The Real Truth About Financing
I have been reading this site for a few weeks now. I go to a few meeting in the areas I like to do business in also. I always seem to hear the same question everywhere I go. "I want to be a real estate investor, but I don't have any money". The Financial Industry does not recognize a real estate investor as an occupation. As a matter of fact if that is in job description space, 90% of loans will be turned down. It is considered exactly what it is - an investment. When your investments are calculated the line of questioning is as follows: "Do you have any 401k's, stocks, bonds, mutual funds, investment properties, ect" That is what I was taught over 15 years ago. It still hasn't changed. Then you get the people that say "I'm only asking for 50% LTV. The bottom line is that banks are in the business to lend money not SELL HOUSES.
I have a lot of people ask me how I survived in this business. I worked 12 to 18 hours a day for a number of years. There are no get rich quick schemes in real estate. That is why there are 30 year mortgages.
Another myth that I read about is the seasoning requirements. The only program that has seasoning requirements no matter what is a FHA loan. And that is even being challenged because they have been letting you use two appraisals to around their guidelines.( as of last month 01/2004)
Well I will close with this, if you have a job for two years at least, have 6 months or more of reserves in the bank, pay your bills on time,and want real estate property to use as retirement money you will have no problem qualifing for a mortgage.
If you want to buy properties, fix them up, and sell them you will have no problem as long as you do the work correctly.
I hope this helps someone
lori
Your title is "The Real Truth About Financing."....What is the false? I don't understand your article. You talk about nothing in the first 3/4 of it and then cut straight to "if you have a job for two years at least, have 6 months or more of reserves in the bank, pay your bills on time, and want real estate property to use as retirement money you will have no problem qualifying for a mortgage." You leave me with more questions than answers.
"I have a lot of people ask me how I survived in this business. I worked 12 to 18 hours a day for a number of years. There are no get rich quick schemes in real estate. That is why there are 30 year mortgages.".....What????...is the point?
"The bottom line is that banks are in the business to lend money not SELL HOUSES." Okay, we know that. If I'm coming to you to get money, I'm buying the house and need someone to lend it to me. What is the point of this statement?
"If you want to buy properties, fix them up, and sell them you will have no problem as long as you do the work correctly." What is correct? I can always go to a hard money lender right? What are the requirements? Then this leads me back to what you said earlier, "Then you get the people that say "I'm only asking for 50% LTV. The bottom line is that banks are in the business to lend money not SELL HOUSES." Is this not a contradiction?
What truths are you exposing? I need a job for 2 years, some money in the bank and good credit? That’s not a truth, that’s a FACT, if you want to do things conventionally. Hard money lenders require no job, no credit, and they don’t even look at a bank statement. Bottom line is they are lending on the LTV. What about no doc loans?…
I’m getting frustrated typing, because the more I type, more questions arise. I think your going to confuse a lot more people with this article than help them.
This is a very negative viewpoint. Maybe it is 'truth' in your eyes, but it seems that you have either little experience in creative real estate, or little desire to help people with information.
The desire to help or destroy is the question?
nebulousd,
I will try to clear up as many things as possible.
1) No doc Loans:
There are becoming rare. But the ones that are out there use the following qualifications. High credit scores over 720 middle, with reserves, Good credit history, good credit depth, and 2 years or more of self-employment Vs. wage earner. These people are what no-doc loans were designed to help. On a non-owner-oc the LTV would be limited to 90%. The CLTV could go up to 100% on a purchase. These loans could be placed throughout USA. The interest rate would vary on the number of mtgs, loan amount of mtgs, rural, urban, or suburban settings.
A No-doc person missing some of the pieces to the above scenario could possibly qualify. The following would be affected:
Rate, LTV, and if a prepayment would be required.
I am only qualified to talk about HML in the Tri-state area. Which includes Ohio, PA, Va. WVa, and Maryland. I have seen several types of hard money lenders. ( Not to make this lengthy, but maybe I should from the beginning because I know what I mean but you don't.) Over the last two and a half years HML's in this area and other areas, (I read many people on this site getting turned down even at 50%), have changed their guidelines because people have decided to get into real estate as a job and without the proper guidance and experience. This has caused many foreclosures with ripped apart houses in several areas that my clients deal in. Recently most HML's have requested financial documentation. I was told the reason for this was if they got in over their head they couldn't just give up and file a BK, they had a little more security in these deals.
But again I can only comment on a small part of the USA. It seems alot easier to get a loan in CA. I also read people in Rural areas of the USA not having REI meetings, so that seems that they would have a harder time than other people finding that type of money.
Where they any other vague answers you need me to elaborate on? When I am typing I am constantly thinking of different scenarios, so I have a tendency not to completely finish.
