Paul's Blog

Program Rules - Lender Rules- Underwriting - are the 3 levels of lending criteria that culminate into a loan approval. Mortgage financing is a key element of the purchase process, so it pays to understand the process. A synopsis below.... /// In the next issue, a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker  (What's a Mortgage Banker?)

There are important practical differences between a Mortgage Lender, Mortgage Banker, and a Mortgage Broker. Mortgage financing is a key element of the purchase process, so it pays to understand the options.  It is particularly good to understand the mortgage banking concept, which allows you to in effect make full application to many lenders all at once - very advantageous in today’s mortgage environment! /// Next week a synopsis of loan decisioning, also useful to know, and the week following a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker

What they are
>>Mortgage Lenders are usually depository institutions (banks, credit unions). They have a single line of products and unique lending criteria. All mortgages are sold in the secondary market (mostly Fannie Mae, Freddie Mac).
>>Mortgage Bankers use their own money to fund mortgages. They sell the mortgages either to Mortgage Lenders, or the secondary market. They offer a broad range of loan products and have the flexibility of matching an application with the lending criteria of an investor to whom they sell loans. Mortgage banking is now the hottest business model in mortgage financing because you are in effect applying to many lenders, all at once!
>>Mortgage Brokers are intermediaries who brings mortgage borrowers and mortgage lenders together, but do not use their own funds to originate mortgages.

What they have in common
>>Pricing: Lenders need to pay for all loan originations 
somehow, whether they pay their own sales force, their own branch network, bankers, or brokers. At the end of the day rates and fees are therefore pretty similar.
>>Equal pricing: Commissions no longer depend on the rate charged so the focus is now always on getting the approval on the best possible terms – lender, banker, or broker.
>>All loans are sold in the secondary market, portfolio loans excepted.

The differences
The practical differences between a lender, banker, and broker, are the breadth of loan programs offered, expertise, and loan decisioning:
>>Mortgage lenders are limited to their own mortgage products and lending criteria. If your application is handled by an application-taker instead of a capable mortgage specialist, you are at risks of delays, or denials.
>>Mortgage Bankers (like me) have expertise, a broad product offering, and the flexibility of matching and approving applications with the criteria of one of their many investors. You are in effect applying to multiple lenders at the same time!
>>Mortgage Brokers have expertise and choice of lender, but do not approve loans. If a lender declines a loan it needs to be submitted elsewhere.

We are still faced with the best real estate opportunities of a lifetime. As sad as it is to say, the economic malaise continues to serve us very well. My investment group is interested in funding 

highly profitable (fix and) flip projects - up to 100% of hard cost.

INVESTMENT CRITERIA

Our investment criteria are as follows:

• 1-4 family properties only. (2,3,4-family preferred)
• Preferred investment size: $20K-$100K ($200K max)
• NJ, NY only
• ARV (After Repair Value) of at least 150% of hard (purchase and rehab) cost
• Cross-collaterization on other properties considered.

If you are interested in:

• Fix & Flip project funding, go here for Information and/or a Quick Quote
• Investing with us, go here for Information 

Fed will publish short-term rate projections
The Federal Reserve will now tell the public its expectations for short-term interest rates, starting after its Jan. 24-25 meeting. I find this odd, and here is why...

>>Reliability. If market realities change, the Fed may need to adjust rates. That is the Fed's job first and foremost.

>>Conflict of interest because the Fed may not want to contradict itself, and hesitate to take needed actions that conflict with its own projections.

>>Confusion. This pertains to short term rates, NOT (long-term) mortgage rates. People are constantly confused about this. Mortgage rates are primarily determined by capital markets. I am also concerned consumers will opt for ARMs as a result, rather then long-term security of fixed rate loans. 

>>Independence. To my mind the Fed needs to be independent, and anything that takes away from it is a slippery slope, that can ultimately affect confidence in US monetary policy.

