One of the things that people that invest in real estate sometimes have to do is get a refinance on their current mortgage. This article details some of the issues that I've had to deal with when getting a refinance.
Mortgage Brokers
This happens a lot. You start talking to a broker and he promises you the earth, moon and stars all at 6 percent interest. However when you get further along in the process, usually after the point when you can cancel without losing a ton of money or the house you want, the broker will tell you that some aspect of your loan has changed. Whether it be the interest rate or the fees, none of it is usually good news. Now's a good time to remind you about the difference between the interest rate and the APR. The APR is the number that reflects the fees attached to your loan. The mortgage officer will give you a Fair Lending truth in lending statement that will have your interest and APR rates. A rule of thumb I use is that your APR shouldn't be more than .25 percent of your interest rate. I'd suggest you try to beat your agent and your mortgage broker up on his fees and get it in writing. If you're buying, I'd suggest you tell the seller that you want him to pay all closing costs. The real estate market is weak in just about all areas of the country, so take advantage of some deals.
Mortgage Seasoning
This is when you take a mortgage out on a property, fix it up, then try to get it reappraised at the new higher value so you can cash out your equity to pay for the repairs and to pay yourself hopefully. Many banks will stop you cold right there because the old mortgage hasn't been 'seasoned' enough. That is you haven't had the loan long enough to justify the increased appraisal amount. The reason why a bank would do this is to prevent fraud. Imagine a situation where you buy a really rundown house. Then an appraiser comes in and appraises it for a lot more than what it's worth. Then you keep the difference.
If you get stuck by a seasoning rule at one bank, you can always go to another. Sometimes the bank will accept the receipts of the work done as proof that the house's value has increased.
Commerical Property Loans
Most people know the rule that if it's over 4 units then it's a commercial property loan. What about if one of the units within the building used to be a commercial storefront while the remaining units stayed residential? There are some ways to cope with this. One is to tell the bank that the commerical unit is no longer being used for commerical purposes. That's what we did with the purchase and refinance of our 4 unit building.
HUD Settlement Statement
Your HUD Settlement Statement is the document you get at closing that details your transaction. It is frequently wrong. I've done about 50 deals and on 10 percent of them the statement had a wrong fact or misprint. Check with your agent before going into closing to see if he can review a trial HUD statement before you sign to make sure you're not stuck with something that's not in your contract.
These are four things that you have to keep an eye out for as a real estate investor. If you don't prepare for it each one can cost a bundle.
Rick Johnston is the proud owner of http://www.arecreditreportsfree.com. A site dedicated to the free flow of information about the refinancing of mortgages and mortgage seasoning.
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