Archive for the 'Financing' Category

Can You “Foreclose” On A Duplex Contract For Deed?

said on November 19th, 2010 categorized under: Financing

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close-up pen on the moneyWhat do you get when you have tightened lending practices, then add a slow duplex market for traditional sellers?

The re-emergence of the Contract For Deed.

A Contract For Deed, which is also known as land contract, is a transaction where the seller acts as the bank. In exchange, the buyer agrees to pay for the property in monthly installments, while the seller retains legal title to the property until the contract is paid in full.

(For the record, most sellers don’t want to carry a contract for deed for 30 years, so these transactions usually involve a “balloon payment” after a few years where the buyer obtains more traditional financing for the property, thereby letting the seller off the hook.)

Frustrated duplex sellers who simply want out of their property may discover offering this type of financing allows them to sell a property because it makes it a possibility for a broader pool of buyers.

Buyers who may or may not have credit problems.

While it’s always a good idea to ask to see a prospective buyer’s credit report before agreeing to seller finance the property, what about the buyers who develop financial difficulties after they’ve bought the duplex?

The good news is Contracts For Deed are not foreclosed on, meaning the wait to get delinquent duplex owners isn’t nearly as long as it is for banks.  When a buyer falls behind on payment by just 60 days, the seller can file what’s known as a Notice of Cancellation of Contract for Deed with the county and serve notice to the buyer.

From that date, the buyer has just 60 days to cure or reinstate the contract. This usually involves catching up on payments and reimbursing the seller for attorney fees. If the buyer fails to do so, ownership of the property returns to the seller.

The seller who repossesses the property does not have to return any funds to the buyer; even if default occurred after years of payments.

And there is nothing stopping the seller from marketing the property all over again.

Why Duplex Down Payments Are Like Shoe Sizes

said on October 4th, 2010 categorized under: Financing

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big shoes, little feetI often get asked, “What’s the down payment on a duplex these days?”

I never have an answer.

The reason is duplex down payments are like shoes: one size doesn’t fit all.

I suppose I could offer generalities; 3.5 percent down if you’re an owner occupant using FHA and 20-25 percent if you’re an investor. But that’s a little like looking at your foot from afar and saying you need a size 8 when you failed to tell me you have seven toes.

In that case, you probably would need a bigger shoe, right?

The amount of a down payment depends on a number of things; what your credit score is, what your debt ratios are, how many loans you already have, whether or not the property is occupied, how much rental income a property generates, what program or lender you’re planning to use and any number of other factors.

In other words, the best way to find out what kind of down payment you as an individual will need to buy one or more duplexes, is to speak with a reputable loan officer in your area. He or she can then look at your specific situation, and make recommendations as to the type of financing that’s best for your situation.

It’s a good idea to speak with a loan officer before you begin your duplex hunt anyway; it will help both you and your Realtor avoid wasted time and energy.

Homepath Duplex Financing Requires Glasses

said on September 27th, 2010 categorized under: Financing

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Read the Fine Print - Magnifying GlassIf you’ve spent any time at all on the web researching the financing of investment property, odds are you’ve read Fannie Mae’s Homepath program will allow investors to purchase property for as little as 10 percent down.

This is good news, right?

Yes and no. Because every time you read that, there should be asterisks telling you to read the fine print at the bottom of the page. The teeny, tiny print that you can’t read without a magnifying glass or a great pair of cheaters.

Fannie Mae’s Homepath and Homepath Renovation financing is available on some, but not all Fannie Mae owned properties.

The perks of using these loans are many. For both owner occupants and investors, benefits include no mortgage insurance, no appraisal fees (Fannie Mae has an appraisal done before listing the property), flexible mortgage terms (fixed interest or ARMs), and a bit more leniency on FICO scores.

But what they don’t tell you is just as important.

Fannie Mae requires an investor to put just 10 percent down on single family homes. However, it’s important to note that buyer can have no more than four mortgages total, including that attached to any personal residence or vacation home.