Pay points?
If you plan on owning a property for longer than 4 years and want the comfort of a 30-year rate fix, you may want to consider buying down the rate (pay discount points). A rule of thumb is that a 1.00% "discount fee" or "buydown", results in a 0.25% reduction of the note rate on a 30-year fixed rate loan. (Your payback period is about 4 years). And over the life of the loan you will save about 4% of the original loan amount.  More information
Pay 1.00%, 4 year payback, save 4% of the loan amount: 1-4-4.

John Sr and John Jr...
I am not here to tell you not to give your kids your first name, but know this: You are at risk of credit report mixups, and correcting it may take time and money, especially if derogatory items are involved. Applications may be declined, delayed, or not approved on best possible terms. I have have come across a few nasty situations lately, and I thought I'd share it with you. Oh.... same first name and different middle initial is not an alternative. - P

Contact me

We are still faced with the best real estate opportunities of a lifetime - and amazingly there are even getting better! As sad as it is to say, the economic malaise continues to serve us very well.

FOCUS ON RENTAL VIABILITY 

Because resale markets remained weak (and rental markets strong) during 2011, we started assisting developers with refinances to convert rehabbed properties to rental properties rather than wait for the re-sale. This way we were paid back, and developers could cash out and move on to the next project. Long-term rental viability is therefore now more important than resale value - which is why we prefer 2,3,4-family properties.

INVESTMENT CRITERIA

As of now our investment criteria are as follows:

• 1-4 family properties only. (2,3,4-family preferred)
• Preferred investment size: $20K-$100K ($200K max)
• NJ, NY only
• ARV (After Repair Value) of at least 150% of total hard cost
• Cross-collaterization on other properties considered.

INFORMATION

For investment information go to www.lxfinancial.com

Go here for construction/rehab loan information

To request a quick quote for a project go to www.fixflipnow.com

My best wishes to you for 2012. May it be a fulfilling and prosperous year!

We're open for business :)

As the year draws to a close, time to do a little market assessment....

• It's a buyer's market, for homes and investment.
• Short sale and REO values are low due to market weakness and over-supply.
• REO rehab values are even weaker due to lack of mortgage programs to finance them. (Ever wondered why the lender doesn't just provide the loan?)
• Rental markets are strong. (I prefer 2,3,4 unit investment). More info.
• Mortgage financing is (an inceasingly more) fickle business. Thorough prequalification is key. Here is a form you can use to get a PQ from me.
• Credit improvement is even more fickle, and also becoming more complicated. Self-help often has the opposite effect. More info.

Closing costs where you are
Bankrate.com performs an annual closing cost survey. To see what they are in your location, go here. 

How many rate influencers can you name?
I get the "what's your rate" question all the time. I think we all know it is a simple question, and a good answer is not. So how many rate influencers can you name? Go here for the incomplete list. If you can think of any I should add, let me know!

Ask a CPA: Year-end tax pointers

Ryan Curran is a "hands-on" CPA, specializing in tax matters pertaining to real estate: Sales, development, construction. There are many things you can do to reduce your 2011 tax exposure. Here a few:
1. Prepay real estate taxes or mortgage interest
2.  Sell underperforming stocks or bonds to create a loss
3. If you own a business, deposit checks in the new year
Ryan invites any question or inquiry. Contact him.

Finance REO investments
I do not sell or offer properties for sale. Developers/investors present me properties to finance/invest in. I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.

"A public opinion poll is
no substitute for thought".
- Warren Buffett

  Contact me 

Developers present me with REO projects on a daily basis. They need financing and investor capital. I am starting a new company dedicated to highly profitable, short-term, REO investments. If you are interested in being part of this as a (founding) shareholder, let me know. /// This week a quick review of mortgages after deed in lieu, foreclosure, or pre-foreclosure (short) sale. See below, or go to my website. - Paul :) 

Can you have more than 1 FHA loan?
Yes, under the following cirumstances:

• Relocation. Must document unreasonable commute distance from current home.
• Increase in family size. Must have current mortgage balance at or below 75% LTV.
• Vacating jointly owned property. Example: divorce.
• Non-occupying co-borrower. Co-signed with family on their home

Mortgages after deed in lieu, foreclosure, or pre-foreclosure (short) sale
The waiting period for FHA is 36 months, and for Conventional 24-84 months - depending on LTV.

