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Mortgages are still cheap, if you can get one

Millie Ruiz-Wagner is a mortgage lender in the Chicago area. Just weeks ago, a 580 credit score, out of a maximum 850, was good enough to qualify for a mortgage. These days she’s not seeing many loans approved under 640.

“I got caught with people who were preapproved with credit scores under 640, and I had to stop, regroup, help them fix their credit so they can get back in the buying market,” she said.

People do still want to buy homes, and even more people want to refinance existing mortgages, to take advantage of near-record-low interest rates. As of last week, the average interest rate on a 30-year mortgage was 3.31%, according to Freddie Mac.

But Joel Kan, an economic forecaster at the Mortgage Bankers Association, said that’s getting harder to do. The group’s Mortgage Credit Availability Index fell last month to its lowest level in five years, and it’s likely to get worse.

“The March numbers were really only a reflection of tightening in the last two weeks of the month,” Kan said. “With the gloomier economic outlook and a full month’s worth of data in April, I think we can expect more conservative lending and thus a decline in credit supply.”

According to data firm Black Knight, nearly 3 million borrowers have delayed their mortgage payments through COVID-19-related forbearance plans. That leaves lenders with less money — and less confidence — to make new loans, said Michael Neal, a senior research associate with the Urban Institute.

For potential borrowers, he said, “You’re less able to secure a mortgage, and if you are, you’re going to pay a much higher mortgage rate.” That could especially hurt minority and younger borrowers “because they typically have lower credit scores.”

It’s not just credit scores getting a closer look, said Lana Jern, a broker at Uptown Mortgage in Denver. Lenders are rejecting certain sources of income and asking for additional documentation, she said. One lender recently required a client to prove that his tenants had paid their rent in March and April, something Jern had never seen.

“It’s their prerogative, of course, but some of it I think is a little overreactive,” she said. “Then again, it’s not my money.”

Tighter credit standards are likely to further slow home sales, already under strain from stay-at-home orders and mounting job losses. Maryland-based builder Jeff Caruso, owner of Caruso Homes, said some of his clients have run into trouble getting financing.

“I would say 8 to 10 percent now are looking at credit issues, trying to increase their credit scores because of these new requirements,” he said. “That’s definitely affecting our homes under construction and our new home sales.”

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Millions of homeowners are now delaying their mortgage payments

As the coronavirus continues to wreak havoc on the US economy, millions of homeowners have taken advantage of a government program that enables them to reduce or delay their mortgage payments.

The payment relief, or forbearance, enables homeowners with federally-backed loans who are impacted by the pandemic to delay or reduce their mortgage payment and to get a break on the accumulating interest for up to a year.
In the week ending April 12, the share of loans in forbearance jumped to 5.95%. That’s a 60% increase from the prior week, according to a Mortgage Bankers Association survey of more than three quarters of home loans, or about 38.3 million loans. At the beginning of March, before the coronavirus pandemic caused widespread shutdowns across the US, only 0.25% of all loans were in forbearance.
“Homeowners are contacting their mortgage servicers seeking relief, leading to a sharp increase in the share of loans in forbearance across all loan types,” said Mike Fratantoni, MBA’s chief economist in a statement.
He said that while mortgage servicers continue to receive a very high number of forbearance requests, they were down somewhat compared to the prior week. Call times went down, too, with hold times dropping in half from 10 minutes to five.
But, with more than 22 million people filing for unemployment
during the past four weeks, the numbers are expected to rise again.
“The numbers [are] big, but are going to get even bigger,” said David M. Dworkin, president and CEO of the National Housing Conference, a nonprofit advocating for affordable housing. “We are only two mortgage payments into this crisis, and already 6% of the people paying mortgages are asking for help. Others can’t pay but haven’t asked for help yet. By May, we will have millions more unemployed and unable to pay.”
Bearing the cost of all those delayed mortgage payments could put a strain on some servicers — particularly some smaller mortgage companies that do not directly make loans.
The federal mandate to allow millions of desperate homeowners to delay their mortgages “has the great potential to be too great a strain for non-bank servicers,” said Ed DeMarco, president of the Housing Policy Council.
Ultimately, this could make it more difficult for people to access mortgages, with some lenders already announcing the tightening of credit standards, DeMarco said.

