Some comments on the mortgage industry

[Andrew Ikeda 0]

Hello Fellow Investors,

 

HAPPY NEW YEAR!

 

This past year I've learned some things as a loan officer that I would like to share with you. I'm just writing a hodge-podge of stuff...

 

1) The famous 1.95% loans are for OWNER OCCUPIED so it obviously doesnt apply to investment properties...unless you want to lie about it...of course.

 

2) The famous 1.95% applies only to a certain LTV (loan to value) of which 80 is the norm. Be aware the the other 15% is going to be a fixed rate loan with rates above 8% in most cases....remember that the financial institutions will make their money somehow, someway. NOTICE: 15% is correct. The lenders will do up to 95% LTV or CLTV, not 100%! And the 95% is for owner occupied. This lender (World Savings) will only do up to 70% LTV on investment properties!

 

3) Several investors have told me that they can get interest rates of 5% from banks....Did you ask the banks about their 'conditions'? Probably not, so I'll tell you:

 

You'll need:

 

720+ credit score and/or

5% or more downpayment...no 100% especially for non-owner occupied properteis.

If you put less than 20% downpayment...you will have the famous PMI/MI = MORTGAGE INSURANCE! FYI: this can cost you over $100 even for owner occupied properties...this, needless to say, eats into your cashflow.

If you can still meet all the above, you may still have to buy down your rate...also known as 'points'. One borrower told me that his bank quoted him 5.375% on a 30 year fixed. I called 'posing' as the borrower and was told that to get that rate with my score and zero down; all closing costs paid; I would need to pay 2.5 points which on this property amounted to around $3,500...so much for 'zero down'.

 

4) Adjustable rate mortgages are not bad! At least not neccessarily. The people that dislike them are stuck on 30 year fixed loans. 30 Year fixed are good if you are very sure that you will be in that house for 30 years...otherwise, if you are planning to flip or sell the house within the next few years...a 2,3 or 5 year fixed, 'interest only', or adjustable rate (a.k.a. ARM) are in most cases, better financing options. Your tennant buyer will get their own financing and if they love the place...can get a 30 year fixed.

 

5) Most investors ask me what the interest rates are. In my humble opinion, this is not the correct question that investors should be asking. You should focus on cashflowing the property and not on the interest rates. Rates change daily and investors seem to be mentally stuck on getting 30 year fixed loans for their investment properties...not a good plan if you ask me...unless of course you plan to hold the property for 30 years as a rental.

Instead of looking at the vehicle and the interest rates, perhaps you should consider how much you could cashflow from the property.

I recently found a No Document/No Asset loan. It was a 2 year fixed at 8.25% with a credit score of at least 680. Then I found a duplex that I could do an owner occupied and get the other tenants to pay most of my PITI. In two years I could either finance it or sell it. After one year, I could move out of it and let another tenant move into my unit and have both pay my PITI and make about $300/month cashflow.

 

6) A note on prepayment penalties: ask your lender about this. Some have what they call 'soft prepay' which means that if you sell the house then there is no prepayment penalty but if you refinance then you are charged a prepayment penalty! If you plan to flip the property then this will work to your advantage.

 

7) If you get nothing else out of this post...REMEMBER that banks and lenders are out to make money and you can count on it that they will somehow, someway. Not all loan officers and mortgage brokers are 'straight' with borrowers. They will quote you rates out of thin air to get your business and then stick you with a bunch of late minute fees or conditions...bottom line is to ask questions early . In regards to a 'good faith estimate' I tell my borrowers that all closing costs and fees will be given to them in the form of disclosures. Disclosures tell you all the information you need to know and the forms will disclose all closing costs and fees. These are given to you to review BEFORE closing so there is no need for concern.

