There is always a trade-off present in alternative lending. If you exhibit poor credit and have no money for down payment you can be sure the lender will charge higher interest rates and reduce terms to make up for the added risk.

When dealing with private lenders make sure to inquire about their valuation method.

Also, with hard money lenders, you should be careful in your research and background checking. While hard money loans are one of the more popular alternative financing options, they are often targets for unscrupulous third parties. Before signing any loan paperwork make sure to run all documentation by a qualified real estate attorney and/or tax professional. If you suspect fraud or predatory lending contact the state attorney general office.