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Mortgage Products for Residential Real Estate Investors

March 4, 2017 / Tom Bonetto

Home prices have been on a steady climb from the depths of the housing crash, leaving many wondering if it is still a good time to invest in the residential real estate market.

According to the National Association of Realtors, or NAR, 85% of major metro areas saw gains in existing, single-family home prices in over the last 2 years, while only 14% saw a price decline.

Relatively low interest rates are attracting investment buyers, and limited inventory is behind escalating prices in some desirable areas. Nearly all forecasters are predicting continued steady growth in most of the country.

If you’re ready to seek out financing for your residential investment property, here are a few things to consider.

There are a wide variety of loan programs out there for the residential investor – so make sure you take the time to do your research.

For example, we have partners that offer a “no-income” loan – meaning that loan qualification is based only on the cash flow of the particular property. No tax returns, no stated income, and no debt-to-income calculations required! Reach out to me for more information.

Here are some key strategies for the real-estate investor….

Be a ‘strong borrower’

Although many factors — among them the loan-to-value ratio — can influence the terms of a loan on an investment property, investors should check their credit score before attempting a deal. It will have the greatest impact on a loan’s terms.

Credit scores in the 700s are best – but there are programs available for those with scores of 660 or better.

Have a down payment ready

For “no income” investment loans, you will need to put down 25%. For more conventional versions, 20% will suffice.

In addition, reserves in the bank to pay for all your expenses, personal and investment-related, for at least six months also have become part of the lending equation.

Shy away from big banks

Do you research prior to obtaining financing. Make sure to vet the lenders you are considering, and investors shouldn’t be afraid to inquire about their credentials, and then verify them.

Generally, mortgage lenders and brokers are good option because they have access to a wide range of loan products.

Larger banks can be more difficult to work with and more stringent on their borrower requirements.

Think outside the box

If you’re looking at a good property with a high chance of profit, consider planning for that down payment. You can find that renovation money through home equity lines of credit or even from some life insurance policies months before the transaction.

As always, research your investment thoroughly before turning to any riskier sources of cash.

Financing for the actual purchase of the property might be possible through private loans, as well.

Just be aware that you may be met with some skepticism, especially if you don’t have a long history of successful real estate investments. Some peer-to-peer groups also require your credit history to meet certain criteria.

Hitting Strategy – You Must Have A Plan

March 4, 2017 / Tom Bonetto

“Standing in the batters box 60 feet 6 inches away from the pitcher whom throws a white 3 inch baseball across a 17 inch plate at speeds up to 90+ mph with only a 33 inch bat possessing a sweet spot of 3. 7 inches can cause anxiety for many players.”

“When you factor in the potential for pitches of different speeds, locations, and movements, as well as the 8 other position players behind the pitcher who’s primary job is to defend against those hitters skilled enough to put a ball in play, it is a wonder that hitters are ever successful.”

Source: Michael Monsour’s For The Love of The Game Blog

It is widely acknowledged that hitting a baseball is one of the most difficult tasks in all of sports.

What I see all the time at the high school level, is that hitters don’t have a consistent hitting game plan. The majority of high school hitters end up getting themselves out. Regardless of the pitchers ability, many hitters are unsuccessful offensively by swinging at pitches out of the strike zone, failing to recognize hitters counts versus pitchers counts, and giving up on parts of the plate. These failures prevent the team from scoring runs and directly impacts wins and losses.

Coach Monsour does a fantastic job here of highlighting some of the key strategies for hitters that will help ready them when it’s time to compete. Click on his link above for more – but here are they key take-aways:

Aggressive swing thought

Successful hitting requires aggressiveness. The player does not have time evaluate the pitch and then make two decisions (swing or not to swing). Instead, he must commit each at bat to swing unless his assessment of the pitch tells him to not swing. So when you enter the batters box, commit to swinging at the pitch and stop yourself if you decide the pitch is no good. This requires only one decision instead of two!

Attack fastballs in the Strike Zone on hitters counts

A hitter may face up to 12 counts at any given at-bat (see below). Some of the counts favor the hitter, some will favor the pitcher, while others are neutral. The hitters goal is to operate within the hitters counts by: only swinging at strikes and only swinging at hitters pitches in a hitters count.

Hitter’s Count: 1-0, 2-0, 2-1, 3-0, 3-1, 3-2 (Expect Fastball)
Pitcher’s Counts: 0-1, 0-2, 1-2, 2-2 (Expect Pitcher’s pitch)
Even Counts: 0-0, 1-1

By their own admission, hitters hit the fastball better than they hit the curve ball. Data shows that pitchers have a tendency to throw fastballs when the count is in the hitters favor (hence the name hitters count). So when you find yourself in a hitters count, expect a fastball.