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Fix and flip quick check list

Quick check list of what to look for in a property you are considering for a fix and flip.

What to look for in a Property when assessing it for a flip.

We asked an experienced Flipper what she looks for in a house that she is considering.  And this was she looks for.

 

Living, family, dining, bed, bath rooms:

How do they look and what can you improve on? Remove walls, upgrades?

Roof:

New or Old?

Kitchen:

Rehab or remodel?

Furnace/AC:

Working or NOT?

Garage:

New doors?

Exterminator:

Termites or Roaches?

Plumbing:

Areas of concern?

Electrical:

New or old?

Driveway:

Cracks or need replacement?

Sidewalk:

Yours, or the Cities?

Exterior Surfaces:

Repainting, plastering, stucco work needed?

 

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How to Buying a fixer-upper

Fix and Flip Process and Programs

A couple steps to help you with your fix and flip

You keep hearing the term Fix and Flips.   You see it on TV and they make it look so easy.  Is it really?

Obviously, you need to avoid buying a money pit.

Working with professionals will ensure that the improvements you are considering will be worth it in the end to improve the value of the home. You don’t want to over-renovate the home for the area so avoid renovations that just won’t be worth it in the end.

But how do you afford to do a renovation? When you purchase the home you will need sufficient funds for the down payment and closing costs.

It could be difficult to qualify for additional financing when you have just purchased a home and these options can also be expensive.

The great news is that there is an affordable solution – there are insured mortgage programs that will allow you to borrow up to 10 percent of purchase price for improvements to a maximum of $40,000. The property value must be less than $1 million.

Here are the steps that you need to take:

Step One: Get Pre-Approved

Obtain a mortgage pre-approval to determine your maximum approval amount.  There are special programs for Fix and Flip, and Fixer Uppers.  These programs are typically for investors, and not consumers that are looking to occupy the home.  These programs can allow for lower down payments and fund available for the renovations.  But keep in mind rates and fees are typically higher than normal conventional loans.

Step Two: Find the right property

Find a home and have a general idea of what renovations need to be done as well as their cost.

The purchase price plus the renovation cost cannot exceed your maximum approval amount for a mortgage. Lenders will request written quotes to be provided, detailing the work to be done, as well as the cost.

Step Three: Be prepared with Renovation Quotes

Once your offer is accepted, you will need to provide the accepted purchase offer, as well as the quotes for the improvements, to your mortgage broker.

A financing request will be sent to the lender which includes the cost of the renovations.

Step Four: Begin Renovations

Once you take possession of your home, you can begin the renovations. The Lender will instruct the escrow or attorney to hold the additional Renovation funds, until the lender confirms the works has been completed.

Fixing a home can be an exciting adventure.  Make sure you have the right professionals that can assist you with the process.

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What color is your credit score?

Nationwide Mortgage nonprime

Do you have a poor credit rating because of financial problems you have had in the past?

Perhaps you went through a bad divorce or you owned a small business that went bankrupt or a consumer proposal.

You might have lost your job and ended up defaulting on your loans and credit cards.

There are many circumstances that could have caused you to have poor credit.

This does not necessarily mean that obtaining a mortgage to purchase a home is out of the question and regardless of the circumstances speaking with a mortgage broker could help you with a course of action toward owning a home.

Does this mean your only option is a hard money loan?  What about non prime loans?  What are they and how can they help me?

Ensuring that you take the right steps whether you have bad credit or even no credit is very important. There may be some options available to you but they will come with a cost.

Here’s a guide to what we are going to take a look at to determine what options might be available for mortgage financing.

