Thursday, September 17, 2015

Real Estate Financing Facts

Karen Orr with New American Funding recently served as a keynote speaker for the Washington Landlord Association (WLA) on innovative real estate financing options. Some of the interesting facts that she passed on regarding mortgage lending were the following:

  • The Federal Tax Credit Program allows the investor to take up to 20% of the mortgage interest paid annually of tax owed.
  • The minimum down payment required for owner occupied is 0-3%; rentals 10-15%.
  • Down payment can be borrowed from a whole life insurance policy, but not from a credit card or personal friend or relative.
  • Today an appraisal is more likely to come in at the purchase price, rather than higher or lower.
  • An unpaid library fine, traffic ticket or rental payment will not impact a credit score.
  • The cost of borrowing money for a borrower with a credit score of 620 vs 720 is 3+ points in higher fees.
  • It is true that internet credit scores are different than mortgage credit scores.
  • Loans are not available for clients in Chapter 13 bankruptcy, foreclosure or short sale less than 2 years ago, or who have a credit score as low as 580.
Experienced real estate investors have learned to balance the risks associated with lower down payments or equities. WLA statistical graphics found in their Financial Resource Center show that down payments of 20-22% provide the best balance of safe cash flow with maximum leverage returns.

In the beginning of real estate accumulation, investors can take on riskier lower down payments with back-up of earnings from jobs and savings. As their portfolio grows, the more prudent option is to improve properties, or take advantage of raising prices and rents to reach safer loan-to-value ratios.

Happy Investing!

1 comment:

cheryl Taylor said...

Hi Wendy , The Federal Tax credit program is a wonderful benefit and is open to those who have not owned a home in the last three years and are owner occupied, and I can attach it to the Big 4- FHA, VA, USDA and Conventional loan programs. Gifted Down payment funds depending on the program can come from Family, Friends, an employer or even their church. Gift fund documentation can be touchy and specific so work with an expert. FHA loans are possible one year out of a significant derogatory event IF the reason for the event was severe reduction in income. FHA can consider one year out of Chapter 13 BK. In addition, Grant programs are available to give a down payment up to 5 % down to a buyer. Buyers have more access to financing today …but Credit must be at least at 620 to even be in the ballpark for these great options. The credit reporting scores obtained in a trimerge credit report is what matters for a score. Free FICO from a credit card company sounds thrilling but it will not translate to a loan approval. If I were looking for a loan, I would be 6 months out front with what I have to do to be eligible for these great programs that give me more take home pay or see if I qualify for the down payment Grant. It can take time to improve credit, or to lower debt to have the program and payment that is best for your life.