Paying for a massive investment such as real estate is almost impossible with a single payment; even for the richest and most prosperous of Americans. Therefore, one of the most common options for those who need help in paying is to take out a mortgage loan, or more commonly referred to as a mortgage. The definition of this loan is one that is secured by real property via the use of a note that secures the loan; or basically a finance plan that the buyer takes out with a bank.The primary facet of a mortgage loan is the pledging of interest to the bank as collateral for the loan itself. That way, the bank receives a benefit for loaning the money and the person borrowing the money pays a slight penalty for not having enough money to make the purchase outright.

This is where the main features of a mortgage come into play; the size of the loan, the interest rate, and the date of maturity. Those three factors are essential to considering what kind of loan is right for your real estate investment. The longer your mortgage is dragged out, the more interest you will pay; but your time to acquire and accumulate the funds goes up as well. The best course of action when taking out a mortgage on a house or other large purchases is to expect the unexpected and never assume rapid growth in your income or wages. This way, if disaster strikes, hopefully your family and your finances can weather the storm.

To most folks, inner financial peace means a lot and therefore one can opt for refinancing even when the conditions are less than ideal wile making deals with mortgage brokers who are not necessarily honest. Of course, not every one of them are like this, so it is important to know who you are dealing with before signing anything or paying any kind of upfront fees (in the case of foreclosures).

However, here are a few things that you can consider before trusting anyone completely in matters of refinancing:

1) Understand why you are refinancing your mortgage.

Mortgage brokers and banks will always be biased to their products/ clients even these options may not work out to your advantage, but theirs in terms of commissions. So it is obvious that the loan they are offering you is their best interests and not necessarily yours. Just remember that there are always pros and cons to a refinancing loan, and it is in your best interests to check their loan offers with a trusted financial advisor.

2) Adjustable Rate Mortgage

Most folks would opt for an ARM type loan that might help meet your short-term needs in terms of cash flow. However, even though your monthly payment can drop in opting for one these loans, it will be hard to handle when the rates increase after the low-rate introductory period is over.

3) Numbers, numbers, numbers

One should consider several factors before opting for a refinancing loan apart from the old approach which was taking a refinancing loan if the rates dropped at 2 %. Three factors such as prepayment penalties, closing costs and fees of a new loan as well as property tax should also be taken into consideration before going for a refinancing loan.

In the business of providing loans to people, you can always take the easy if you have good credit, or you can take the hard way by availing hard money loans that are given out a much higher interest. Just from this statement, any one could tell that this has nothing to do with banks that are very careful when it comes to giving out loans according to government regulations.

For one, hard money lenders are actually private lending companies that offer a specialized type of real-estate backed loan. What this means for its user is that these short-term loans require collateral (usually in the form of real estate) to insure the loan just in case something went wrong. So, the amount of the loan is only based on the current value of the property, and no more.

And if that’s not enough, hard money lenders charge a higher rate of interest as opposed to federally regulated banks, which has an upper limit that has been set to protect the consumer. And it is here that the risk is, as once the customer defaults, the rate of interest can go up to atrocious levels with no protection from the government or laws that have been put into place.
In some cases, rather than funding the business or individual with an upper-limit of 65% of the property value, one can also include the business or personal assets in order to get more funding. Therefore, some borrowers add additional property to increase the value of the loan, which is known as cross-collateralization.

When in the real estate business, using your private money has its advantages. Investor mortgages, the usual bank mortgage loans are hard to come by, and thus, you need other sources to go about your business. Here is why you should consider utilizing private money:

You can close the sale faster
You could buy property at a discount
There is no credit check during the sale and thus does not turn up in your credit report
You have access to unlimited funds
You have absolute control. This means you make all the rules.
When you buy a property, you also get part of your profits
Great cash flow
In terms of money, everything is more flexible
With your private money in hand, you can easily make offers with a whole lot of confidence
It is far more cheaper than having a partner
Creates a good foundation for a profitable real estate business

In the real estate business, deals can come and go. In order to cinch deals, it is imperative that you move fast. Many an investor has watched a deal slip by while waiting for approval on a bank loan. When you choose to use your private money, it is freely available to you and will never have to watch a good deal pass you by.

Here is how you can raise private money through persons through what is called private lending:

Private lending group presentations
One-on-one meetings
Out of town prospects
Existing private lenders

In this post we will try to explain some common terms in real estate mortage loans and lending.

Interest Rate – the amount of money you have to pay in return for borrowing money. This is very important in your real estate business. Interest rates can have a great effect on your monthly payments and this in turn affects the amount of money you have to buy a property. Interest rates could also affect your cash flow – pushing you towards selling your property instead of holding it.

Loan Amortization – loans can be structured in various ways: simple interest; amortized. Simple interest loans are calculated by multiplying the loan balance by the rate of interest. An amortized loan is calculated using a far more complex formula. This kind of loan breaks down payments over a few years, and you make recurring payments monthly. Interest unlike in simple interest loans is calculated on the remaining balance.

