Archive for the 'Financing' Category

Government Shutdown Could Halt Minneapolis Duplex Loans

said on October 3rd, 2013 categorized under: Financing

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duplex loansSometimes, it seems like a federal government shutdown doesn’t impact our lives. After all, we’re still getting the mail, and most of us are still going to work every day.

However, if you’re in the process of buying or refinancing a duplex or single family home, the government shutdown may actually stop your plans.

When you apply for a duplex loan, the lender asks for a copy of the last two years of your tax returns. To make sure you’re telling the truth, they use something called a 4506T, which allows them to verify with the IRS that the tax returns you provided match the ones you gave the government.

Guess what?

Thanks to the government shutdown, the IRS is closed. And following all of the mortgage fraud committed during the real estate boom, the lenders aren’t likely to just take you at your word.

So, until the IRS opens back up, you may not be able to get a loan.

Call your Congressman. No matter what side of the debate you’re on, sooner or later, this will affect us all.

How To Buy A Minneapolis Duplex – After Your Foreclosure

said on August 22nd, 2013 categorized under: Financing

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hot duplex newsReady for some big news?

On Friday, the Federal Housing Administration (better known as FHA) announced they will allow borrowers who’ve gone through foreclosure, short-sales, deeds-in-lieu or bankruptcy to reenter the duplex and housing markets as quickly as 12 months after the event.

Normally, duplex buyers would have to wait at least three years to get another FHA insured loan. However, this new guideline allows for certain borrowers who lost their properties as the result of an economic hardship to qualify even earlier.

In other words, if the borrower’s financial hardship was the result of a recession-related event, FHA will consider them.

This should allow for thousands of people who wanted to participate in the housing recovery, but couldn’t because of a job loss, to enter the market.

To qualify, borrowers must show documents that demonstrate that credit issues were from a job loss or loss of income that was beyond their control. The buyer must be able to prove an income loss of more than 20 percent, which lasted for more than six months.

Of course, borrowers must be able to demonstrate they’re currently employed, and have had “satisfactory credit” for at least 12 months. This is defined as 12 months of good payment history on a mortgage, rent, or credit cards.

The new guideline is effective until September 30, 2016. It is subject to “bank overlays”. In other words, it will available only if a lender agrees to follow FHA’s guidelines.

How To Buy A Duplex With Little Down

said on August 12th, 2013 categorized under: Buying A Duplex, Financing

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low duplex down payment requirementsOne of the biggest challenges many buyers who hope to owner occupy a duplex have had is financing. After all, until recently those people really only had two mortgage options; FHA and conventional.

While FHA offered the distinct advantage of a low, 3.5 percent down payment,  this was offset by increased mortgage insurance premiums of the life of the loan. For many, this made monthly mortgage payments unexpectedly expensive.

Of course, for those with the financial resources, there was always the option of putting 20 percent down on a conventional loan. However, for many would be owner occupants, looking at a down payment of $40,000 or more isn’t even conceivable, let alone possible.

However, as the real estate market recovers, banks have begun to look for better ways of doing business with prospective duplex buyers. The best example to date of that is US Bank’s American Dream loan.

The loan is really pretty remarkable. While a borrower cannot currently own any other property, he or she doesn’t have to be a first time buyer, have a minimum credit score, and may even use up to 75 percent of a duplex’s rental income to help qualify for the loan.

Better yet, US Bank will even give the borrower up to $3000 to be applied toward the down payment or closing costs, and may even allow up to $5000 to be escrowed for repairs.

According to US Bank loan officer Conor Hesch, borrowers are not required to have a minimum credit score, and may use alternative forms of credit (like cell phone bills) to qualify.

The loan has no mortgage insurance. Interest rates are typically .5 point higher than FHA loans.

Combined, all members of the buyer’s household must not earn more than $65,000. However, that requirement is waived if the duplex is in a neighborhood where census data indicates most of the neighborhood is of low to median income. This actually encompasses many of the Twin Cities’ most sought-after neighborhoods, as the census counts data from both tenants and homeowners to calculate household income.

The loan may be used to purchase 1-2 unit properties, townhouses and condominiums.

Buy A Minneapolis Duplex With Just 5% Down

said on June 6th, 2013 categorized under: Financing

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Want to buy a duplex but don’t have a big down payment?

If you’re going to live there, you can always get an FHA loan that requires just a 3.5 percent down payment, right?

Trouble is, with FHA’s new higher and longer mortgage insurance premiums, those loans have gotten expensive.

Well, there’s finally some good news from the mortgage industry for duplex owner occupants.

Sam Giannakakis, a loan officer with Alerus Mortgage, called yesterday with news of a loan that requires just a 5 percent down payment for owner occupant buyers.

low duplex down paymentBorrowers must have a minimum credit score of 680, be buying the duplex with the intent to live in it, and earn no more than $86,000 a year.