  • Check your credit score — You can do this yourself at either www.equifax.ca or www.transunion.ca or if you contact a mortgage broker, they can check it for free. Your credit score will be somewhere between 300 and 900. If you have a credit score below 600 most of the major bank lenders in Canada will not consider you for mortgage financing and you will be looking at an alternative mortgage lender. If you have gone through a bankruptcy or consumer proposal recently, the options available may include private lenders.
  • Save for a larger down payment — If you have good credit, then you can purchase a home with as little as a five per cent down payment, but with credit issues you need to be prepared to provide more equity. Lenders are going to require somewhere between 20-25 per cent down payment.
  • There will be fees — Be prepared to pay some fees to arrange a mortgage with either an alternative or private lender on top of the standard closing costs.
  • Rates — You will not qualify for the best rates that are currently being advertised, but if you make all of your payments on time and work on repairing your credit, then most likely you will qualify for better rates at renewal time.
  • Income and employment — A lender is going to review your history of employment and income to ensure that you are able to make your payments. Is your income confirmable? (Declared on your tax returns with your taxes paid up-to-date). This is particularly important for the self-employed applicant. Do you have employment stability?
  • Current debts — Carrying high balances on unsecured credit cards or having a high car payment could also affect a mortgage decision. Alternative lenders will want to ensure that you can afford your current obligations to prevent the potential of future default on a mortgage payment.
  • The property you are purchasing — This is a very important factor for private lenders lending to clients with bad credit. They will want to have a full appraisal completed on the property to ensure that it is marketable and worth the investment they are making in the mortgage.

There are options available

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5 Mistakes to Avoid Getting Rejected for a Mortgage

Amassing a big pile of cash for a down payment–to apply for a mortgage is a daunting task. First-time buyers often rightly pause as they begin to grasp the meaning of the phrase, “mortgaging your future.”

If you can get over that hurdle, you could be well on your way to the seven out of eight mortgage applications that get approved. A pessimist might observe that that means the application has a one-in-eight chance (12.5%) of being rejected.

True enough, but you can reduce the chance of rejection by avoiding a handful of mistakes that have a virtually immediate negative impact on your credit score. The experts at Realtor.com have come up with a list of five mistakes you can easily avoid to make sure that your application is one of the seven that gets approved and not the one that gets rejected.

1. Use your credit cards

One way to establish creditworthiness is to use the credit you have. That doesn’t mean to pile it on, but use the cards you have and pay them on-time to build up a credit history. If you really don’t want to do that, some lenders will look at your history of rent payments and other regular bills that you have.

2. Don’t open new credit cards near the time you are applying for a mortgage

According to Realtor.com, opening a new credit card account can cost you up to five points on your credit score. That may be enough to disqualify you for a mortgage. Also, don’t spend a lot of cash (or use credit on existing cards) before you get the mortgage and moved in.

3. Don’t miss a payment on a medical bill

If you’ve run up some big medical bills, work with the doctor or hospital to develop a payment plan you can live with. Defaulting on a medical bill typically results in the provider referring your account to a collection agency and the agency can refer your status to the credit reporting agencies.

4. Don’t change jobs

Most mortgage lenders want to see at least two years of consistent income before approving a loan. There are exceptions, of course, but sticking with the job you have until the mortgage is approved is a better choice if at all possible.

5. Don’t lie on the mortgage application

This should be obvious. In the first place, if you do stretch the truth, it can be prosecuted as mortgage fraud, a federal crime. Second, mortgage lenders do their homework and chances are you’ll get found out, and there goes the mortgage. While it might seem quaint these days, honesty is the best policy when it comes to getting a mortgage.

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Fix and Flip Mistakes 10 Ways to Avoid Them

Fix and Flip tips

Buying properties at under-market prices, then undertaking required repairs/upgrades and finally profitably flipping them sounds like a pretty good plan, right? Unfortunately, especially for new players in the Real Estate Investment (REI) world, problems can add up fast if you are not very careful. Profits on paper can turn into real world losses, in a heartbeat, without proper preparation. The single biggest mistake that newbie fix and flippers make is not comprehending or underestimating the cost of rehab work. Also, if you would like to fix and flip while overpaying for the property to start with, you can find yourself in the hole even quicker.

Whether it be an undetected damaged roof, a missed cracked foundation or not checking the (broken) air conditioning system (because you bought the house in the winter time), a whole variety of potentially expensive issues can arise after a property is put under contract or purchased. However, by then it may be too late.