For further details go here

Finance REO investments
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.

  Contact me 

I first wrote about this in February. It significantly raises the rate in certain circumstances, like (a combination of) cash-outs, investment property, low credit score, high LTV. I have recently priced loans where the rates came in at close to 6.00%!  - P

What are LLPAs?
In 2007, Fannie Mae introduced "Loan Level Pricing Adjustments" (LLPAs). The concept is basic: For loans with higher risk profiles, there are additional up-front charges to offset potential long-term losses. LLPAs went up April 1st, 2011. Whether paid by the borrower upfront, or factored into a higher rate, it can drastically increase the cost of borrowing. As you read this, just remember this rule of thumb: A 1.00% additional LLPA charge on a 30-year fixed translates into an approximate 0.250% rate increase.

Most common LLPAs 

1. Adverse Markets (FHA, VA, USDA loans also)

2. LTV/credit score.

3. Special features:

• High-LTV
• Interest-Only (IO)
• Investment Property
• Multiple-Unit Properties
• ARM
• Manufactured Home
• Cash-Out Refinance
• Energy Improvement Feature
• 40-year Term (MBS only)
• Condominiums and Cooperatives
• High-Balance Mortgage Loans

Details: LLPA matrix
You will find the full LLPA matrix here. Note that LLPAs are cumulative. Multiple adjustment may apply. Again, a rule of thumb is that a 1.00% charge represents an approximate rate increase of 0.250% on a 30-year fixed.

All the money is being made in REOs at the moment. Lower risk than securities, and great cash on cash returns. You can buy them, or finance them at <50% loan to value. To add yourself to the mailing list for opportunities go here. /// This week a quick review of mortgages after bankruptcy. In short, the waiting period for FHA is 24 months, and for Conventional 48 months. See below. Next week: Waiting periods following foreclosure, short sale, or modification. /// Rates are still near record lows, but underwriting criteria are becoming tougher: Higher Fico requirements and rental revenue exclusions from qualifying income when buying 1-4 unit properties!  /// Make it a good week folks. - Paul :)

From Fix&Flip to Fix&Hold
(Fix and) flips, are a challenge because markets remain weak and it takes longer to re-sell properties. Time=Money. I recommend a hold strategy as revenue property to avoid market risk, and ultimately optimize return on investment.
2, 3, 4 unit properties with rental revenue that support a bank refinance for a permanent loan work best, so you can still cash out. Planning for long-term hold still does not prevent a quick sale. To review a summary of construction/rehab financing options, go here. Planning is key. Contact me early.

Mortgages after bankruptcy
The most common types of personal bankruptcy are:
1. Chapter 7 ("liquidation"). Details
2. Chapter 13 ("payment plan"). Details

An elapsed period of less than two years, but not less than 12 months, may be acceptable for an FHA-insured mortgage, if the borrower can show that the bankruptcy was caused by extenuating circumstances.

For further details go here

 
Finance REO investments
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. Minimum investment $10,000. Go here to add yourself to the mailing list.

  Contact me 

I am amazed at the detailed questions I get nowadays from Realtors, borrowers, and others. It prompted me to convert my website to a Mortgage Information Center for peeps who want to know more. It includes a detailed Mortgage Summary (stuff you'll want to reach at least once if you are a Realtor), complete FHA/Fannie Mae underwriting guidelines, 203K presentation, and more. Check it out. If you have any recommendations for making it better, please let me know. /// As the stock markets go up and down, so do interest rates. Surpringly, rates have not increased as much as one would expect. The US Dollar remains the preferred currency. Read. /// Make it a good week folks. - Paul :)

FHA streamline refinance
This refinancing option is considered streamlined because it allows you to reduce the interest rate on your current home loan quickly without an appraisal and without having to qualify for the loan again. The loan must be in good standing and the refinance must lower your monthly payments. There are no cash-out options, but the closing costs may be added to the loan. Any FHA loan with a rate of 4.50%+ should be evaluated for viability. You can make an online request for review here.