While the income limitations mean this loan isn’t for everybody, it nonetheless is an indication the banking industry may be rethinking some of their positions on multifamily property lending.

This loan is available nationally, and if it’s something that’s a fit for you, contact Sam by using the hyperlink above. He’d be happy to help; regardless of where you live.

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minneapolis duplex down paymentDoes the amount of your down payment alone determine the type of  financing you use to buy a duplex?

Yes and no.

Traditionally, buyers who intend to owner occupy a duplex and have saved a small down payment use FHA financing.  These loans require a minimum down payment of 3.5 percent and also have a lower minimum credit score threshold.

In exchange for these compromises in lending standards, FHA insures the loan for the lender; at a cost to the borrower.

To qualify for a conventional loan, on the other hand, an owner occupant typically must have at least 20 percent to put down on the purchase, and a higher credit score. As a result of having more “skin in the game” in the form of that higher down payment, the borrower typically isn’t required to carry mortgage insurance.

Over the weekend, I encountered a first time home buyer who had some confusion about this. His belief was that if he put more than 3.5 percent down on an FHA loan– 10 percent, for example, it would become conventional financing.  Where he was confused is that a higher down payment may or may not require him to carry FHA mortgage insurance – but not turn an FHA loan into a conventional loan.

Remember, if you are an owner occupant, you can use FHA financing to purchase a duplex, triplex or fourplex as your principal

The Lowdown On Duplex Down Payments

said on February 3rd, 2011 categorized under: Buying A Duplex, Financing

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sale house and calculatorMany of you who visit this site do so with the hopes of finding out how much of a  down payment you need to have to buy a duplex or investment property.

And while I’ve talked about it before, it’s probably worth revisiting.

If you plan to live in the property, and this is true whether you’re buying a duplex, triplex, or fourplex, the least amount of money you’d need for a downpayment is 3.5 percent. Of course, everybody’s credit and debt ratios tell different stories, so there may be some exceptions to that, but that figure is generally the norm.

That’s because FHA insures loans on owner-occupied properties up to four units. And right now, the mortgages they insure have the lowerst down payments in the marketplace.

If you’re an investor, you’re not as lucky.

While it’s again largely dependent on things like your credit score, debt ratios and number of properties you own, most investors are required to have a down payment of 25-30 percent to purchase an investment property.

The amount sounds staggering. And yet, when most of my investors in today’s real estate market are realizing double-digit cash on cash returns on their down payments, it’s definitiely worth the investment.

Can You "Foreclose" On A Duplex Contract For Deed?

said on November 19th, 2010 categorized under: Financing

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close-up pen on the moneyWhat do you get when you have tightened lending practices, then add a slow duplex market for traditional sellers?

The re-emergence of the Contract For Deed.

A Contract For Deed, which is also known as land contract, is a transaction where the seller acts as the bank. In exchange, the buyer agrees to pay for the property in monthly installments, while the seller retains legal title to the property until the contract is paid in full.

(For the record, most sellers don’t want to carry a contract for deed for 30 years, so these transactions usually involve a “balloon payment” after a few years where the buyer obtains more traditional financing for the property, thereby letting the seller off the hook.)

Frustrated duplex sellers who simply want out of their property may discover offering this type of financing allows them to sell a property because it makes it a possibility for a broader pool of buyers.

Buyers who may or may not have credit problems.

While it’s always a good idea to ask to see a prospective buyer’s credit report before agreeing to seller finance the property, what about the buyers who develop financial difficulties after they’ve bought the duplex?

The good news is Contracts For Deed are not foreclosed on, meaning the wait to get delinquent duplex owners isn’t nearly as long as it is for banks.  When a buyer falls behind on payment by just 60 days, the seller can file what’s known as a Notice of Cancellation of Contract for Deed with the county and serve notice to the buyer.

From that date, the buyer has just 60 days to cure or reinstate the contract. This usually involves catching up on payments and reimbursing the seller for attorney fees. If the buyer fails to do so, ownership of the property returns to the seller.

The seller who repossesses the property does not have to return any funds to the buyer; even if default occurred after years of payments.

And there is nothing stopping the seller from marketing the property all over again.

Why Duplex Down Payments Are Like Shoe Sizes

said on October 4th, 2010 categorized under: Financing

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big shoes, little feetI often get asked, “What’s the down payment on a duplex these days?”

I never have an answer.

The reason is duplex down payments are like shoes: one size doesn’t fit all.

I suppose I could offer generalities; 3.5 percent down if you’re an owner occupant using FHA and 20-25 percent if you’re an investor. But that’s a little like looking at your foot from afar and saying you need a size 8 when you failed to tell me you have seven toes.

In that case, you probably would need a bigger shoe, right?

The amount of a down payment depends on a number of things; what your credit score is, what your debt ratios are, how many loans you already have, whether or not the property is occupied, how much rental income a property generates, what program or lender you’re planning to use and any number of other factors.