Balloon Mortgage – this is an early end to a loan. Take for example a three-year loan that requires interest-only payments, and it is then due in full at the end of the term. This loan could also be taken as an amortized loan over a period of 20 years, with the principal balance due for payment in four years. The borrower has to pay the full amount or face foreclosure when the loan balloon payment is due.

Lenders now have on offer variable-rate financing, due to uncertain rates predicted for the future. This ARM loan has so many variations that can be tailored to suit the lender’s profit motives and the borrower’s needs as well. It has two limits on the rate increase; one which controls the limit on interest rates over the lifetime of the loan, and the other regulates the amount the interest rate can be increased at a time.

Once you have lived in your home for a few years you may have the urge to rebuild and make things a little nicer and comfortable. The best option in this case would be to refinance your mortgage. What happens with a refinance is that the lender will look at the current value of your home as opposed to the amount you have mortgaged, and they give you a certain amount of funds from the difference. This means that your mortgage gets bigger and the funds from the difference come to you. The advantage is that this can be a better deal than negotiating for a separate home improvements loan.

However, there are a few things that you should watch out for. Read through your contracts thoroughly and make sure that you do not have to pay any additional fees to do this. Some lenders charge a fee to refinance a mortgage. Also, you should get an idea of the current interest rates and make sure the interest rate for your new mortgage is on par with those. Some lenders may take the opportunity to offer you the same interest rate as your old mortgage, even though the market rate is much lesser. At this point you should also compare interest rates and terms of home improvement loans. You may stumble across a plan that provides you with better benefits than refinancing your mortgage. However, since most home improvement loans are for a shorter period, you may want to re-plan your finances to make sure that you can make the payments plus the interest.

Bad lenders are as easy to come by as any lender. Some will try to use a very small interest rate to trick you in to getting a policy that will have a higher insurance policy premium. Most of these less scrupulous lenders will also tie you in to a long term deal, imposing large penalties if you want to switch policies. These bad lenders will sometimes increase your interest rate to unreasonable amounts and since you cannot leave the policy for a new one because of the penalties, you will be stuck paying way more than you bargained for.

A good mortgage lender will always charge a reasonable interest rate; it may not be the lowest in the market, but reasonable and they will not try to tie you in with penalties or a minimum number of contract years. They will also provide insurance policies at reasonable rates because they know that most customers like to have everything under one roof. It may also be a good idea to investigate building societies for loans or mortgages since they do not have the same kind of pressures that private or public companies have in appeasing their shareholders. You may also want to go with a reputed mortgage lender in order to ensure security, reliability and long term benefits. Therefore shop around and weigh the pros and cons and read the small print before you enter in to a mortgage contract. Chances are that the ones that seem too good to be true actually are too good to be true.

The short sale is a situation that occurs close to the early stages of a foreclosure. A lender allows the homeowner to sell the property for less than the amount of the outstanding principal on the mortgage.

Biggest Benefit is Time-Sensitive

The lender will accept proceeds of the transaction and may forgive the remainder of debt. Sounds so easy and uncomplicated – and sometimes it is. To achieve maximum benefit from a short sale, you need to have the following information at the tips of your fingers:

1) Know the current value of your home. Never rely on old information.
2) Make a list of all liens against your property. Concentrate on anything that needs resolution before you can produce a clean title at the closing.
3) Analyze the costs you will incur if you sell the house yourself against the costs of using a real estate broker.
4) When you add all liens, loans and costs and subtract them from the expected sale proceeds of the house, the result should be a negative number. This is the reason for calling this a short sale.
5) Keep communication lines open between you and your lender. Talk to your loss mitigation officer frequently. This person needs to understand your situation.
6) Be open to solutions that your lender may offer you. You may qualify for a loan modification or refinance – unless time is short and you really need to sell.
7) Never drag your feet. Timelines are important and your clock is ticking.

Best Benefit: Clean Slate

A buyer is not part of negotiations with the seller’s lender. Upon closing, the buyer moves in and the seller moves on.

Lenders usually report this transaction as “paid” to credit bureaus. Some might add “settled for less than owed.” It sounds negative, yet it is better than reporting a foreclosure. That could follow you around for up to ten years.

Three of the five largest mortgage lenders in the

District of Columbia are mortgage banking firms rather than savings and loan associations, a Washington Post computer analysis shows.
In terms of the number of mortgage loans made in the city over the past three years, Colonial Mortgage Service Associates, Inc., is the largest lender in the city.  However, in terms of the dollar value of mortgages, Colonial is second to Perpetual Federal Services and Loan.Among the top 20 mortgage lenders in the city, six were mortgage bankers that made 4,461 mortgage loans totaling $1563 million during the past three years, while 14 were banks and savings and loan associations that made 7,434 loans worth $360.3 million, according to the analysis. (more…)

Last week’s column noted how a mortgage banker like Dominion Bankshares Mortgage Corp. (DBMC) of Virginia, in an effort to build a portfolio of as many mortgage loans as possible and earn fees for servicing them, concentrates on originating loans and selling them quickly — either to a broker who will resell them to investors, or to a mortgage credit lending agencies. (Insurance companies, thrifts and commercial banks are among others that create mortgage loans.) Now we will examine how mortgages are priced and how points evolve. (more…)