Lori
I'm confused now....what does it mean to get a no doc loan? You said, "No doc Loans:
There are becoming rare. But the ones that are out there use the following qualifications. High credit scores over 720 middle, with reserves, Good credit history, good credit depth, and 2 years or more of self-employment Vs. wage earner." If no docs are needed to get the loan, how are they getting a hold of all this information to qualify you?....what docs are you showing? And all the brokers I've talked to would give me 80% LTV max on a non-owner-occupant. What does it take to get 90%?
In terms of FHA is the only program that has
"seasoning requirements" I am not so sure of. When FHA came out with all of their "seasoning" requirements the last couple years, investors in my area were all
scrambling. Then there were some conventional FHA look-alike programs that came available. We all started doing those.
Guess what. Know I am being told my my
mortgage brokers that the conventional lenders are saying that the property looks like it is a "flip" and they want documentation to support why I am selling for $50k more only
4 month's later. So go figure.
WIth proper documentation: before and after pictures, rehab receipts and comps to justify
the sale you can get around this obstacle.
But what about the "pretty house" house that you buy from someone who has transferred
and needs to sell immediately? I have run into that problem recently. No receipts for escrow, no before and after pictures. Guess
what, we have submitted to two different lenders and they are saying I am "flipping"
the property. Maybe this is just happening on
the West Coast. Who knows.
Best Riches,
Jeffrey Adam
Jeff,
I have had this happen to a few REI friends in Maryland. They bought the house through an Estate Sale. Paid $30,000.00 for it, not one thing wrong, and the broker couldn't get the deal done. I tell my client's that they can use a letter from any of the following sources to get these deals done:
Seller's Real Estate Agent or Buyer's, Person who sold home, or from the new owner themselves explaining the transaction. A bank will take a deal as long as it makes sense. They want to lend money, everyone involved gets paid. Ask your banker or broker if one of this can be used. They should be able to go over the "hypothetical deal" before it is sumitted. In most cases the Rep. will gladly help out.
Hope this makes sense
Lori
Jeffrey, the anti-flipping regulations are affecting conforming and subprime lenders nationwide. Maybe your broker should submit a letter of explanation stating that you obtained the property due to a situation that allowed you to get a good deal, i.e., divorce,foreclosure, death,whatever the situation is (was). However, if your buyer has good credit and can get a loan through a bank (according to my banker) they typically don't have the seasoning issue because they portfolio their loans and don't sell them on the secondary market. This very issue is what brought me to this site to find a way around this ludicrous regulation. Flipping the contract seems like the way to go and I would like to discuss how you do that when you get the chance. I haven't done any deals like that yet.
Mr.DJGROSSE:
I agree with you 100% that the anti-flipping regulations are affecting conforming and sub-prime lenders nationwide. It is happening to me right now! The reason I put a post up is
because Tinman stated in her article that
FHA is the only entity with seasoning requirements which I feel is untrue. I would be glad to help you anyway I can. I am a
self proclaimed "Flipper Clown." What do you think of this problem we are having
Lufos?
Best Riches,
Jeff Adam
tinman, maybe you were having a bad day when you wrote this. I could have gotten your information from any banker. I don't pretend to know all the answers, but I know peple who have been successful using creative strategies. Maybe you're just not familiar with that concept. There are LOTS of ways to go about investing in real estate.
There are no-doc loans with assets and no doc loans without assets. With assets a person with all of the above credentials could get a 90% LTV in Florida. Even if you call aloan a no-doc loan the bank takes your info and finds out about you. You may not have to provide documents but you have to provide information. The information I stated is the perfect customer (if one exists) in the industry.
I hope you understand
Dear Jeff noh Adam
Talk about copy cats. As we all know all lending institutions are slowly but surely following the lead of FHA. The reason of course is to eliminate as much as possible the speculative aspects of real estate. Yeah that is like getting people to go barefooted in all Urban areas.
As to the lenders, when they have a large inflow of business refinance etc. They start to get picky picky. When the volume goes down they streatch out a bit.
I think in the Mortgage Brokerage Business right now you have to stay right on top of your various Loan Officers so you know where to submit and where to avoid.
Using Hard Money Lenders, we get around it by giving as a Broker in Transaction a Full Recourse. In exchange we may share in the interest received in payment and of course all the costs that may occur. We are named as Trustee or we stand by to substitue in on any default in payment. It is profitable but you must be able to perform.
Like Georgie Patton used to say to his Third Army Staff, " No Failure Is Tolerable."
Lori, my dear, you are a truly delightful person and I am sorry you are spending all that time in your business and on all these instructive postings. I much admire a person who can do 20 hours a day at a job. I myself am only good for about four.
Frankly dear Lady, you need to delegate
most of that paper work to your associates.
Go out and check the world. It Is Changing. Spend some time with your children and promise you will not mention Real Estate to them any more, nor accept their prattle as gospel.
With deep affection, Lucius
"The Financial Industry does not recognize a real estate investor as an occupation" This can be overcome by having your company employ yourself as a consultant, property manager, or anything else your company wants to do, as long as you can document your income as such.