In other words, the best way to find out what kind of down payment you as an individual will need to buy one or more duplexes, is to speak with a reputable loan officer in your area. He or she can then look at your specific situation, and make recommendations as to the type of financing that’s best for your situation.

It’s a good idea to speak with a loan officer before you begin your duplex hunt anyway; it will help both you and your Realtor avoid wasted time and energy.

Homepath Duplex Financing Requires Glasses

said on September 27th, 2010 categorized under: Financing

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Read the Fine Print - Magnifying GlassIf you’ve spent any time at all on the web researching the financing of investment property, odds are you’ve read Fannie Mae’s Homepath program will allow investors to purchase property for as little as 10 percent down.

This is good news, right?

Yes and no. Because every time you read that, there should be asterisks telling you to read the fine print at the bottom of the page. The teeny, tiny print that you can’t read without a magnifying glass or a great pair of cheaters.

Fannie Mae’s Homepath and Homepath Renovation financing is available on some, but not all Fannie Mae owned properties.

The perks of using these loans are many. For both owner occupants and investors, benefits include no mortgage insurance, no appraisal fees (Fannie Mae has an appraisal done before listing the property), flexible mortgage terms (fixed interest or ARMs), and a bit more leniency on FICO scores.

But what they don’t tell you is just as important.

Fannie Mae requires an investor to put just 10 percent down on single family homes. However, it’s important to note that buyer can have no more than four mortgages total, including that attached to any personal residence or vacation home.

For an owner occupant of a single family home, the offer is sweeter yet.  Fannie Mae’s Homepath down payment requirement for them is a half point lower than FHA’s at 3.5 percent.

Here’s the kicker. When it comes to duplexes, the rules change for everybody.

According to Dean Schiffler of PHH Home Loans, both owner occupants and investors are required to have a 20 percent down payment when using Fannie Mae Homepath financing. Homepath triplexes and fourplexes require a 25 percent down payment.

And, if an investor owns more than four properties, he or she is required to make a 25 percent down payment.

Of course, if you intend to owner occupy your duplex, using Homepath doesn’t make any sense. After all, FHA only requires you to have 3.5 percent down.

This is a good lesson. After this lending crisis, it’s important we all remember to read the fine print.

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CrocodileI want to dispel an urban myth.

No, not the one about alligators in the sewers.

The one I’m talking about is you have to be behind on your duplex payments or in the process of foreclosure in order to sell your property as a short sale.

Not true.

According to the Distressed Property Institute, there are a number of reasons that cause a property and duplex owner to become a “distressed” property. They are:

  1. Payment Increase or Mortgage Adjustment- Many property owners who took out interest only or option ARM mortgages between 2005-2007 may experience a jumps in their monthly payments of anywhere from 60 -300 percent in the next year. Actually, these resets are the top reason for distress in today’s market.
  2. Loss of Job – With a job loss comes the loss of income which contributed to paying the mortgage and bills.
  3. Business Failure – Like a job loss, people who lose their businesses lose their income, resulting in mortgage payments being missed.
  4. Damage to Property- No matter how good your insurance is, it often doesn’t cover all of the damage. Not having enough money to fix the property, many homeowners use the insurance settlement to cover living expenses.
  5. Death of a Spouse – This will not only cause emotional duress to surviving family members, but may also cause the loss of the person who paid the mortgage.
  6. Death of Family Members- Even if the deceased person didn’t contribute toward the duplex payment, the emotional loss may have ripple effects.
  7. Severe Illness – The medical bills associated with something like cancer and the time lost on the job can be devastating.
  8. Inheritance – Doesn’t make sense, does it? But, what if grandma leave you her house– that has a monthly mortgage payment of $5,000?
  9. Divorce – Imagine the cost of attorneys and two living spaces.
  10. Separation – Again, separate living spaces when perhaps, both parties were paying the mortgage.
  11. Relocation – If your employer asks you to transfer, chances are in this job market that you’ll take the opportunity. However, many employers don’t offer compensation for homes or multiple house payments.
  12. Military Service – While there are some opportunities for relief, extended miliary service can cause financial stress.
  13. Insurance or Tax Increase – An increase in either of these often results in higher mortgage payments.
  14. Reduced Income- Many employees have been asked to grant wage concessions in order for their employer’s companies to survive. Those who work on commission may also be suffering reduced income due to the economic slowdown.
  15. Too Much Debt – An increase in credit card interest rates, or sudden, unexpected expense can result in a duplex payment being too large.
  16. Incarceration – It’s tough to keep your job when you go to jail. And at prison wages of pennies per hour, it’s tough make a mortgage payment.

If you’re facing any of these challenges, remember there is a solution besides foreclosure. A short sale will likely result in your being able to a much faster financial recovery, as well as keep the permanent black mark of foreclosure off your credit report.

Call me. I’d be glad to help.