 

8) Be aware when inquiring about closing costs. Some lenders will tell you only $1,500 or zero, or whatever..but they may charge you a point or two...there might be MI...or your interest rate might be higher... again, lenders will make money regardless of what you are quoted. I tell my borrowers it is usually $5,000 or 5% whichever is higher. I tell them it's not 'cheap' but then again...nothing good is...and I tell them it covers our fees, the lenders fees, title fees, escrow fees, impounded taxes and insurance, wiring fees, flood certificates, the appraisal, etc, etc, etc. Then I tell them that if they get their financing through me, I will look for a loan that will cashflow their subject properties and include the closing costs in the cashflow. Also keep in mind that most closing costs are a one time occurance...only taxes and insurance are recurring. If coupled with a good 'interest only' or ARM, you can still make good cashflow if you have a good investment property...it all comes with 'due diligence' and putting financing together that makes sense.

 

Just a few hints and tidbits I thought I'd give to you all to ponder.

 

Thanks for your time and reading this post.

 

Andrew Ikeda

' US Funding Group, Inc.

888-889-1640 ext 220

360-433-6820 direct line

[MichaelC 160]

Andrew, great post! Thank you very much!

I'm sure you answered a lot of questions that many of us have regarding the intricacies of financing and the confusing array of programs that are advertised today.

It's good to have an "insider" or two on the board .

[ctrmrz31 0]

I have never been too informed about the subject of mortgages and loan companies and how they operate, but now I have something to go with.

 

Thanks for the great post Andrew!

 

I think I will still come to you Andrew for my mortgage situations:)!

 

Cruz or Brandon?

[Andrew Ikeda 0]

Michael, Cruz or Brandon,

 

Thank you so much for the sincere comments.

 

As a loan officer, I have now seen with my own eyes how 'cut-throat' this business is. It is not always with loan officers or mortgage brokers either and I have suffered as well as my borrowers.

 

Lately, I had an investor who was interested in my program and because I met him a few times and he was 'highly interested and motivated' ..took the liberty to quote him rates and even give names of lenders...then he ran off with another loan officer for business...

 

Another strong borrower had a loan pre-approved and was getting close to going 'to closing' but then the underwriter had an issue with the appraiser I used. It set us back four days and all he wanted was two additional comps for the subject property...within one mile and within 6 months! Luckily, we had a nice payday on Dec. 12th.

 

Earlier this evening, I read a post on one of our local REI websites in which a realtor/investor was venting about the mortgage industry namely brokers, loan officers, underwriters, etc. I wish I could have forewarned this guy about the lender he chose to go with. This particular lender has shot down some of my borrowers as well but I was lucky to catch it before we proceeded. This investor went all the way to one day of closing before he was told 'no go.' This now brings up what I've been wanting to tell you all and mentioned in the previous post....lenders will entice you to get your business but at the last minute they will decline your loan or application. They will tell you: "Yea, we can do that" and get you all worked up and then later come back with conditions that will infuriate you. The only good news is that there are other lenders out there that will finance you...that is the job of the loan officer/processor...find out who can and will. Unfortunately, this can be time consuming, stressful and a lot of work.

 

From an investor/borrowers standpoint, here is what I'd like to ask all of you to keep in mind when approaching loan officers, brokers and the mortgage industry.

Your credit score, your length of employement, your length of time in the profession you are currently in, whether you are going to include your spouse or partner on the application and what their qualifying conditions are, how much money you are going to borrow, what type of loan you want (30 year fixed, ARM, interest only?), whether you are going 'full docs' or 'stated income', owner occupied or non-owner occupied..etc, etc, etc... The list goes on and on and on. Ask all the questions you can think of and challenge your mortgage professional.

 

I like posting on this site because you all are so friendly and open minded. This site is a good place for me to 'vent' my feelings about things and as a favor to MC and all my friends on this site, I'm taking the liberty to let you see things from my viewpoint and learn from my mistakes and share in what I've learned.

 

If your interested in learning more or if you are in need of a loan, please feel free to contact me. From me, you will always get the truth and nothing but the truth. I'll tell you if I can or can't do a loan for you or what will or wont work.

 

Thanks again for your time and interest.

 

Happy investing in this upcoming year!

 

Andrew Ikeda

US Funding Group, Inc.

888-889-1640 ext 220

360-433-6820 direct line

360-909-3374 mobile