financing secrets of a millionaire real estate investor.pdf

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5 / Creative Financing through Institutional Lenders 73 Get Out the Calculator Using a first and second mortgage in lieu of one larger loan may not make sense until you do the numbers. Surely, a second mortgage loan as described here will carry a higher interest rate because of the lender’s increased risk of being in second position. Make sure the “blended” interest rate between the first and second mortgages does not exceed what you otherwise would be paying with a larger, single first mortgage loan. Also, keep in mind that a larger first mortgage loan may also mean you are paying private mortgage insurance, so that must be factored into the monthly payment. How to Calculate a Blended Interest Rate Multiply each interest rate times the amount it relates to the total debt, then add them together. For example, if you have an $80,000 first mortgage loan at 8%, and a $20,000 second mortgage loan at 10%, the blended rate is (8% × .8) + (10% × .2) = 8.4%. can’t otherwise prove income, there are nonincome verification (NIV) loans. NIV loans (also known as “stated income” loans) require less documentation than traditional loans. Lenders often advertise these programs as “no doc” loans, meaning the borrower does not have to come up with any documentation other than a credit report and a loan application.
74 FINANCING SECRETS OF A MILLIONAIRE REAL ESTATE INVESTOR Some loans are called “no ratio” loans, in that you don’t have to justify your total debt (mortgages plus other continuing obligations, such as car loans and student loans) compared to your income. Few, if any loans are true “no documentation” loans. Most of these offered programs are bait and switch tactics: The lender says they don’t need documentation, but when the loan is being processed, the lender will ask for more and more documentation. Often, the lender will see some red flags that trigger the additional inquiry. The best defense to these tactics is a good offense; speak to your lender or mortgage broker up front. Identify documentation issues up front, educate the lender about your finances, and be truthful. The more a lender suspects you are hiding something, the more documentation the lender will ask for. Here is a real-world example: Carteret Mortgage, , lists the following general guidelines for one of its no-ratio mortgage loans: • Minimum middle credit score must be 640. • Five credit accounts are required; three may be from alternative sources—utility, auto insurance, etc. • Bankruptcy and foreclosures must be discharged for three years with reestablished credit. • Two years’ employment with same employer. • Two months’ PITI reserves are required with an LTV less than 80 percent. Six months’ reserves are required otherwise. • 10 percent minimum down payment is required from your own funds. No gifts. You should ask for this kind of information up front from your mortgage broker or lender. The more information you know about what a lender needs, the more information you can provide.
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This publication is designed to pro
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vi CONTENTS Government Loan Program
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viii CONTENTS 8. The Lease Option 9
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CHAPTER1 Introduction to Real Estat
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1 / Introduction to Real Estate Fin
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CHAPTER2 A Legal Primer on Real Est
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2 /A Legal Primer on Real Estate Lo
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9 / Owner Financing 123 FIGURE 9.2
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9 / Owner Financing 125 Problems wi
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9 / Owner Financing 127 one willing
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9 / Owner Financing 131 FIGURE 9.4
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9 / Owner Financing 133 of each mon
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136 FINANCING SECRETS OF A MILLIONA
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APPENDIXA Interest Payments Chart 1
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APPENDIXB State-by-State Foreclosur
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APPENDIXC Sample Forms Uniform Resi
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GL OSSARY abstract of title A compi
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GLOSSARY 181 improvements. Also use
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GLOSSARY 183 applied towards the pu
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GLOSSARY 185 security instrument A
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RE SOURCES Suggested Reading Altern
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IN DEX A Acceleration clause, 118 A
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INDEX 191 blended, 73 Federal Reser
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INDEX 193 W Washington Mutual, 22 W
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