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Andrew Ikeda

Some more tidbits for investors re financing

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Greetings fellow investors,

 

Here are some more tidbits for you that I've been observing with my investor/borrowers:

 

1) Again, when you are looking at a property for investing purposes, many investors inquire about 30 year fixed rates. Please remember that you are not planning to keep the property for 30 years as a rental...so a 2. 3, or 5 year fixed rate or interest only loan should be sufficient.

 

2) Lately, on one of our local rei websites, a realtor/investor started bashing the mortgage industry and how sleazy they are. Granted, there are a lot of idiots out there that shouldnt be in the financing business. When applying for a loan, I would suggest that you get to know your loan officer well. Ask them a ton of questions.

 

3) Personally, I would not spend a whole lot of time or get to excited by what is being offered on the internet. Remember these are 'teaser' rates to get you interested in getting you to do business with them. These rates are either usually the prime rate or they are for those borrowers with 720+ FICO scores, no debt, lots of assets (liquid) and in short......'prime' borrowers. Most of us are not considered 'prime' so just be warned that you could be wasting a lot of time. I so happened to do this for a borrower of mine who was shopping my rates and even he came to the same conclusion and he had a 765 FICO midscore.

 

4) Back to websites, another investor recently replied to a post from a loan officer who only left his name and phone number. For those of you who are also in the financing business, this investor suggested putting the name of your company and more contact information. With only a name and phone number, you could appear as someone who works with a mortgage broker and working for referral fees (which are illegal by the way).

 

5) When asking for good faith estimates, many loan officers may not give that freely to you. I tell my borrowers to figure closing costs to be about 5%. I bluntly tell them that it is steep but over estimated for a reason. That is because I under promise and over deliver.....then my borrowers love me because I did them a great service.

 

6) Beware when a loan officer/mortg. broker gives you a monthly payment. Recently, I've had three borrowers who told me that after they went to closing the escrow officer then told them about taxes and insurance being added to the payments. A good loan officer (like me :D ) will calculate your monthly PITI (Principle, interest, taxes and insurance) long before you go to closing so that you know well in advance. From what I'm seeing, many loan officers are not providing good customer service...they just take your loan application and then call you back when they have a lender that will finance you without giving specific details and payment info...your just a fast buck to them. I personally will contact my clients and run the financing scenarios past them to see if its a fit for them. I calculate monthly PITI, any prepayment penalties, etc, etc. I also protect my borrowers from payment shock so they dont borrow more than they can afford.

 

Ok, I'm going to stop here for now.

 

As an investor myself, I provide free training for new investors in my area. In return, I ask for loyalty (at least for the first deal). I also provide a service of looking for investment properties as well as finding buyers for my investors properties. More on this later...

 

Hope this is helpful to you all.

 

Good luck to all of you. Always feel free to contact me if you have any questions regarding financing.

 

Sincerely,

 

Andrew Ikeda (Loan Officer/Mortgage Specialist)

US Funding Group, Inc.

888-889-1640 ext 220

360-433-6820 direct line

360-260-3272 fax

360-909-3374 mobile

 

andrew.ikeda@usfundinggrp.com and/or andikeda@netscape.net

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Please remember that you are not planning to keep the property for 30 years as a rental...so a 2. 3, or 5 year fixed rate or interest only loan should be sufficient.
Andrew,

 

Did you really mean to say a 2, 3, or 5-year adjustable rate or interest only loan should be sufficient?

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Hi Dave,

 

Good question! Since the rates are low at this time, lenders are enticing borrowers to get financing now with the low fixed rates so the 3-5 year would be at a fixed rate.

Then, when the fixed rates go up, the adjustable rates are predicted to stay low hence keeping people in the loan (at least until the fixed rates come down again). This is my understanding of their logic behind all this.

 

Some of the lenders are 'playing' around. Some tell me the 3-5 year period is fixed and some tell me it's adjustable. The other school of thought is that since the adjustable rates are low now, take advantage of it now and when the rates go up in say 3,4,5 years, a borrower can get locked in at the lower fixed rates.

 

It is somewhat confusing but what I've found is that it can go either fixed or variable and need to check with the particular lender.