How many properties can you finance?
The answer is: Ten, 1-4 unit properties. (Other type properties are not included). The reserves and credit score requirements go up, and maximum loan to values come down with properties 5-10.

Reserves
When the borrower will own 1-4 financed properties (including the subject property) the reserve requirements are:

- 2 months on the subject if it is a second home,
- 6 months on the subject if it is an investment, and
- 2 months on each other financed 2nd home or investment.

When the borrower will own 5-10 financed properties (including the subject property) the reserve requirements are:

- 2 months on the subject if it is a second home,
- 6 months on the subject if it is an investment, and
- 6 months on each other financed 2nd home or investment.

Fico and LTV

For full details go here.

Fix & Flip investment list
I have a constant stream of investment opportunities with annualized return ranging say 10% to 50%+. To add yourself to the mailing list, subscribe here.

  Contact me 

____________________________ 

"Think not those faithful who praise all thy words and actions,
but those who kindly reprove thy faults"
Socrates

As promised, here is a summary of current construction/rehab loan options. The 203K is the only mainstream program. The others are not, which means that there is limited availability and the terms are somewhat higher than they would otherwise be. The good thing is that you are dealing with portfolio lenders who set their own standards, and the conditions and loan pricing (rate and fees) are more flexible. - Paul :)

FHA 203K
A rehab to permanent FHA loan

• Owner-occupied only, 1-4 unit properties.
• Rehab only, BUT what makes it a rehab is when the existing foundation is used, so sometimes it can work for construction also.
• Rate: Market FHA rate + 0.50% approximately

BORROWER / BUILDER LOAN
(Borrower who hires a builder)

• 1-4 family units, residence or investment property
• Construction or rehab
• LTV to 80%, to 90% with cross-collaterization
• Land purchase up to 75% of the lot purchase price
• 12-18 month term
• Available for less than perfect credit
• Interest only payments based on funds advanced
• Rate: 5%+, 3%+ fees

SELF-BUILD LOAN
(Borrower acts as own general contractor)
See Borrower/Builder Loan above.
 

BUILDER / SOLD LOAN
(Builder has a contract to sell the completed home)

• 1-4 family units (up to 12-units on exception basis)
• Construction or rehab
• LTV to 70%, to 75% with cross-collaterization (SFD only)
• Land purchase up to 75% of the lot purchase price
• 12-18 month term
• Available for less than perfect credit
• Available for builders with limited experience
• Rate: 5%+, 3%+ fees

BUILDER SPEC LOAN
(Construction of a model or spec home)

• 1-4 family units (up to 12-units on exception basis)
• LTV to 50%
• Land purchase may be included in the loan
• 12-18 month term
• Interest only payments based on funds advanced
• Rate: 7%+, 4%+ fees

FIX AND FLIP LOAN
(Spec purchase and rehab)

• 1-4 family units
• Up to 100% of cost
• 6-12 month term
• Rate: 12%+, 9%+ fees

Do you have a scenario?  Ask me!  

____________________________ 

""We need to learn to set our course by the stars,
not by the light of every passing ship"

Omar N. Bradley

OK, stock markets up - and upward pressure on rates because bonds compete with stocks for investment money. Maybe also renewed confidence in real estate - we'll see. As of now: Lock ASAP! - Paul

PMI or FHA?
Conventional rates are about 0.50% higher. The cost is about the same. FHA is easier to qualify for, you must have it for 5 years (PMI=2 years), and you can refinance without income qualification and without appraisal.

No lender fees - what does that mean?
No application, processing, underwriting, commitment, tax service fees: None. And if you are a firefighter, police officer, teacher, medical worker, or municipal employee you get the money for the appraisal refunded on close!

Construction/Rehab loans
A few options are starting to appear. I will dedicate the next newsletter to it.

Don't forget: Rate credits
It's the opposite of a discount. A rate credit can be helpful to do a refinance without paying cash for the closing costs, or a purchase situation where cash is tight. Below is an example (not a quote) of a $100,000 mortgage. By opting for a 4.75% rate the borrower receives a rate credit of $1,002 on close (and to get a 4.25% rate, the borrower would pay a discount fee of $847).

