06/07/15: Ask The Guys – All About Loans with Two Expert Guests

After our last episode of Ask The Guys, we asked Walter, our email room manager, to rummage through our email inbox and gather up a bunch of listener questions about loans and lending.  And he came up with some gems!

So we dialed up our lending brain trust and convened in our Dallas studio to answer your questions about loans and lending.

Behind the microphones and ahead of the yield curve for this episode of The Real Estate Guys™ radio show:

  • Your well-capitalized host, Robert Helms
  • His living on borrowed time co-host, Russell Gray
  • Residential investor lending specialist, Graham Parham
  • Commercial lending specialist, Michael Becker

After several years of tight money, it’s nice to be able to talk about getting loans again.

Even better, lenders are beginning to to get more creative in looking for ways to attract new borrowers.

But while that’s good news, it means savvy investors need to stay on top of the ever-evolving underwriting guidelines.  That’s why it so important to have one or more mortgage pros on your team.

So when Walter dragged in a bag of emails full of lending questions, we called on our lending gurus, Graham Parham and Michael Becker, to help us answer.  In fact, we made them do all the work. 😉

We talk about what happens when you’re fortunate enough to have equity and want to use a cash out refinance to access it for additional investment.

We discover that…from a lending perspective…not all properties are the same.

For example, a condominium might be in great shape…and your credit score and debt-to-income ratios might be amazing…

But if there’s too many renters and not enough owners living in the complex, your condo might be “unwarrantable”.

That means the government subsidized lenders, Fannie Mae and Freddie Mac, don’t want to make the loan.

Bummer.  Now you can’t get the cheapest rates.

However, all is not lost.  Because while Fannie and Freddie might shun your deal, there’s an emerging group of private money lenders who can probably help you.

Of course, it’s more expensive compared to Fannie and Freddie.  But probably better than leaving your equity trapped and idle in a property.

We also talk about HELOCs (Home Equity Lines of Credit).  These are nifty tools that allow you to have what is essentially a revolving line of credit against the equity in your property.

For a while…in the wake of the mortgage meltdown…lenders were shutting these credit lines off en masse.

Today, lenders are advertising to attract HELOC borrowers.  Happy days are here again!

Of course, we don’t think it’s smart to count on HELOCs for essential liquidity.  After all, the lender can shut the line off at will.

But they can be VERY handy tools for tapping equity…and only paying interest when you have the funds drawn.  Nice.

One of the issues borrowers are facing is income documentation.

It SEEMS like documenting income is a good idea.  After all, who would lend to someone who doesn’t have enough income to make the payments?

BUT…as our good friend Robert Kiyosaki always reminds us…there are three sides of the coin.

In the case of income documentation, most self-employed people are working diligently with their tax advisor to MINIMIZE (legally) the amount of income showing in their tax returns.

But when it comes to borrowing, the lender wants to see LOTS of income.

It used to be that lenders understood this, and would allow a borrower to “state” their income…rather than prove it.

As long as they had good credit, savings, and a legitimate source of income, the lender assumed if the borrower was willing to risk their down payment and credit score, they probably had the means to repay…whether or not the tax returns proved it.

Of course, when real estate got “hot”…and everyone was rushing in and betting on never-ending price appreciation…borrowers and lenders got sloppy.  And we all know what happened.

So today, borrowers need to plan ahead.  That means preparing your income documentation…including your tax returns…TWO YEARS in advance of your purchase!

Obviously, it’s a REALLY good idea to work closely with your mortgage AND tax advisors.

Of course, if you decide to make the leap to commercial lending (more than 5 residential units or anything non-residential)…it’s the income of the PROPERTY that needs to qualify…and it’s your balance sheet…and not your income statement…that the lenders will be interested in.

There’s another group of people who are somewhat locked out from all the great cheap government subsidized loans.  Foreigners.   And foreigners have been very interested in buying up U.S. real estate.

Of course, where there’s demand, entrepreneurs (even lenders) will look for ways to create supply.  But as you  might imagine, those solutions don’t involve government programs.

Still…some leverage…even at higher interest rates…can be better than no leverage.

As we often say, “Do the math and the math will tell you what to do.”

Another question that came up has to do with Fixed Rate versus Adustable Rate…which is best?

The answer….as you might guess…is “IT DEPENDS!”