Here are some of the top pitfalls to avoid on the road to fix’n flip real estate riches.

Be prepared for surprises.

While it is true that some properties you fix and flip will really only need cosmetic fixes (paint, minor clean up, etc.) most properties that are out there and can make for a great fix and lip are ones with low prices and are in need of much more work than just “surface” work. For example, reselling the property to a normal retail buyer means it has to pass a formal housing inspection to confirm the entire property is up to current building code requirements.

  • That means you maybe cannot get by with minimum fix-up. What may be required are real repairs that include major issues such as mold or mildew problems, pest infestations, outdated plumbing or electrical that might need upgrading. Any of these things can send your “real” purchase price soaring. Going over budget on the initial purchase price (including all repair and upgrade costs) can leave you with no profit when you go to sell the property.
  • It is instructive if not imperative to start with what the (highest) ceiling price is for the area in which property is located, before bidding on any of them. Next take a very close look at THAT price vs. the price of the property you are considering as a purchase + the anticipated improvement/fixup costs + your anticipated profit; adding up those three factors allows you to ascertain the maximum purchase price you can justify paying.

Work “backwards” from that point to determine expenses, carrying costs and most important, net profit.

  • You should have firmly in your mind what minimum net profit you are looking for, which is a function of the how much you can sell the property for, and still hit your target profit number.
  • Always build in some extra funds for unexpected costs.
  • But,if the numbers don’t work, then walk away from the deal.

Do NOT Skip the inspection.

Assuming you have time, bring in a competent inspector, contractor, experienced handyman and at least do a drive-by of the property and view as much as you can inside and out. When possible, get into the property itself in advance of the offer and take a very good look around, in order to prepare for an efficient fix and flip.

Don’t limit your research to just the property you are acquiring.

  • Be sure to research the neighborhood as well. For example, if your “sure fire” investment property is in a neighborhood in decline, the overall value of the post-rehab property may fall way short of your pre-rehab profit expectations.

Don’t pre-pay contractors or others in full in advance.

Pay them, in installments, when certain pre-determined milestones are met. For any large project, you should create and maintain a detailed “draw schedule”. The contractor collects the draws or “progress payments” when certain phases or parts of the project are finished.

Failure to rent the property out, if the sale takes a long time.

During the months it takes for escrow to close, the rehab to get finished, and the resale to get underway, market conditions can shift. It is better to make a small profit for a few months, while trying to sell the property. Rather than letting it sit there empty, make some profit while you have to make payments to the lender month after month after month.

Avoid 100% DIY (Do It Yourself) Fix and flip projects.

To many REI-ers give themselves credit for skills they may lack. For example, unless you are a licensed realtor, you may not want to try the sell the property yourself. The paperwork alone can drown you in detail. Same goes for trying to do all the repair work yourself. Your time might be better spent on your “core” knowledge areas (flipping houses vs. painting) It is possible to retain a lower cost with high quality talent to accomplish such tasks for you.

Ignore the “70 Percent Rule” at your own risk.

It is a basic, tried and true formula in the REI biz that you should take your ARV (After Repair Value), multiply it by 0.7 and subtract your repair cost estimate. That is the maximum amount you should be paying for a property—no exceptions. This is considered a sacred  rule because it will keep you safe from overspending on rehab and winding up with a property you can’t sell for a profit.

Avoid taking on too big of a fix and flip project on your first deal.

A modest clean up or cosmetic fix up is one thing. But then there are projects that may include flooring, insulation, landscaping, stucco, doors, windows, kitchen cabinets, counter-tops, etc. Not only do such rehabs eat up a lot of money, they take a lot of time to accomplish. When you are using hard money financing, time is literally money. Buying properties that need too much work is a quick way to turn a profit into losses.

Figure out your financing before you jump in.

There are great loan programs for Flippers.  You can get up to 90% loan to value and up to 100% of your covered in a loan.   Always ask if there is a prepayment penalty, and what the draw fees are.  Is there a pre-payment penalty for early payoff.  Button up your financing before you make an offer.  It will reduce the stress of the loan.

Credit to Tod Snodgrass, 

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