Which state has the highest closing costs? The new Bankrate Closing Cost Study is out. Before you go there, please bear in mind that AFR mortgage ("a direct lender with a wholesale attitude") charges NO lender fees!, No kidding!

Go to the closing cost study. /// Rates continue to be rock bottom. I see no upward pressure at the moment, thanks to Euro troubles and policy makers. (Hey, inflation may ultimately lead to a bump in real estate prices). Make it a good week folks! - Paul

Refinancing fix & flip properties
Prolonged  periods can erode profits. Many investors opt to refinance. Better to rent the units and bank-refinance now, convert equity to cash, and move on to the next project. Re-sell later if desired. Sometimes easier said then done because unique lending rules apply. Contact me if you have a situation. 1-4 unit properties only.

Solutions for cash tight situations
1. 18 ways to generate (more) down payment. Read
2. Seller concessions. Read
3. Rate credit. Read
4. More financing. Contact me

Did you know?
Seller concessions can be used for much more than just “closing costs” 12 months hazard insurance, upfront insurance premium, loan discount, and more. Info
 

Contact me

____________________________

"DIPLOMACY is the art of letting
someone have it your way" 

I have been advocating mortgage-secured fix and flip investment and financing for over a year. I submit that with unstable stock markets and real estate markets the concept is soundly validated. It is a low risk/high yield way to invest - and to get highly profitable fix and flips done.  My investors and are first mortgage-secured at less than 60% LTV with 20%+ returns on investment. Not a single project is in trouble, and the developers are making their profits. Read up and/or watch the  "Smart Fix and Flip Investing" video (Registration needed). - Paul

Bad news, or good news?
Check out the recent bad news. It’s worse than it sounds. The S&P/Case-Shiller report posted declines in both its 20-city composite and its 10-city index, which declined 3.6% year-over-year. AND ALSO: home prices ticked higher for the second consecutive month following an eight-month slide. Read article.

Reminder: FHA loan limits to decline.
FHA loan limits will likely decline in 669 of the 3,334 counties that are eligible for FHA insurance, effective October 1, 2011. Read and check your location. 

Rates at all time low
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac: "Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought - and on a on a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year".  Read up

Contact me
 

____________________________ 
 

"Change your thoughts, and you can change the world"
Norman Vincent Peale


 

Time to jump in, if you have not already? I see many investments with great cash-on-cash returns (there's one below). Good deals are still to be had, but rock bottom buying opportunities are dwindling, low rates, strong rental market, and now also an uptick in sales. The timing is right I think - P

Real estate stocks benefit from renewed interest
FORBES: Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the iShares Dow Jones U.S. Real Estate Index Fund (IYR) where we have detected an approximate $185.3 million dollar inflow - that's a 5.0% increase week over week in outstanding units (from 59,750,000 to 62,750,000). For a complete list of holdings, visit the IYR Holdings page. Read

Reminder: FHA loan limits to decline.
FHA loan limits will likely decline in 669 of the 3,334 counties that are eligible for FHA insurance, effective October 1, 2011. Read and check your location. 

Secrets to getting a mortgage
At a recent press conference, Federal Reserve Chairman Ben Bernanke said lending standards for mortgages have tightened so considerably that "the bottom third of people who might have qualified for a prime mortgage in terms of, say, FICO scores a few years ago -- cannot qualify today."  Can you afford to deal with anybody other than a seasoned mortgage professional?

Mortgage-secured fix and flip: 22% profit share,
plus 12% interest. Minimum investment: $10,000. Check the investment summary. 

Contact me

____________________________  

"Change your thoughts, and you can change the world"
Norman Vincent Peale
 

Here is a current investment summary. As always, a quick response is needed. Please let me know if interested:    

• Mortgage-secured fix-flip investment.
• Purchase and renovation of 3-family property.  Location: NJ 07111
• Estimated project time: 4 months
• Funding requirement is for $80,000, or 39% of After Repair Value (ARV)
• Investor projected return: 22% profit share, plus 12% interest: $21,500 total.
• Minimum participation: $10,000.00 

Go here to download the Investment Summary

Go here to review the "Smart Fix-Flip Investing" information.

