Archive for the 'Financing' Category

FHA Tells Minneapolis Duplex Buyers Not To Spend So Much

said on August 31st, 2011 categorized under: Financing

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duplex chick crying wolfAt the risk of becoming the Duplex Chick who cried “wolf”, FHA loan limits on Minneapolis and St Paul duplexes are about to change. A lot.

It’s important to remember that the amount of the loan you’re allowed to obtain is determined by where you live.

So, if you’re buying a duplex in Los Angeles or New York, you’re loan limit is likely to be higher than someone buying a duplex in, say, Mankato, Minn.

As of October 1, the five major counties that comprise the Twin Cities will see their FHA insured loan limit on a duplex drop from $467.250, to an amount no greater than $407,800.

Triplex buyers will see their limit decrease from $564,800 to $492, 950.

And those who hope to put just 3.5 percent down on an owner occupied FHA insured four-plex will find the maximum amount they can finance drop from $701,900 to $612,600.

While only a handful of duplexes, triplexes and four-plexes have sold this year for amounts too high for the property to qualify, these figures are important to keep in mind if you’re planning on owner occupying a duplex.

After all, sooner or later, somebody’s bound to have their heart broken by these new restrictions.

Most likely, however, it’s going to be the single family home buyers who will see their outer limits shrink from $365,000 to $318,500.

Of course, there’s always the possibility Congress can intervene and extend the higher FHA ceiling in order to help stimulate the housing market.

But that would require them all agreeing on something.

Yeah, right.

Why The Default Should Make You Buy A Minneapolis Duplex

said on July 25th, 2011 categorized under: Financing

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credit card background

Sometimes all the political noise about a US default is easy to tune out. But have you ever stopped to wonder how it might impact you as a duplex buyer?

One of the fears economists have about a default is the impact it would have on interest rates. As the U.S. is already projected to spend $1.5 trillion more than it takes in, our nation would be forced to borrow money to cover the deficit at higher interest rates than before.

It’s kind of like missing a credit card payment and seeing an interest rate of 21 percent on your next statement.

Sooner rather than later, this would trickle down to consumers in the form of higher interest rates on things like credit cards, car loans and duplex mortgages.

If you don’t think it will have an impact, consider this. With an increase of just 1 percent interest on a $200,000 loan, the annual payment would jump $2000, or almost $200 a month.

That’s enough to keep some duplexes from cash flowing.

If you’re in the market for a duplex right now, there is one way to lock up a low interest rate, regardless of what happens with the federal budget on August 2. How? Get a purchase agreement.

The minute you have a signed purchase agreement, you can lock an interest rate. That is, if that purchase agreement is signed before the ceiling for the deficit is raised.

Think about it.

It could make all the difference in your cash flow.

Fannie Mae Gives Duplex Investors Independence

said on July 1st, 2011 categorized under: Financing

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minneapolis duplex investors celebrateFannie Mae gave Minneapolis duplex investors an early holiday gift yesterday when it announced a change in guidelines to now allow cash-out refinancing within six months of a cash duplex purchase.

Previously, investors who paid cash for duplexes were required to leave all of their equity in the property for a minimum of six months before they could apply for a loan and get their money back out.

For many, this slowed their ability to invest considerably.

Of course, there are still some restrictions. Duplex buyers can’t refinance the property for more than they paid for it, including the amount of their initial investment, financing of closing costs, prepaid fees and points.

The duplex owner must be able to document with a HUD-1 form that they did not use mortgage financing to buy the duplex. Needless to say, the property also needs to be free of liens.

Fannie Mae also stated that if a Borrowerwith multiple properties hadn’t yet reported rental income on tax returns due to length of ownership, leases would now be an acceptable form of documentation.

What this means for investors is they will no longer have to park ample amounts of cash in a single property for an extended period of time. Instead, they will be able to put a loan on the duplex, remove the excess equity, and acquire another property.

Theoretically, anyway, this flexibility, along with rent increases and low vacancy rates, could spur the Minneapolis duplex investment market toward recovery.

Duplex Mortgage Defaulters Might Be Worth The Risk

said on May 26th, 2011 categorized under: Financing

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duplex foreclosure loansI saw an article in USA Today yesterday I thought might be of interest to Minneapolis duplex and single family home owners who have either already gone through foreclosure, or are facing the prospect of having to do so.

The article reported that according to credit monitor TransUnion, studies are finding people who default on their mortgages alone are not as risky to lend to as those who lost a duplex to foreclosure and either defaulted on credit card and or auto loan payments at the same time or filed bankruptcy.

According to the study, those who were mortgage only defaulters also saw their credit score rebound much more quickly.

The study reported that only 5.8% of mortgage-only defaulters were at least 60 days late on a car loan they opened after they defaulted on their mortgage. However, 13.1% of those who had defaulted on multiple loans were more than 60 days late.

