California Mortgage Lender

Posts Tagged ‘investment property’

Non-traditional mortgages include “interest-only” mortgages where a borrower pays no loan principal for the first few years of the loan and “pay option” adjustable-rate mortgages where a borrower has flexible payment options with the potential for negative amortization. Negative amortization results in an increased loan balance over time if monthly mortgage payments do not cover the amount of interest due and the unpaid interest is then added to the outstanding loan balance. Non-traditional mortgages have become less likely to obtain with the recent real estate crisis. For example, numerous companies offered options like ARMs in the past and interest-only loans several years ago. Non-traditional mortgages are virtually non-existant with lenders today, especially if you own your own home and are trying to finance an investment property. For instance, in the past you could be looking to purchase a home, refinance a home, be a first time buyer, looking at a second mortgage, be interested in debt consolidation, a new home construction loan, a zero down loan, or FHA and VA loans and up until recently various lenders would beat down your door to offer you their services.

Interest-only loans may lower a homeowner’s monthly payments but will limit the amount of equity a homeowner can gain over time because the principal loan amount is not being reduced. Adjustable-rate mortgages (ARMs) may cause the homeowner’s monthly payments to increase over time, with the potential for those payments to be more than a household can handle. Interest must be paid on the additional cost of the property, and yields a treading water effect, in that homeowners or investors are building zero equity. These types of loans are all but declared illegal in the current market.

Traditional mortgages are more difficult to obtain and non-traditional mortgages have become virtually obsolete, take into account individuals looking to purchase Dallas investment property. As a result, we have seen a resurgence of mortgages insured by the Federal Housing Administration or FHA. Traditional mortgages are fixed rate mortgages, which have an interest rate and monthly payments that remain constant over the life of the loan. This sets a maximum on the total amount of principal and interest you pay during the loan.

Lenders need to assume that large and increasing outstanding balances will confront borrowers who choose minimum payments. We agree that the lending industry must underwrite these loans as if at some point in the near future there will be a large outstanding balance for loans with minimum payments. Lenders are claiming that they are restructuring their mortgages to offer lower or temporary fixed interest rates to reduce balances to help people save their homes for now. Lenders are going above 80% LTV (loan to value ratio) on first mortgages. Underwriting to higher DTI (debt to income) ratios indicates a lowering of underwriting standards.

Lenders will be required to maintain appropriate prudential management standards and provide customers information on their mortgage whether the loans are held in portfolio or sold into the secondary market. This requirement is in the proposed guidance because of the credit, legal and reputation risks associated with non-traditional mortgages. Lenders also look at past tax returns, even after the loan has been settled. It should also be noted that stated income or no-doc mortgages are not free of paperwork. Lenders calculate a ratio (debt ratio) using the total monthly debts and the total monthly income. For example if a borrower has a monthly income of $6,000 and a total monthly debt obligation (including housing expenses and other consumer debt) of $2,000, the debt ratio would be 33%.

When looking for investment property specialists that you’d feel comfortable working with and eventually investing with it’s important to look at a few specific things that can make the difference between making a lot of money and losing everything. People get taken advantage of everyday in real estate, I’ve seen it happen myself. If you follow up on the three things listed below, you have a very good chance of picking the right investment company.

1. Professionalism – This is the first thing you’ll notice and have as an evaluation of the company as a whole. Any company that you are entrusting with your money should act professional. If they can’t act professional to you when you interview them, they’ll never be able to act professional with your money and how they invest it.
2. Track Record – People can be good at acting, which is why judging just based on professionalism isn’t always the only way to tell if a company is worth working with. Any legitimate investment property specialist will have a great track record of properties where they consistently made a decent return on the investment. You don’t want to see a small track record with amazing returns, you’d prefer to see a long track record with consistent returns instead.
3. References – Like professionalism, tracer records can also be decieving. Reference are another great way to actually talk to clients who’ve worked with the company you are interviewing. Don’t always ask them about how big of a return they got, but how the interaction was with the company and how well they dealt with problem and if they handled it the right way.

Three simple tips that will make all the difference in picking the right investment property specialist. If you take the time to do your research you should have no problem finding the perfect company for you.