Archive for the 'Financing' Category

Comments Off on Five Benefits of Buying A Twin Cities Duplex on a Contract for Deed

HandshakeA contract for deed is a type of owner financing. It usually requires the buyer to make payments over time, with interest on the unpaid balance; just like a bank. After the loan iis paid in full, the owner gives the buyer a deed to the property.

There are several advantages to buying property this way:

1. There are no loan origination fees, therefore closing costs are lower.

2. The purchase can close quickly.

3. The seller may accept a smaller down payment.

4. There is no limit to the number of properties that can be purchased this way.

5. The seller may be willing to accept a note from a buyer with a less than perfect credit score.

Of course, there are caveats too. The disadvantages of buying a property on a note include:

1. Typically a higher interest rate than a bank held mortgage

2. Shorter foreclosure period. The seller may begin foreclosure if you are 60 days behind in payments.

3. Sellers aren’t always familiar with a contract for deed, and may be reluctant to carry a note.

4. The buyer may face a balloon payment down the line.

Of course, it is crucial to do the numbers before you buy so you are certain you can cover the note in the event of any loss of revenue.

And it is always wise to seek the counsel of either a real estate attorney or Realtor who is familiar with the process before you buy.





Comments Off on Seven Reasons to Sell Your Minneapolis/St Paul Duplex on a Contract for Deed

mortgage deedWith each day’s basket full of negative, I’m increasingly convinced the banking industry doesn’t want any of us to buy property ever again. OK, so maybe it’s not quite that dramatic, but…

First it was the end of stated income programs. 

Then it was word that as of August 8, Freddie Mac will restrict lending for investors who own more than four properties.

And there’s the looming threat of the end of gift programs for seller down payments like Ameridream, Nehemiah and Genesis.

Regardless of market conditions, people will always need to buy and sell property. There are countless circumstances other than short sales or foreclosures that necessitate a sale. Perhaps a seller faces a job transfer, an addition to the family, a divorce, or has simply happened upon a better investment opportunity.

So how are those with less than perfect credit, who own five or more properties or work for themselves going to finance real estate?

My guess is we’ll see the re-emergence of the contract for deed, which is also known as a land contract.

With the impossibly low interest rates and readily available loans of recent years, this way of financing fell out of style. (Except in the case of farm land which is often difficult to obtain conventional financing for.) However, it was not an uncommon way to finance property in the late 1970’s, when interest rates hovered in the high teens and low 20s.

Quite simply, when a property is purchased on a contract for deed, the seller becomes the bank.

How does this benefit the seller?

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Comments Off on It’s Easy to Accidentally Commit Mortgage Fraud

FranklinWe’ve all read the headlines about real estate scams in the recent boom years resulting in many of the foreclosures in the marketplace today.

And, we’ve all heard about mortgage fraud.

The extent of the problem has become so vast that, according to Bloomberg News, the FBI has ordered many field offices to stop investigating other financial crimes so agents can spend their energies on the sub prime mortgage crisis.

The FBI considers 12 markets rife with fraud: Arizona, California, Florida, Georgia, Illinois, Indiana, Michigan, Minnesota, Nevada, New York, and Ohio.

We’ve all heard the big stories about this; how the woman who earned $24,000 got a stated income loan where she qualified for a house she could never afford. How buyers and appraisers artificially inflated prices to receive kickbacks at closing, then never made a payment…

But I have to say, sometimes even something that seems like an innocent and logical solution to a problem is considered mortgage fraud.

What do I mean?

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Comments Off on Stock Up Now on Twin Cities Duplexes

BoxesIf you’re planning on loading up on 1-4 unit investment properties during the down market, you’d better do it now.

In May, Freddie Mac made changes in its lending guidelines. As of August 1, 2008, a borrower may no longer have more than four financed 1-4 unit properties, including the one being purchased. What’s more, in order to refinance, the borrower must have owned the property for at least six months prior to getting a new loan.

Present Freddie Mac guidelines allow an investor to have up to 10 financed properties.

Until now, neither Freddie Mac nor Fannie Mae required a loan to be seasoned. This change will likely have the greatest impact on rehabbers and others intent on purchasing the property with the intention of refinancing to pull cash out.

The announcement of this change may help explain the recent run on properties priced under $100,000.

This will also effect owners who hold title as an LLC. If you own your property as an LLC, but need to qualify for a loan as an individual, you’re going to need to hold title as an individual for at least six months prior to a refinance. I know, I know. That appears to contradict what I said yesterday. You’re going to have increased liability exposure during this time frame; which you may want to address via an umbrella insurance policy.

So just get a loan from a lender who doesn’t resell conforming loans to Freddie Mac or Fannie Mae, right? Ha ha. That requirement eliminates almost all of them. Freddie Mac and Fannie Mae are privately capitalized, government sponsored entities that purchase the majority of conforming loans. They then repackage these loans and sell them as mortgage-backed securities to investors. This helps replenish the money supply of available money for mortgages.

Commercial loans will not be effected by this.

As the money supply grows ever tighter, I see the rebirth of the contract for deed on the horizon…