For an owner occupant of a single family home, the offer is sweeter yet.  Fannie Mae’s Homepath down payment requirement for them is a half point lower than FHA’s at 3.5 percent.

Here’s the kicker. When it comes to duplexes, the rules change for everybody.

According to Dean Schiffler of PHH Home Loans, both owner occupants and investors are required to have a 20 percent down payment when using Fannie Mae Homepath financing. Homepath triplexes and fourplexes require a 25 percent down payment.

And, if an investor owns more than four properties, he or she is required to make a 25 percent down payment.

Of course, if you intend to owner occupy your duplex, using Homepath doesn’t make any sense. After all, FHA only requires you to have 3.5 percent down.

This is a good lesson. After this lending crisis, it’s important we all remember to read the fine print.

Comments Off on 16 Reasons Your Duplex Qualifies For A Short Sale: Even If You Haven’t Missed A Payment

CrocodileI want to dispel an urban myth.

No, not the one about alligators in the sewers.

The one I’m talking about is you have to be behind on your duplex payments or in the process of foreclosure in order to sell your property as a short sale.

Not true.

According to the Distressed Property Institute, there are a number of reasons that cause a property and duplex owner to become a “distressed” property. They are:

  1. Payment Increase or Mortgage Adjustment- Many property owners who took out interest only or option ARM mortgages between 2005-2007 may experience a jumps in their monthly payments of anywhere from 60 -300 percent in the next year. Actually, these resets are the top reason for distress in today’s market.
  2. Loss of Job – With a job loss comes the loss of income which contributed to paying the mortgage and bills.
  3. Business Failure – Like a job loss, people who lose their businesses lose their income, resulting in mortgage payments being missed.
  4. Damage to Property- No matter how good your insurance is, it often doesn’t cover all of the damage. Not having enough money to fix the property, many homeowners use the insurance settlement to cover living expenses.
  5. Death of a Spouse – This will not only cause emotional duress to surviving family members, but may also cause the loss of the person who paid the mortgage.
  6. Death of Family Members- Even if the deceased person didn’t contribute toward the duplex payment, the emotional loss may have ripple effects.
  7. Severe Illness – The medical bills associated with something like cancer and the time lost on the job can be devastating.
  8. Inheritance – Doesn’t make sense, does it? But, what if grandma leave you her house– that has a monthly mortgage payment of $5,000?
  9. Divorce – Imagine the cost of attorneys and two living spaces.
  10. Separation – Again, separate living spaces when perhaps, both parties were paying the mortgage.
  11. Relocation – If your employer asks you to transfer, chances are in this job market that you’ll take the opportunity. However, many employers don’t offer compensation for homes or multiple house payments.
  12. Military Service – While there are some opportunities for relief, extended miliary service can cause financial stress.
  13. Insurance or Tax Increase – An increase in either of these often results in higher mortgage payments.
  14. Reduced Income- Many employees have been asked to grant wage concessions in order for their employer’s companies to survive. Those who work on commission may also be suffering reduced income due to the economic slowdown.
  15. Too Much Debt – An increase in credit card interest rates, or sudden, unexpected expense can result in a duplex payment being too large.
  16. Incarceration – It’s tough to keep your job when you go to jail. And at prison wages of pennies per hour, it’s tough make a mortgage payment.

If you’re facing any of these challenges, remember there is a solution besides foreclosure. A short sale will likely result in your being able to a much faster financial recovery, as well as keep the permanent black mark of foreclosure off your credit report.

Call me. I’d be glad to help.

Why Mortgage Brokers Don’t Smoke Cheap Cigars

said on June 10th, 2010 categorized under: Financing

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Smoking Loan sharkThe other day I had clients with a huge down payment and spectacular credit scores suddenly find themselves unable to get a loan from a traditional bank on a slightly unusual home they wanted to purchase.

When I suggested they contact a mortgage broker I knew who could help them, they panicked.

They said they didn’t want to overpay and didn’t want to get taken. They had great credit and shouldn’t have to go to a mortage broker to get a loan.

