Most lenders require your personal financial statement showing your assets (bank accounts, stocks and bonds, whole-life insurance policies, house, autos, etc.) and liabilities (loans, credit cards, unpaid taxes, etc.) They will also need a cash flow statement, showing your average monthly income, and where the money goes each month. A lender wants to know that you are not living paycheck to paycheck, and can afford to make mortgage payments even if the property is vacant for a few months. It is all right to have no surplus cash at the end of each month, but you will need some money in savings or in liquid assets in order to make up for it.
You will also need a letter or a fact sheet stating the purchase price of the property, anticipated closing expenses, and your investment intentions, such as buy and rent out, buy and sell relatively soon, or buy and hold for future sale. For rental income property, you will need to show anticipated annual income and expenses for the property. Property planned for resale should state the purchase price you expect to receive, what evidence you have that it is a reasonable expectation (for example, comparable sales in the area), and the expenses you will have holding and then selling the property.
Photos of the property, a map with the location marked, and a general description of the area will always help. If it will be used for residential rental, include a statement regarding all school zones for the property. That way, the lender can easily evaluate that the property is in a good area and will hold its value. If you plan to manage the property yourself, say so in your documents and explain any relevant experience. A carpenter husband and his plumber wife have more property management credibility than a surgeon husband and his lawyer wife, for example. On the other hand, the surgeon/lawyer team can probably afford to hire maintenance and management from third parties.
Finally, if this is the just the beginning of your investment career, with more purchases (and more loans) to follow, then say so. Lenders are more willing to invest in a first-time real estate investor if they believe that other business will follow.
You are probably most familiar with home loan interest rates, because those are the ones most often advertised in the newspapers and on television. Home loans are almost always at lower rates than investment loans, usually by one-half to one percentage point. If you qualify for a 6.5% loan to buy a home as a residence, you will probably have to pay 7% interest to buy that same home to use as a rental house.
Lenders have differing methods of arriving at the interest rate they will charge for loans. Many start with a reference point, which is called the index. Next, they tell you that your loan will be a certain amount above whatever the index is on the relevant day. That day could be the date of the quote (very rare), the date of a firm loan commitment (more common), or the date of the loan closing (very common.) For example, a lender might agree to loan you US Dollars 80,000 on a 25-year mortgage at 135 basis points over the 10-year treasury bond rate. If 10-year treasuries are at 5.2% on the date of the commitment or the date of the loan, then your interest rate will be 5.2% + 1.35%, or 6.55%. Other lenders will quote you a particular interest rate, which they will honor for a limited period of time. If that time expires before you are ready to close, you will have to shop for new rates with everyone all over again. This can be very inefficient.
Our website is not responsible for the information contained by this article. Webworldarticles.com is a free articles resource thus practically any visitor can submit an article. However if you notice any copyrighted material, please contact us and we will remove the article(s) in discussion right away.
This article was sent to us by:
Jack E. Rogers at
07042010
1. Start Investing Money in Real Estate
All articles in this directory are property of their respective authors. Additionally, read our Privacy Policy
© 2010 WebWorldarticles.com - All Rights Reserved.