However, one method to get hitters to get themselves out is for a pitcher to throw a curve ball in a hitters count fooling the hitter. As a hitter, if you have a hitters count (let’s say 2-0) and the pitcher throws a curve (or other off speed pitch) do not offer at it. At worst the count is 2-1 and remains a hitters count. The following pitch will likely be a fastball for two reasons: pitchers tend to throw fastballs in hitter counts and pitchers rarely throw the same off speed pitch in sequence i.e. curve ball, curve ball.

Narrow your plate coverage to play the percentages

Few hitters can control both sides of the plate consistently – thus hitters must make a choice of which to give up. Over 70% of pitches in the strike zone are from just inside the midway point of the plate to the outside corner. Many more outs are made on the outside part of the plate. In fact, with runners in scoring position, pitchers will work the ball away (outside part of the plate) to avoid giving up a double in the gap or HR. I instruct my players to expect the ball “middle-away” and react to it “inside”.

Predict pitch type and location based on data and tendencies

Baseball players hit fast balls better than they hit curve balls. Pitchers throw fastballs in hitters counts – and, pitchers also like to throw a majority of their pitches on the outer half of the plate. If we use these facts in conjunction with the known tendencies of the players/coaches, we should be able to predict the pitch and location based on the count on the batter and runners on base.

For example, a batter has a 1-0 count. He should expect to swing at the next pitch which he predicts will be a fastball away. If he receives an off speed pitch or a pitch outside the strike zone, he does not swing. If he receives the pitch he expects in the location he expects it, he is very likely to hit it hard possibly resulting in a hit.

In summary, this is no easy task, but with the right approach, a hitter can dramatically improve his probability of hitting the ball hard somewhere. With that said – have a plan and put this information to work for you!

Mortgage After Bankruptcy: How To Qualify Despite Your Financial Setback

February 25, 2017 / Tom Bonetto

Home ownership is an achievable goal – even for those with poor credit histories

I often speak with potential home buyers and agents about how to finance a home after a bankruptcy or other credit setback. Conversations with people who have had credit struggles are usually accompanied by a sense of despair.

Often, they can’t see a way to repair their credit issues while saving money for down payments. The fact of the matter is this, for those who are serious and disciplined in repairing their credit, home ownership is an achievable goal.

Bankruptcy is not the end of your mortgage or home ownership goals.

You can get approved in as little as one day after a bankruptcy in some cases.

From the conventional standpoint, you can be ready in as little as 2 years with some planning.

Source: Mortgage After Bankruptcy : How To Qualify Despite Your Financial Setback | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

Research, Learn, and Understand Resources Available

While I certainly don’t want to sugarcoat the seriousness nature of bankruptcy and poor credit, I do want to offer some words of encouragement. First and foremost, understand the guidelines for many loan programs reward potential buyers who are successfully coming out of a negative credit environment. Government loan programs have features specifically designed to acknowledge responsible credit repair. Yes, these features are more expensive than conventional loans. But, owning a home is almost always better financially than renting.

Options for Immediate Purchase After Bankruptcy

There are some lenders, in fact, that offer mortgages 1 day out of foreclosure, short sale, or bankruptcy. These non-QM lenders offer fantastic options with surprisingly affordable terms, considering a recent credit event. Here are a few of the specifics:

Loans up to $1 million
Up to 85% LTV
Debt-to-Income ratios of up to 50% considered
Owner-occupied, 2nd homes, and investment properties
Non-warrantable condos considered
Jumbo loans available
5/1 ARM or 30-year options available

Chapter 7 Bankruptcy Waiting Periods for Conventional Loans

Each loan type has its own waiting period guideline after a bankruptcy. Waiting periods for the four major types of loans are as follows.

FHA loans: 2 Years
VA home loans: 2 Years
Conventional mortgages: 4 Years
USDA home loans: 3 Years

Stay Positive and Be Encouraged

It will take time and require discipline to achieve your home ownership goals – but be patient!

There are many strategies which can be employed to repair credit and acquire financial backing to buy a new home. There are also great resources available that offer quality advice on financial planning, real estate planning, and mortgages. Reach out to me as well, for more information and help!

Smaller Down Payment Can Increase Your Rate of Return

February 20, 2017 / Tom Bonetto

As a homeowner, it is most likely that your home will be the largest asset on your personal balance sheet. For many, their home is worth more than all of their other assets and investments combined. What sort of down payment should a borrower put down to maximize their return?

“In this way, your home is both a shelter and an investment, and should be treated as such”, says Dan Green of The Mortgage Reports. In this way, when we view our home as investment, it can guide the decisions we make about our money, including that down payment.

Read more here from Dan at The Mortgage Reports.

The riskiest decision we can make when purchasing a new home? Making too big of a down payment.

A smaller down payment will increase your rate of return

The first reason why conservative investors should monitor their down payment size is that the down payment can limit your home’s return on investment.

Consider a home, which appreciates at the national average of near 5 percent.

Mr. Green uses the following analogy: “today, your home is worth $400,000. In a year, it’s worth $420,000. Irrespective of your downpayment, the home is worth twenty-thousand dollars more.”