That’s when I realized perhaps they were confusing a mortage broker with a loan shark.

A mortgage broker is not a high interest, hard money lender who wears a fedora, smokes a cigar and meets borrowers in a lonely, dark alley.

A mortage broker is simply someone who works with several different banks and lenders, which allows her to compare interest rates and prices for her clients, as well as find them alternate sources of financing if oneparticular institution is resistant to lending on the property.

One mortgage broker may offer loans from reputable institutions like U.S. Bank, Citimortgage, Chase and Bank of America. She may also have relationships with other, smaller investors (banks), who are more willing to lend on unusual properties.

In my client’s case, the underwriter at the traditional bank they initially consulted for financing chose to interpret guidelines issued by Fannie Mae and Freddie Mac more restrictively than they were written. As a result, the bank’s loan officer, being an employee of that institution, couldn’t help them any further. She had one choice only, and the answer was no.

The mortage broker, on the other hand, was able to consult several equally prominent lending institutions and quickly find my clients a loan.

How Not To Flip Out Over That Cute Duplex

said on May 24th, 2010 categorized under: Financing

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House building on white background. Isolated 3D imageLet’s face it. Some of the duplexes and single family homes on the market right now are a little, uh…skanky.

Some of you are thinking, so? With a FHA 203k construction loan , a little professional help and some sweat equity, you’re good to go.

But what if you’re not an HGTV addict who’s convinced you can fix it all yourself?

If you’re lucky, you’ll stumble into a property that an investor has purchased, rehabbed and made move-in ready.

Of course, the tradeoff is the investor wants to earn a profit. That’s perfectly fair. However, it may also stop you from getting an FHA insured loan.

See, even though FHA suspended it’s anti-flipping rule through February 1, 2011, many FHA insured investors aren’t willing to lend on properties a seller has owned for less than 90 days and, or, has been marked up more than 20 percent from its purchase price.

Until recently, there had been some exceptions. A handful of banks were willing to offer a mortgage on a rehabbed duplex, provided the seller could produce ample documentation of the costs of the repairs and improvements they’d made.

However, it seems there’s suddenly some resistance to this, according to loan officer Dean Schiffler of PHH Home Loans.

Don’t panic. There is a relatively easy remedy for this.

The rule was established to prevent fraudulent flippping.

Basically, someone would buy a house, do some minor cosmetic changes, then resell it to someone for an enormous profit. Usually the latter was in on the scheme, and would quickly default on the loan. This resulted in a foreclosure and a fraudulent loan.

For some reason, lenders seem to believe that after someone has owned a property 91 days, fraud is no longer a probability. I haven’t a clue why 90 days is the magic number, but it is.

So the simple solution to buying that cute, well-renovated duplex is this; make sure the date on the purchase agreement you give that rehabber is dated at least 91 days after the date they closed on the property.

Duplexes Celebrate Non Conforming Use Week

said on May 14th, 2010 categorized under: Financing

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punk girlSometimes my days and weeks feel like it’s Spirit week in high school. You know those weeks; the ones where you dress up as something different every day to celebrate something which may or may not be significant.

Back then, I might have celebrated ’60’s day. Punk rock day. Or nerd day.

In real estate, however, sometimes I celebrate suburbs day. Or short sale day. Or multiple offer day. And just like in high school, I like some more than others.

This week, I had the chance to dress up for non-conforming unit day.

A non-conforming rental unit is usually found in a property not zoned for a multi family dwelling like a duplex or triplex. These are usually found in the basement or attic of an existing property, and may or may not conform to local building codes.

These units are often very nice, and it’s hard to imagine anyone not wanting to live there. Their best feature, however, is the additional revenue they generate for the property owner.

There are, however, a couple of problems with them, the most important of which is the bank will not allow you to use the income from them to qualify for a the loan to purchase the property.

The theory goes that a city inspector may discover the unit and force you to remove it, thereby causing you to lose the revenue it generates. And a tenant may well be the one who told the city about the “illegal” use.