 

I'm open to 'correction' on this.

 

Andrew

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Sorry, forgot to mention that yes, it would be good to start with a low rate for 3-5 years on an investment property. Keep the payments down and keep the extra cash in your pocket. In 3-5 years when the property appreciates and you have some equity in the property, you can refinance into better rates and terms..that was the 'gist' of it all. Hope this helps.

 

Andrew

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Here is my strategy, today. In the past, I usually sought the 30-year fixed rate mortgage loan for my investment rentals. In 1997, I put one month LIBOR-indexed ARMs on three of my rental properties.

 

The LIBOR based loans have been excellent performers. even though the rate adjusts every month. I have my payment plan set up to draft whatever amount is needed from my business checking account to make the loan fully amortizing on a 30-year schedule. For nearly a year now, my monthly interest rates have been at the floor for these loans (5.25%, and 4.9%).

 

Just this past year, I acquired another rental property with a 5/1 treasury indexed ARM (five years fixed, then annual adjustments thereafter). The adjustment cap is 1% per year, 5% over the life of the loan. My plan for this loan, is to use my excess cash flow and make a lump sum payment at the end of each year to reduce my mortgage balance. After six years on this plan, I hope to have this loan paid off and the property will be free and clear.

 

Last year, my wife and I also refinanced our personal residence from a 6.5%, 30-year fixed rate loan into a 4.5% 5/1 ARM. My thinking on this one is we will enjoy the lower monthly payment for five years. When the first annual interest rate ajustment happens at the end of five years, there is a 1% annual cap. At some point after my sixth anniversary with this loan, I could always refinance (rate and term only) into another 5/1 ARM because the ARM rates always seem to be lower than the 30-year fixed rates. I expect that a refinance at that time will also lower my monthly payment once again, because there will be a lower initial loan balance and I am extending the loan term from 24 years to 30 years.

 

I have two new rental properties under contract. The first should close in Aug and the second in Nov/Dec. I am looking for LIBOR indexed ARMs for these properties.

 

If you see any flaws in my strategy, I would appreciate your feedback.

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I find these ARMs with near-term fixed rates and adjustable further out, quite interesting. I've never seen one in Canada. Here mortgages are either variable (every month) from the beginning, or are fixed for a certain number of years at the end of which you must renegotiate for another fixed rate period or you can switch to a variable.

 

I've been using a variable rate since it's low (3.25%) and the mortgage is completely "open" (I can pay it off or refinance it at any time without penalty), then I simply pass it through as a variable 'mortgage' to my buyers. I've been using 3-month adjustable timeframes so that the buyer isn't far behind my rate changes, but they also don't have to send a different amount every month.

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Has anyone noticed what rates have done this week?

 

Long term rates are now in the 6% range. But since the Fed fund rate and the LIBOR rate and indexes affected by thes have not gone up, the ARM's based on them are still cheap. Indy Mac is still offering a 1.25% rate on its flex pay program.

 

I am sure that the fed will start to raise rates soon. I expect the Fed funds rate will go up 1.5 to 2% over the next 12 months. Which will catch some people off guard but it is interesting for now.

 

James

 

BTW I love the spell check feature.

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Dave T,

 

Your strategy is right on target. This is what I've been trying to illustrate on this thread.

 

My basic thought was to keep the payments down low on a product like the 5/1 ARM and use the extra savings to invest elsewhere or to pay extra towards the principle and reduce the life of the loan and save on the interest paid over time.

 

Thanks for making that more visible with what you and your wife are doing.

 

Andrew

 

P.S. Michael, wat happend to da spel chekker? Suddenly it dusnt seeem 2 werk! :lol:

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5/1 arms are super. They are a little higher though of course if the home is non owner occupied.

 

Pete

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puls1234,

 

Your observation is not my experience. I am being quoted the same rate from some lenders whether owner occupied or non-owner occupied.

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With the exeption of hard money lenders every rate sheet I ever looked at had a bump for NOO.

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From what I've seen, lacashman is correct. There is a bump for NOO properties. It's due to the risk factors of the subject property being NOO. I dont doubt that the rates are the same according to what Dave T is saying...just havent seen it either.

 

Andrew

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