That down payment affected your rate of return.

With 20% down on the home — $80,000 –your rate of return is 25%
With 3% down on the home — $12,000 — your rate of return is 167%

When you look at it in those terms, that’s a gigantic difference. With that said, you really should contact a qualified lender to find out more.

There’s another factor that we must consider, though. Buyers must also consider the higher mortgage rate plus mandatory private mortgage insurance (PMI) which accompanies a conventional 97% loan-to-value loan like this. Low-down payment loans can cost more each month.

Green continues, “assuming a 175 basis point (1.75%) bump from rate and PMI combined, then, and ignoring the homeowner’s tax-deductibility, we find that a low-down payment homeowner pays an extra $6,780 per year to live in its home.”

To that I say “So what?”

With three percent down, and making adjustment for rate and PMI, the rate of return on a low-down payment loan is still 280%.

The less you put down, then, the larger your potential return on investment.

Reasons for a Larger Down Payment

Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.

Purchasing a condominium with conventional loan is one such scenario.

Mortgage rates for condos are approximately 12.5 basis points (0.125%) lower for loans where the loan-to-value (LTV) is 75% or less.

Putting twenty-five percent down on a condo, therefore, gets you access to lower interest rates so, if you’re putting down twenty percent, consider an additional five, too — you’ll get a lower mortgage rate.

Making a larger down payment can shrink your costs with FHA loans, too.

Under the new FHA mortgage insurance rules, when you use a 30-year fixed rate FHA mortgage and make a down payment of 3.5 percent, your FHA mortgage insurance premium (MIP) is 0.85% annually.

However, when you increase your down payment to 5 percent, FHA MIP drops to 0.80%.

Increase Liquidity With A Home Equity Line Of Credit

For some home buyers, the thought of making a small down payment is non-starter — regardless of whether it’s “conservative”; it’s too uncomfortable to put down any less.

Thankfully, there’s a way to put twenty percent down on a home and maintain a bit of liquidity. It’s via a product called the Home Equity Line of Credit (HELOC).

A Home Equity Line of Credit is a mortgage which functions similar to a credit card:

There is a credit line maximum
You only pay interest on what you borrow
You borrow at any time using a debit card or checks

Also similar to a credit card is that you can borrow up or pay down at any time — managing your credit is entirely up to you.

HELOCs are often used as a safety measure; for financial planning.

For example, homeowners making a twenty percent down payment on a home will put an equity line in place to use in case of emergencies. The HELOC doesn’t cost money until you’ve borrowed against it so, in effect, it’s a “free” liquidity tool for homeowners who want it.

To get a home equity line of credit, ask your mortgage lender for a quote. HELOCs are generally available for homeowners whose combined loan-to-value is 90% or less.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc

Mortgages for Foreign Nationals

February 13, 2017 / Tom Bonetto

Here’s an interesting observation from the National Association of Realtors – they estimate that 60% of homes purchased by international buyers were all-cash transactions, as opposed to just one-third of domestic sales.

Secondarily, did you know that many lenders are willing to extend credit to non-citizens – sometimes without a credit history in the United States? Non-citizens can even qualify for government-insured mortgages, which have the advantage of requiring low down payments.

One point to keep in mind is that the requirements for getting a home loan depend in large part on one’s residency status. Most borrowers tend to fall within one of the following groups:

Permanent residents with a green card (Form I-551)
Non-permanent residents with a valid work visa (E1, E2, H1B, H2A, H2B, H3, L1 and G1-G4)
“Foreign nationals,” whose primary residence is not in the U.S.

Source: Getting A Mortgage For Non U.S. Citizens | Investopedia

Target this important segment: Foreign Nationals & Non US Citizens

Lending to foreign nationals and non-US citizens is regulated under the Ability to Repay or QM laws – depending on the buyer and property type. But just because the buyer does not fulfill the conventional and FHA guidelines does not mean they can’t obtain approval for a mortgage.

Non-QM products are a great option in this situation. These products certainly have different guidelines and interest rates compared to conforming loans. But remember, you are dealing with a very different buyer as well. These buyers understand and expect different guidelines. The agents who are successful in this niche understand these mortgage products and develop specific marketing goals to grow this lucrative segment.

In many cases, approvals are not difficult – and here are a few notes for some foreign national specific mortgages:

Up to 75% LTV
No US Credit required
12 months reserves required
Loans up to $750,000
DTI up to 50% considered
7/1 ARM and 30-year options available

The point is this – these Foreign National loans allow any reasonably qualified buyer access to capital for purchasing the home of their dreams. Serious agents and lenders must have command of these mortgage products.

Knowing Your Options

Having command of these products also includes marketing strategies focused on serving the needs of these important buyers. I spend a lot of time working with real estate agents talking about various marketing tools, product education, and compliant co-branded marketing strategies designed to grow our business. Please feel free to call, email, or text anytime if you would like to discuss some of these strategies as well.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

The Lending Coach