It’s hard to imagine interest rates falling too much farther.  So the probability is higher rates in the future.

With that said, asking the the lender to fix your rate for 30 years puts all that risk on them…which you might like…but it’s insurance you’ll pay a premium for.

So the decision to go fixed or adjustable can be largely based on YOUR plans for the property.  Do you plan to sell in 3-5 years?  Do you plan to hold for 30 years?

Also, if you decide to exit the property in a few years…will you buyer be able to get affordable financing?  You can’t always assume you can freely get out of the property…at least not at your price…because if rates are up…there will be less buyers and likely less appreciation.

We think it makes sense to look at the terms of your ARM…and if you can live with the WORST case scenario interest rates…and want to enjoy the low rates of adjustable in the meantime…and ARM could be a good choice.

On the other hand, if you’re squeezing into the property with thin cash flow based on a temporarily low interest rate…and you MUST get out in 3-5 years or you’ll go bust…an ARM can be a time bomb.

Be smart.

Just like picking your property carefully, it’s important to pick your financing carefully.  And your mortgage advisors can be VERY helpful in making good decisions.

For now, listen to our two expert guests and consider how you can be a smarter borrower.

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11/8/09: What the HECM? The Realities and Risks of Reverse Mortgages

No, that’s not a typo.  HECM stands for Home Equity Conversion Mortgage, the FHA brand of reverse mortgages.

“What the HECM is a reverse mortgage and what the HECM does a real estate investor care about them?” you may ask.  Well, that’s what today’s show is all about!

Sitting backwards in their chairs for today’s episode:

  • Host, Robert Helms
  • Co-Host and Financial Strategist, Russell Gray
  • The Godfather of Real Estate, Bob Helms
  • Certified Mortgage Planner and Reverse Mortgage Expert, Mark Soto

Consistent with The Real Estate Guys’ policy of “No Listener Left Behind”, we open the show explaining the basics of what a reverse mortgage actually is and how it works.  They sound simple, but when you have bankers, lawyers and politicians involved, simple goes out the window!  Plus, today’s products aren’t your parents’ reverse mortgages – well, actually they may be (depending on how old your parents are), but the point is that the product has changed a lot since it was first introduced.  Mark Soto brings us up to speed on the state of the art.

Mark explains who qualifies and the various options for getting cash, cash flow or credit. One very important discussion topic is the role of FHA insurance. We also take the time to deal with several of the many misconceptions about reverse mortgages and how this product fits into our “new” economic landscape.

The Real Estate Guys really enjoyed the real life stories Mark shares about how his clients have used reverse mortgages creatively.  As real estate investors, we’re most interested in how to use any tool in our toolbox to make a profit, improve cash flow, avoid taxes and protect assets. We wrap the show up by delving into these hot topics.

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10/11/09: Who Moved My Cash? The New Rules of Real Estate Finance

In case you hadn’t noticed, the rules of the real estate game have changed a lot over the last 2 years – much of it driven by dramatic changes in where mortgage money comes from and how it gets to market.  In this broadcast, The Real Estate Guys talks about the current state of the union when it comes to residential real estate finance.

The brains in the house for this enriching broadcast are:

  • Host Robert Helms
  • Co-Host Russell Gray
  • “The Godfather of Real Estate” Bob Helms
  • Certified Equity Happens Mortgage Consultant Marty Sonke

The show kicks off with The Guys talking about how the mortgage meltdown has affected the game of real estate investing.  Then special guest contributor and mortgage originator Marty Sonke calls in to provide a front line update on what loan programs are and are not available today. Hint:  There’s one segment of the market where money is easiest to get.

We also talk about the real world ramifications of recent legislation intended to “help” improve the market.  HVCC and MDIA are well intentioned, but also have created some new issues for mortgage originators and borrowers.  What is HVCC and MDIA you ask?  Well, you’ll just need to listen to the show! 😉

With so many people unemployed and underemployed, many of whom are starting businesses, Marty gives us the 411 on the new rules for self-employed borrowers.  He also brings us up to speed on two of our favorite tools for freeing up idle equity: HELOCs and Cash Out Re-Fi’s.

What about borrowers with less than perfect credit?  Marty tells us about the new options for sub-prime and “Alt-A” borrowers.

We close the show talking about adjusting your expectations to fit the new reality of real estate finance.  The game is far from over and real estate is not dead – it’s just different.

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