What is the APR? That is an important number since it includes all other costs amortized over the term of the loan. Also, how long do you plan to hold onto the properties? The shorter the term, the more you should be willing to pay a higher rate to avoid paying upfront fees.
Can’t say that I qualify as expert, but I’ll give you a couple of things to ask.
Will they loan 80% of appraised value or 80% of purchase price. There is a significant difference between the two amounts. On a property that is appraised for $220,000 but selling for $180,000, they would loan you $176,000 based on the appraised value or $144,000 based on the purchase price. In the first scenario, you would have to come up with $4,000 plus closing costs and in the second scenario, you would have to come up with $36,000 plus closing costs.
How much are they going to charge you as points. The rate that they quoted for you is pretty good. An investor loan is typically 1 percent higher than an owner occupied loan. Quite frequently they will quote you a better rate, but will charge you more points (prepaid interest) to get that rate.
Will they charge you PMI. This is an insurance that you pay so that if you default, they will get their money back.
Will they require that you escroll interest and taxes. Although these are not major concerns, unless you have control of them it will cost you more money. I can buy insurance cheaper than the insurance they will buy for me. Also, I have heard too many stories of mortgage companies not escrolling the taxes correctly and the owner having a huge jump in their payments because of the mortgage company’s screw up.
Ask them what fees they will charge to set up the mortgage. Although all mortgage companies charge fees, they are not uniform. Find out before you get to the closing table exactly how much you are going to be paying them.
I am sure there are other questions to ask, but this is all that I can think of off the top of my head. Maybe someone else will chime in and add some more ideas.
Great thoughts from Wilson. Only thing I’d have to add: Is there a prepayment penalty?
It ultimately depends on what you are doing with the property. Are you as rental? Lease option? Doing a few repairs and reselling? Figure out what the mortgage will cost you, not just monthly payment, but also how much to put in place, application fees, appraisal, points, closing costs, etc.
GOOD FAITH & TRUTH IN LENDING disclosures if they are not provided immediately (within 3 day’s) of quoting rates then be prepared for complete disaster. Too many bait and switch tactics and low balling going on. I tell all my clients to go with the other guy, and when you get to closing don’t hesitate to call me when it’s not the same deal they originally offered. Another mis conception in today’s market place is risk determines rate. Just because major banks advertise a particular rate doesn’t mean that this will be your rate-
advertised and quoted rates are usually bassed on
excelent credit. at least 720 middle score no bk judgements or tax liens
at most 80 ltv
Change any of the above and your rate is going up.
Also in your GFE you will see the fees incurred to obtain a rate. alway’s get a second and match the fees and costs. Some companys will grossly leave off or low ball 3rd party fees, appraisal title attorney and processing fees so there closing costs look better.
Hope this helps!
NOTE: refinancing has a 3 day recession so if you can’t sleep at night after signing a refi you have 3 day’s to get out.
I’m a loan officer for many of years, see if the seller will agree to sell you the property at a higher amount then after closing have him sign the differece of the purchase agreement and what you are purchasing it for back to you it’s done all the time, but the scarey thing is he can really keep the check, so have an agreement set up with them before the purchase, there’s a ton of creative financing u can do, I also have a home improvement company lisenced so the lender will allow me to put a mechanics lean on the title before I buy the property, so at closing the title company will issue a check to the lean holder…
Hope this helps, I know it sounds confusing,
also in michigan there is a 1% prepay, so if your making a ton of money whats 1%, if u don’t want a prepay penalty they will charge u in the rate,if your going to hang on the property for more than 3 years then take the lower rate, also if your thinking of a fixed rate,remember the 1st 12-15 years are mostly interest only anyways…
Hope this helps.
Please note while subprime’s advice is accurate and takes place everyday, there is a term for this type of transaction - BANK FRAUD, which as party the borrower also shares liability
This brings me to my 2 cents
Work with someone you trust, ask the questions Wilson mentioned, expect a GFE like mortgages mentioned, ask questions, actively participate - did I mention find someone you trust? Do this and you will sleep well knowing you got a square deal
alot of investors like creative solutions and what is done between 2 PRIVATE citizens is their biz not Fraud.
Not everybody has 20% down and perfect credit, even some of those don’t want to use their own money.
uncommon solutions to a common problem thats what these boards are for - Solutions.
I am no expert in Real Estate, mortgages or legal advice.
Though things are done all the time and even I do things in life that by being a boy scout I shouldn’t do, does not mean it is legal or ethical.
It is fact that if a lender finds that you are receiving funds back from the seller of a property they lent you money on they would easily have grounds to file some motion or charges against you. Not that they prolly enforce this or anything, but it is fact that this is bank or credit or whatever FRAUD.
So in my opinion when it comes to dollars I don’t have and amounts that would cause me to work for free fro a year or would cause me to be in a place alone with a guy named ‘Bubba’…I will err on the side of caution and go for a small check at closing for repairs that might be as much as $5k or so.
It may sound good and it may sound like everyone is doing it. BUT THEY ARE NOT. There are many legal wasy to finance real estate. Don’t get sucked into something that isn’t right because someone told you everyone does it.
Many lenders will loan money to allow you to finance hard money lending. It’s really a matterof how secure you can make them. I’ve found that working with clients and friends alleviates some of the nasty surprises.