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Hard Money Mortgage Lenders - Financing

Class 100 - Loans, Points and Fees

Loans, Points and Fees

When I first started investing, I had no idea what anything meant when it came to loans. You would hear conventional, non-conventional, fixed, variable, points, origination, interest rates and so on. It was enough to make my head balloon trying to figure out what was what. Lets talk about lenders, mortgage brokers and loan costs.

Banker vs. Broker

There is not much difference between a banker and a broker. Lets review the differences of each.

Both will help you with:

1.      The best loan for you
2.      Collect the paperwork needed for the loan
3.      Help the borrower
4.      Work to get the loan closed

The difference between the banker and the broker is:

1.      The banker lends their own money
2.      The bank decides to underwrite the loan
3.      A broker does not lend you money, they will introduce you to a lender who will    decide if they want to lend you money.
4.      Many times broker fees have points and/or origination fees. A bankers closing costs are usually lower.

Origination fees can be added to your loan and the first thing I say to my mortgage broker or banker is.” does this loan have points and origination fees?” I want to know if someone is going to charge me to do the loan. You can shop around to find someone who does not charge points or origination fees.

A 1 point origination fee on $150,000 loan would cost you $1500.

Points will also cost you money. It’s the same calculation as above. If a lender charges 2 points on the loan you take $150,000 x .02% = $3,000 additional closing cost.

Cost of a Loan

You have to watch out for the hidden fees, points and origination costs but you also need to watch the so-called standard fees.

Here are some of the standard fees in a loan:

1.      Title Insurance – Do not buy a house without this.
2.      Application fee
3.      Recording fee
4.      Prepaid interest
5.      Appraisal
6.      Survey – If one was done
7.      Closing fees
8.      Document preparation

Loan To Value

Lets show you how to calculate LTV. Lets take a $200,000 loan for a house with an appraised value of $225,000. The LTV would be around 88%. A lender may only want to lend you 80% of the money needed to purchase the home. This means you will have to come up with 8% to purchase the property. Lenders like you having more of your own money in the purchase of a home, because you will be less likely to default.

Cashing Out

We do this all the time when investing in real estate. Lets say we buy a house for $25,000 and borrow money from a hard money lender to buy and do the rehab which is $24,000. With our expenses, we have $49,000 plus hard money cost and the house appraised rehabbed for $79,000. We will finance the property at 80% LTV giving us a loan of $63,200 on the property. We rent the house for $675 so we do have a little cash flow and none of our money in the deal, we essentially cashed out.

Class 200 - Conventional and Non Conventional Loans

Conventional Loans

Conventional loans are what a majority of homeowners have on their residence. This is a loan on real property that is not a construction loan, VA or HUD loan.

Non Conventional – Two Types are Conforming or Non-Conforming

Conforming loans are the preferred loans for lenders because they offer the lower risk. This loan will get the lower interest rate because of the low risk.

Here are a few things you will need to get this type of loan:

1.      You will need a good credit score to qualify
2.      You will need a certain amount of money down from 3% to 20%, the better the credit the less you have to put down.
3.      Your debt to income ratio needs to be low

Non Conforming Loans

To make things simple the definition of a non-conforming loan is: if you have a job and can make the payments then you can probably apply for a non-conforming loan. Your credit is used only to determine your interest rate and the loan amount to value of the home ratio. You may have to have more money down and they may only lend you 80% of the value, so you would have to get a second loan.

These are sub prime loans and yes that is the reason the country is in this mess. The lenders doing sub prime loans lowered the guidelines and were way too lax on qualifying people for loans. Every lender makes up its own criteria for sub prime loans.

Class 300 - Government Loans and Programs

FHA

There are lots of reasons to ask your lender for an FHA loan instead of taking a conventional or an expensive and risky sub-prime mortgage loan. Here are the benefits when getting an FHA loan:

Much Easier to Get Qualified - Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements so its easier for you to qualify.

Down Payment is Low – FHA has a low 3% down payment, and that money can come from a family member, employer or charitable organization. The other loans don't allow this.

Costs Less - Many times, FHA loans have competitive interest rates because the Federal Government insures the loans. Always compare an FHA loan with other loan types.

Your Credit Does Not Have To Be Perfect - Even if you have had credit problems, it’s easier for you to qualify for an FHA loan than a conventional loan.

Prevent Foreclosure - The FHA has been around since 1934. Should you encounter difficulties paying your loan after buying, FHA has many options to help keep you in your home and avoid foreclosure.