The mortgage-only defaulters also had lower 60 day delinquencies on credit cards, at 11.4% vs the 27.1 percent of the multiple defaulters who were behind.

What does this mean to duplex buyers and those who’ve lost property to foreclosure? Well, at some point, these people are going to prove to be an opportunity for a lender.

And, the lender may find, there might not be a lot of risk in doing so,

Duplex Buyers Should Increase Savings

said on May 19th, 2011 categorized under: Financing

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Stack of $100 billsSometimes, federal banking regulators have some really bad ideas. Like the one they’re considering now; requiring a minimum down payment of 20 percent for any kind of duplex or home loan.

That should help the housing market rebound. (Sarcasm intended.)

It is estimated that if lending standards were changed to require home and duplex buyers to have a 20 percent down payment, rather than the 3.5 percent down payment presently required for FHA insured loans, it would take most Americans an average of 14 years to save enough for a down payment.

According to estimates by the National Association of Realtors (NAR), 60 percent of all recent home and duplex buyers had down payment that was less than 20 percent.

Some members of Congress, including housings best advocate, Sen. Johnny Isakson (R) of Georgia, this tightened standard would eliminate 17 to 28 percent of all home buyers from the market.

So, if you’re thinking about buying a Minneapolis duplex or home in the near or not too distant future, a phone call or letter to your congressional representative expressing your oposition to higher down payments might be wise.

As for now, however, the minimum down payment on an owner occupied Minneapolis or St Paul duplex remains 3.5 percent.

Happy Minneapolis Duplex Investors Find Loans

said on April 25th, 2011 categorized under: Financing

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excitedA while back, you might have heard investors could obtain financing for as many as 10 duplexes, triplexes or small-multi family properties;  a number that included the investor’s personal home and vacation property.

And, if you’re anything like me or my clients, you quickly called your loan officer or bank to find out how.

That’s when you were told that even though Fannie Mae and Freddie Mac were willing to back up to ten of your loans, that bank or group of lenders were not due to something called “bank overlays”.

What are those?

Essentially, even though government sponsored entities (GSEs) like Fannie and Freddie can say one thing, each individual lender is allowed to participate or not — according to their own tolerance for risk.

So, for example, Wells Fargo might only allow a duplex investor to have four mortgages because of Wells’ own internal rules or “overlays”.

Needless to say, this has been frustrating to both myself and my duplex investors.

Until last week, when William Halfrich, a loan officer I know saw his well-known local company bought out by Wintrust Financial, which is a large bank based in Chicago.

According to Bill, Wintrust is willing and able to lend on as many as 10 duplexes and investment properties; ANYWHERE in the United States. Most of the loans require a 25 percent down payment.

So if you’ve been looking to buy more duplexes or investment properties but haven’t been able to find financing, you now have a solution.

Since the transition is so recent, I can’t give you a link to Mr. Halfrich’s web site; and if I type his number here, he’ll get spammed mericlessly. So feel free to give me a call or drop me a line if you’re looking to buy a duplex and I’ll put you in touch with him.

How Selling A Duplex Contract For Deed Makes You Money

said on April 1st, 2011 categorized under: Financing

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Contracts For Deed Help Duplex Sellers Put Money In Their PocketIf you’re upside down in your Minneapolis duplex, it might be worth considering owner financing through a contract for deed as a way to recoup some of your losses.

How so?

If you purchased your property or refinanced during a period of low interest rates, you may be able to recapture some of your loss by charging a buyer more in interest than you’re presently paying.

If, for example, the mortgage on your duplex is at 5 percent interest, and you carry the note for the buyer at 7 percent interest, you can pocket the 2 percent difference.

On a $200,000 loan, this would result in an additional $4000 a year in income, and $20,000 if you agreed to carry the note for a minimum of 5 years.

Most duplex contract for deeds have a balloon payment. In other words, the seller agrees to carry the mortgage for a fixed rate of time, at which point, the buyer pays the note in full, usually by refinancing.

Of course, the duplex will need to appraise for the amount owed on the mortgage. Not what you owe, but rather, what the buyer owes you.

To diminish your losses further, you could agree to finance the duplex for a longer stretch of time. A mortgage with a ten year balloon, for example, would put $40,000 back in your pocket in this scenario, while a 20 year mortgage would return $80,000.

One of the often overlooked benefits of a contract for deed is the possibility of default. I know. This sounds like a negative, not a positive.

However, if a buyer simply misses two payments, ownership of the investment property reverts to you; without all the protracted foreclosure proceedings traditional lenders are required to travel through.

Not only do you get to retain all the money the buyer paid you, but you also have the right to sell the property all over again; at whatever value the market will allow.