The city may do so due to the duplex not being zoned for multi-family property, or for improper workmanship, lack of proper permits and so forth when it was constructed.

This doesn’t mean the building itself is ineligible for financing, however.

To qualify, the appraiser must provide at least two comparable sales with similar illegal use to demonstrate this use is typical to the area. In addition, in the even the property is damaged or destroyed, it must be able to be rebuilt to its present status.

A single family home may also face such a challenge if it has a mother-in-law apartment or guest house. It must also conform to zoning requirements and provide comparable sales of two similar properties.

Sure hope next week’s theme is let’s all buy a duplex!

Duplex Rates Plummet With Stock Market

said on May 7th, 2010 categorized under: Financing

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Businessman with tie and handbag falling downWith last week’s end to the home buyer tax credits and yesterday’s inexplicable 1000 point slide on the stock market, historians might think it would be a good day to check tall buildings for jumpers.

Of course, every dark economic cloud has a silver lining, right?

Well, maybe not. But this one did. It seems investors fled from the stock market and into Treasury bills, which drove the yield down. The result? Interest rates on 30-year mortgages plummeted.

At one time on Thursday it was actually possible to get a 30-year fixed rate of just 4.5 percent.

Things have settled down in the 24 hours since, but the good news is both FHA and conventional owner occupant interest rates for the weekend settled in at 4.875. 

The difference in monthly interest between a rate of 4.875 and 5 percent amounts to about 40 cents per $1000. So, if you purchase a $300,000 duplex, this seemingly small rate difference could actually result in your saving about $120/month, $1440/year or $43,200 over the life of the loan.

That’s reason enough to stay off the building’s ledge, and consider instead, duplex ownership.

Why Internet Lenders Are A Lot Like Sea Monkeys

said on April 15th, 2010 categorized under: Financing

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sea monkeysI used to stare endlessly at the ads in comic books for sea-monkeys.

You know the ones.

They typically featured a cartoon of a little pink sea-monkey family, with their castle in the background.

There was also an image meant to resemble my family enjoying staring at my sea monkeys swimming around in a fish bowl. Of course, these sea-monkeys were waving at us.

Who wouldn’t want a pet like that? Heck, not even my dogs never waved at me.

Of course, when I ordered the sea-monkeys, they weren’t at all what I’d imagined. Oh, they were miraculous to watch hatch. But they weren’t pink, didn’t have a castle and most certainly did NOT wave back.

In fact, they were nothing more than shrimp. Brine shrimp.

Internet lenders remind me a lot of sea-monkeys. They promise to deliver lower interest rates, lower loan origination fees, faster closing dates and yet, no matter what Realtor you ask anywhere in the nation, you’ll get the same answer; they almost never come through.

And on the rare occasions when they do, nothing was what it appeared to be.

Most Realtors have a select handful of local loan officers they recommend. Agents get paid nothing for referring someone to a loan officer.

The reason we suggest our buyers work with these people is from experience, we know they can be trusted to tell our clients the truth, work hard to get them the best deal, and help them close on their new home on time.

Again, there is absolutely nothing in it for us to make these recommendations.

It’s easy for a loan officer who’s 1500 miles away to tell you to just hang out for two weeks while they get your loan together.  They can’t see your moving van loaded with furniture out in the parking lot.

It’s a lot tougher for a local loan officer to avoid looking you in the eye.

Or not wave back.

What’s The Minimum Down Payment On A Duplex?

said on April 12th, 2010 categorized under: Financing

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Calculating SavingsTo buy a duplex, you need at least 20 percent down, right?

Wrong.

Remember, if you’re looking to owner occupy a duplex, triplex, or even a four unit apartment building, you have the option of using FHA insured financing.

While FHA recently increased its minimum down payment requirements, 3.5 percent is still within reach of many home buyers.

Best of all, if you don’t have that much saved, there’s no limit to the amount a blood relative can gift a buyer for  use as a down payment, closing costs, etc.

Of course, if you have a signed purchase agreement in place prior to April 30, you may also qualify for the $8000 first time home buyer or $6500 tax credits.