You need to be familiar with the government programs just in case you want to sell a lease option or flip a home to a buyer. They can use this program to qualify and get financed to buy what you are selling.

VA Loans

The Department of Veterans Affairs will guarantee specific loan programs for those veterans that are eligible. You must be an owner occupant but the veteran can borrow up to 100% of the purchase price. If a veteran quits making payments and the lender forecloses, the VA will cover the lenders loss. The VA will take ownership of the home and then will put it up for sale on the MLS.

Other Government Programs

There are a lot of programs that are local to your state that can provide funds for development of land, property, etc.

Housing Finance Agencies can help you determine whether you qualify for any of a variety of programs, including the Low Income Housing Tax Credit, Mortgage Revenue Bonds (MRBs), and the HOME Investment Partnerships (HOME) Program.

Click on the link to your state below to find out more.

NORTHEAST

Connecticut HFA

Delaware SHA

District of Columbia HFA

SOUTHEAST

WEST

MIDWEST

Class 100 - Loans, Points and Fees

When I first started investing, I had no idea what anything meant when it came to loans. You would hear conventional, non-conventional, fixed, variable, points, origination, interest rates and so on. It was enough to make my head balloon trying to figure out what was what. Lets talk about lenders, mortgage brokers and loan costs.

Banker vs. Broker

There is not much difference between a banker and a broker. Lets review the differences of each.

Both will help you with:

1.      The best loan for you
2.      Collect the paperwork needed for the loan
3.      Help the borrower
4.      Work to get the loan closed

The difference between the banker and the broker is:

1.      The banker lends their own money
2.      The bank decides to underwrite the loan
3.      A broker does not lend you money, they will introduce you to a lender who will
   decide if they want to lend you money.
4.      Many times broker fees have points and/or origination fees. A bankers closing costs
         are usually lower.

Origination fees can be added to your loan and the first thing I say to my mortgage broker or banker is.” does this loan have points and origination fees?” I want to know if someone is going to charge me to do the loan. You can shop around to find someone who does not charge points or origination fees.

A 1 point origination fee on $150,000 loan would cost you $1500.

Points will also cost you money. It’s the same calculation as above. If a lender charges 2 points on the loan you take $150,000 x .02% = $3,000 additional closing cost.

Cost of a Loan

You have to watch out for the hidden fees, points and origination costs but you also need to watch the so-called standard fees.

Here are some of the standard fees in a loan:

1.      Title Insurance – Do not buy a house without this.
2.      Application fee
3.      Recording fee
4.      Prepaid interest
5.      Appraisal
6.      Survey – If one was done
7.      Closing fees
8.      Document preparation

Loan to Value

Lets show you how to calculate LTV. Lets take a $200,000 loan for a house with an appraised value of $225,000. The LTV would be around 88%. A lender may only want to lend you 80% of the money needed to purchase the home. This means you will have to come up with 8% to purchase the property. Lenders like you having more of your own money in the purchase of a home, because you will be less likely to default.

Cashing Out

We do this all the time when investing in real estate. Lets say we buy a house for $25,000 and borrow money from a hard money lender to buy and do the rehab which is $24,000. With our expenses, we have $49,000 plus hard money cost and the house appraised rehabbed for $79,000. We will finance the property at 80% LTV giving us a loan of $63,200 on the property. We rent the house for $675 so we do have a little cash flow and none of our money in the deal, we essentially cashed out.

Class 200 - Conventional and Non Conventional Loans

Conventional Loans

Conventional loans are what a majority of homeowners have on their residence. This is a loan on real property that is not a construction loan, VA or HUD loan.

Non Conventional – Two Types are Conforming or Non-Conforming

Conforming loans are the preferred loans for lenders because they offer the lower risk. This loan will get the lower interest rate because of the low risk.

Here are a few things you will need to get this type of loan:

1.      You will need a good credit score to qualify
2.      You will need a certain amount of money down from 3% to 20%, the better the
         credit the less you have to put down.
3.      Your debt to income ratio needs to be low

Non Conforming Loans

To make things simple the definition of a non-conforming loan is: if you have a job and can make the payments then you can probably apply for a non-conforming loan. Your credit is used only to determine your interest rate and the loan amount to value of the home ratio. You may have to have more money down and they may only lend you 80% of the value, so you would have to get a second loan.

These are sub prime loans and yes that is the reason the country is in this mess. The lenders doing sub prime loans lowered the guidelines and were way too lax on qualifying people for loans. Every lender makes up its own criteria for sub prime loans.