I have heard of several duplex owners who have sold the same property two or three times, ultimately making far more than they ever would have on a traditional sale.

Of course, a contract for deed represents a prolonged wait for all of your money. But if you’re waiting for the market to rebound, you might be doing that anyway.

Let Fannie Mae Help You Become A Real Estate Investor

said on March 21st, 2011 categorized under: Financing

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2011-FHA-Loan-LimitsThe other day I read a post by a Realtor in the advice section on a popular real estate site stating that FHA financing was not available for duplexes or any other kind of multi-family property.

I was appalled by the ignorance.

FHA insured mortgages are available for owner-occupied properties of up to four units. In other words, duplexes, triplexes, or fourplexes all may be purchased with as little as 3.5 percent down.

As much as 75 percent of the rental income from the property can be used to help qualify for the loan.

FHA has guidelines for each county in the country as to how much they are willing to lend for the acquisition of a property. This is largely determined by prevailing prices in the area.

In the counties closest to Minneapolis and St Paul (Hennepin, Ramsey, Dakota, Washington, Carver and Wright), FHA loan limits are:

  • Single Family Home – $365,000
  • Duplex – $467,250
  • Triplex – $564,800
  • Four Unit Building – $701,900

I don’t know whether you’ve been shopping for property lately, but I can think of less than a handful of listings active on the MLS right now that would fail to qualify for FHA financing as a result of price.

If you live someplace else, it’s easy to see what the numbers are for your area by going to FHA‘s web site.

FHA does require that you owner occupy the property for at least a year. And no, at the end of that time you can’t go buy another duplex with an FHA loan.

You can only have one FHA loan at a time, so to keep building your investment portfolio, you would either need enough equity in the first property to refinance into a conventional loan, or, have enough of a down payment for the second property to purchase it with conventional financing.

In the end, it’s an important reminder to see what the consensous of opinion is when you ask for advice from people who may or may not specialize in the specific real estate topic you have interest in.

Comments Off on Why Fannie Mae And Freddie Mac Should Be Every Real Estate Investor’s Favorite Aunt And Uncle

Old CoupleIn recent weeks the Obama administration has released options for reducing the government’s involvement in the Government Sponsored Entities Fannie Mae and Freddie Mac.

On the surface, this makes sense. Fannie and Freddie have served as clearing houses for many of the country’s troubled mortgages and to date, bailing them out has cost taxpayers nearly $150 billion.

But guess what?

Fannie and Freddie’s funeral could also be that of the multifamily housing market.

Huh?

Let’s put it this way. They’re kind of like your rich old aunt and uncle, who will give you a loan when no one else will.

In fact, last year the two agencies were responsible for $32 billion in loans to multifamily investors. That’s more than 60 percent of all the multifamily loans made last year. That figure was even higher in 2009, when they were responsible for 80 percent of rental property debt.

You see, when all of the capital makets (the folks who buy up mortgages) bailed on the real estate sector, Fannie and Freddie did not. And their faith in the multifamily housing market has been rewarded.

According to Fannie Mae data, just .80 percent of the loans in their multifamily division were 60 days or more delinquent. Compare that with 13 percent of the apartment loans backed by commercial mortgage backed securities, and the four percent of bank loans that are 90 days or more late.

In other words, when it comes to their multifamily, Fannie Mae and Freddie Mac loans are out-performing the rest of the market. This in turn has attracted investors in their product, which kept the money flowing in to the rental market, which then resulted in lenders being able to offer long term, fixed rate loans to duplex and investment property buyers.

What would happen to our ability to buy duplexes and investment property if Fannie and Freddie died suddenly?

I suspect it might feel a little like being left out of their will.

The Lowdown On Duplex Down Payments

said on February 3rd, 2011 categorized under: Buying A Duplex, Financing

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sale house and calculatorMany of you who visit this site do so with the hopes of finding out how much of a  down payment you need to have to buy a duplex or investment property.

And while I’ve talked about it before, it’s probably worth revisiting.

If you plan to live in the property, and this is true whether you’re buying a duplex, triplex, or fourplex, the least amount of money you’d need for a downpayment is 3.5 percent. Of course, everybody’s credit and debt ratios tell different stories, so there may be some exceptions to that, but that figure is generally the norm.

That’s because FHA insures loans on owner-occupied properties up to four units. And right now, the mortgages they insure have the lowerst down payments in the marketplace.

If you’re an investor, you’re not as lucky.

While it’s again largely dependent on things like your credit score, debt ratios and number of properties you own, most investors are required to have a down payment of 25-30 percent to purchase an investment property.

The amount sounds staggering. And yet, when most of my investors in today’s real estate market are realizing double-digit cash on cash returns on their down payments, it’s definitiely worth the investment.