"The bottom line is that banks are in the business to lend money not SELL HOUSES."
I'm not sure where this comes from??? What does LTV have to do with whether they're lending to a homeowner who's buying from another homeowner or a homeowner who's buying from an investor. In both cases they're lending money, and in neither case are they selling houses.
"There are no get rich quick schemes in real estate.....That is why there are 30 year mortgages."
7 out of 10 Millionaires make their money in real estate. (Some say it's 8 not 7). I know many investors who make $30K on their first deal, and do 5 their first year. Others who do a couple of deals a month making 10-30K on each deal. That's not "Bill Gates Rich", but that's a good start. I know many people who have been in this business for a couple of years and increased their net worth by 6 and 7 figures last year. That said, and no offense meant, but none of them are loan officers. You can make a ton of money in real estate investing. Heck, you can even make it quickly. Most don't, but that is not to say that it can't be done. There are 30 year mortgages so that you CAN make money. Longer ammoratizations allow you to pay down your mortgage while getting a possitive cash flow. Cash Flow today AND appreciation. That's a great way to build wealth!!!
"Another myth that I read about is the seasoning requirements" Different lenders have different seasoning requirements. Some have no requirements, others have 1+ year seasoning requirements. That's like talking about the "myths of casual friday" regarding dress codes. The fact is that it varies from lender to lender. You can always sell on contract and have them refi in a year to get around it also.
"Well I will close with this, if you have a job for two years at least, have 6 months or more of reserves in the bank, pay your bills on time,and want real estate property to use as retirement money you will have no problem qualifing for a mortgage." ....You can also adquire real estate via a number of other methods. Everything you're talking about is CONVENTIONAL not creative real estate.
"If you want to buy properties, fix them up, and sell them you will have no problem as long as you do the work correctly.". ....If you want to get rich, you just need to do it correctly. If you want to retire when you're 30 you have to do it correctly. If you want a fat positive cash flow you have to do it correctly. Profound wisdom.
I enjoyed the discussions on the comments of this article. I think the value of this article is reflected in the Article rating, shown on the right.
Hi,
To be blunt, this is a very poorly written "article". It does not appear to have any specific point to make or provide any information.
BUT...
There are a lot of badly written articles on this site and I have NEVER seen this much anger and hatred directed at an author.
It is not enough to give it a bad rating and move on; must we dissect every sentence???
We all are PAINFULLY aware of the issues that are being fought about on this site currently. Frankly it is amusing.
I think all in all there's good information that came out of this "poorly written article".
Sometimes conflict/chaos/tension is necessary to propel ideas and dialog forward. I think this situation is a perfect way for some people to learn "creative" real estate investing.
I've found the discussion about seasoning issues to be quite helpful. Thanks to all who posted with their knowledge and experience.
I am a newbie still working on my first deal and I can tell this is an awful article.
It has gathered more responses due to the reputation of the author (lori) on this site due to prior controversial posts
How can you tell? What would you write that I didn't and on what subject? I would like to learn what you know about financing. I am glad you know what I didn't put in here because I always learn from my mistakes. Your help would be greatly appreciately. I will be looking for your reply.
Lori,
I did not think your article was clear and it seemed like it wasn't proofed.
You have had some excellent posts on a broad array of topics. This article just wasn't some of your best work.
I do look forward to learning from your insite and experience in future posts
-wayne
Lori,
This particular article didn't seem to have a point to me. It wasn't clear and it didn't seem like it was proofed. The facts I drew from it were stating the obvious. It was not a quality contribution to the site.
You have had some excellent posts. What I visit this site for is to share thoughts, and gather insight from experienced investors as yourself.
I think you are at your best when responding to posts in areas you are good at. I would suggest you totally ignore posts which question your credibility and attack you personally. Don't respond to them nothing positive comes of it.
I look forward to learning from you and others on this site as enter the field of REI
-wayne
I liked your article, Lori. Thanks. Don't defend against some things. They were straight-forward in the beginning, saying essentially, "I did not get enough secrets to clear an easier $20,000" and, "I think I just wasted some time" or considerately, "How are newbies going to derive juice from this?"
From your article I learned the latest FHA items, avoiding problems with genuine fix-up work, and a reminder of the delicate status of being an investor to loan officers.
You've got a lot in ya! I have read your posts and your name stands out in my mind for outstanding comments. Write again a new article (after a deserved break!) Rise up with something fresh and fun. Bring our great TCI site back, with the "sensible brothers" returning to their better form, too. They post great for sure, until the other day when they were simply way too carried away.
Watch spelling, and please put yourself on the line again. We need you!
New cheers. Alan
Lori,
You are one tuff cookie. I am amazed that you continue to fight against the people on this site that want you out.
As far as the article goes, it was worth the price (barely). I love the fact that anything you write generates a firestorm. It would be understandable if any of your writings were poignant or thought provoking. Oh well... keep it up. This site has become very entertaining as well as educational.