Regards,

-Paul
___________________
Paul Luykx
LX Financial LLC
Ph: 201-918-5443
Ph: 800-405-0676
Fx: 866-839-1337
pluykx@lxfinancial.com
http://www.lxfinancial.com/

Keep your eyes on alternate financing options. There is now a clear trend. Two types to keep your eyes on: Portfolio loans, and mortgage-secured investment (investors who will provide financing and get interest PLUS profit share, mostly for fix and flips). - Paul

Buyers bypass the traditional mortgage process
Fannie Mae chief economist Doug Duncan believes cash purchases of homes will continue at "quite high levels" for the rest of this year as investors and even some homebuyers bypass the traditional mortgage process. Read.

Mortgage-secured investments
The trick is buying for a good price AND being able to sell at a below market price AND being able AND have a solid cash flow that will pay the investor mortgage in the event that neither a resale or refinance is possible right away. More information.

Portfolio anyone?
Even the big banks are rumored to get into the protfolio arena. Not surprising, and more on this soon! Here are some of the opportunities portfolio loans provide now:

• Fixed rate, interest only, ARMs, HELOCs, Jumbos
• Up to 90% LTV without mortgage insurance
• Up to $900K loan amount. (No conforming limits)
• No minimum reserves required up to $900K
• Up to 50% DTI
• Stated income, limited, and no verification loans
• Loans to non-resident foreigners
• Primary wage earner credit score used to qualify
• Loans to trusts, partnerships and LLC's
• HVCC does not apply. I order the appraisal (Most cases)
• Non-warrantable condos. (Limitations still apply)
• 40% investor concentration allowed on condos
• HELOCs to 85% with credit card and checkbook
• First position HELOCs
• No rate adjustments on cash-out
• Foreclosures and short sales allowed
• Rural properties and acreage
• Manufactured home loans to $200,000 (80% LTV max)
• Refinancing of construction loans to permanent
• 1st and 2nds on vacation, second homes to 80%LTV
• Pledged securities in support of mortgage loan

 _________________________________

"Be thine own palace, or the world's thy jail"

John Donne

FHA, Conventional, or Portfolio? Today I worked out the options for someone, and I thought I'd share it with you. With the increased cost MI, porfolio can make sense! (See below). /// Portfolio loans are now also available for investment, 1-4 unit properties. Great! /// HomePath is extending buyer incentives (See below). - Paul


FHA, Conventional, or Portfolio?


 

HomePath buyer incentives extended
- Initial offers must be submitted on/after June 14.
- Primary residences only
- Sale must close by October 31
- $1,200 bonus available for selling agents 
- http://www.homepath.com/

 _________________________________

"Act as if what you do makes a difference"

William James

This market's for you!  Low prices, low interest rates, great cash on cash returns - whether home-buyer or investor, this market's for you!  What's holding us back is groupthink ("it's a bad market, and we all agree on this"), and fear to think outside the box. I provide mortgage financing, and make/manage fix and flip investments. Whether you are a realtor, buyer, investor, or developer, I'm here to assist! /// I believe that where markets are heading should have little to do with investment decisions at this point, but if you're in to  prognosticating you may want to read this for a few opinions.  - Paul

If I had a million dollars...
If I had a million dollars.... (turn the sound up)
What would I do? Buy a house? In this market? Well - yes.
What if you can buy at a 30-40% discount?
What if you can invest with protection against a 30-40% value drop?
What if I can invest without actually  having to buy the property?
Tell me where I have this wrong, but well-managed, mortgage-secured fix and flip investments is where it's at. Check it out.
 
Take charge of your IRA 
You can use your IRA funds by setting up a self-directed IRA to invest in real estate, private equity and even you own businesses. Read.
I have more research materials on this. Let me know if you want it. 

 _________________________________

"Hindsight is always twenty-twenty"

Billy Wilder