Similar Videos
|
|
In order for your real estate investing careerto truly flourish you're going to rely upon some form of institutionalfinancing for property acquisition and rehab expenses. A systematic process will help ensure thatyou're ready to proceed, that you'll get the best-possible loan rate and terms,and that you don't miss any of the most critical steps that could slow down ?or even derail ? your plans.
Credit
This is a vital first step to getting that all-importantloan approval, and it's also the most frequently overlooked. While most of us realize that almost all ofour financial lives are an open book ? tracked on an on-going basis by creditreporting agencies ? many of us don't realize until it's too late how large arole our track records with creditors plays in the decision to extend credit inthe first place. Before shopping forloan rates, looking at property, or speaking with motivated sellers, it?simportant that you ensure that your credit situation makes you a good candidatefor the loan that you are seeking. Inorder to maximize your chances of success, follow this simple checklist:
? CheckYour FICO score ? It's important that you understand the importance your FICOscore has on the loan approval process. Here's the reality: The higher your FICO score, the better off you?llbe. Knowing your FICO score will be important later on when shopping for thebest rate and terms for your loan.
? Checkyour credit report for accuracy ? A simple key-stroke error can assign someoneelse's payment history to you and it can have a devastating impact on yourcredit score. At least once a year youshould get a copy of your credit reports from all three major credit bureaus toensure that the accounts listed are yours and that the information contained inthem is accurate. If it's not, get itcorrected by taking the appropriate steps to contest the entries inquestion. If you have unpaid bills, paythem. This not optional; it's critical to your success.
? Ensurethat you have a good debt-to-income ratio ? Ensure that your debt-to-incomeratio and your credit utilization is in line with what lenders will be lookingfor. If your balances on credit cardaccounts are too high, pay them down or transfer balances to lower balancecards.
? Eliminateunproductive credit sources ? If you're holding high-rate store charge cards,gas cards, and other credit accounts that you rarely ? if ever ? utilize,consider closing the accounts in the interest of furthering your real estateinvesting career. These accounts canreduce your FICO score and increase the cost of credit because potentiallenders will see the potential you have to use those accounts, which couldaffect your ability to pay your bills.
Credit is important to the loan approval processand is a critical first step in ensuring that you get the loan and terms thatyou are seeking. Do everything in your power to ensure that your credit paintsthe most positive picture of you as possible.
GatherYour Paperwork
In advance of loan shopping and filing yourapplication, it's a good idea to put together a packet of the documents thatwill be necessary in order to fill out your loan application. That way, when applying for your mortgageloan, you will simply be able to fill in the blanks by looking in one centrallocation. This will also proveinvaluable to your mortgage broker and/or loan underwriter because they willalmost always need copies of some of the documents. Here's a list of documentsthat you're likely to need:
? Income information ?This includes W-2's for the last two years for you and any co-applicant, 1099tax forms and tax returns for the last two years if you're self-employed. In addition to your 1040, also have a copy ofSchedules C, K, SE, and any other schedules and forms related to those yearsthat were required in order to complete your tax return or were filed with thereturn. Also have an up-to-date P&Lstatement. If you're an active realestate investor with other property, include copies of all rental contracts,leases, and financial data for all of your other properties.
? Other financialinformation ? At least three months? worth of bank statements from all bankaccounts, your most recent quarterly and year-end statements for anyinvestments you currently hold, including 401(k), IRA and self-directed IRAaccounts, SRP's, Keough Plans, and stock and mutual fund statements.
? Other paperwork ? Ifdivorced, a copy of your divorce decree, alimony or child support statements,bankruptcy records, and copies of your social security card, or immigrationstatus (including H-1 or L-1 Visas)
If you have other documentation you suspectmight be requested, place a copy of it with these documents so you can quicklylocate it if asked.
Shop Aroundfor the Best Deal
There are thousands of lenders and financingsources for your loan needs and the rates and terms offered can varysubstantially from one lender to the next. While there is some merit to finding a lender with whom you can forge along-term relationship, it's equally important that you consider using a goodmortgage broker who has contacts at multiple lenders.
A good broker can shop the market for you andmay be able to locate lenders with unadvertised rates that could potentiallysave you a lot of money over the life of your loan. In addition, they can also help guide youseamlessly through the entire process ? and help you to find the best overallloan package for your financing needs.
With that said, don't overlook the importance ofestablishing a relationship with a personal banker at your hometown bank. Not only will they be a source of valuableinformation, they will get to know you and your investing style and can take areal interest in seeing your career blossom as you do multiple deals together.
Regardless of whether you are dealing with amortgage broker who is shopping the market for the best overall loan package oryou are working with your local hometown banker, realize that a low rate in andof itself is not necessarily the best deal. Lender fees, closing costs, points, and other extras can substantiallyadd to the cost of a loan. Be aware ofthe impact these costs will have on your bottom line and choose the leastexpensive option possible ? in terms of total cost. It's also important that you consider howlong you'll need the financing. If youplan to sell quickly, it might make sense to go with a variable rate loan ?even though there is a certain amount of risk involved, especially if rates goup.
Benefitsof Pre-Qualification
Whether you're working with a real estate agentor are locating properties through some other means, it can be beneficial to gothrough the pre-qualification process beforehand. There are three primary benefits to doingthis:
? Youknow what you can afford ? You may have a rough idea in your head of how largea loan your lender is likely to give you, but until you have verification fromthem it's just a guess.
? Improvesyour bargaining position ? If a seller knows that you're the real deal and thatyou have the cash to purchase their property, they'll be more likely to takeyour offer seriously. You don't have toactually ?show them the money? to attract their undivided attention. If you can simply prove that you have themeans to get it quickly they'll pay attention ? and be more cautious aboutrejecting your offer.
? Enablesyou to close quickly ? Some properties can be purchased quickly if you canclose right away. Pre-qualificationsignificantly reduces the length of time it takes to receive loan funding,which can save you thousands of dollars, especially if a seller is motivated bytime constraints and wants their money right away.
The LoanApplication
When completing your loan application, rememberthat incomplete and inaccurate information can slow down the approvalprocess. If all of your financial datais in a centralized location, the loan application is simply a process offollowing a checklist and filling in a few blanks on the form. Attach copies ofall requested documents to ensure that your loan can be underwritten quickly.
Give complete information on your applicationand ? above all ? be honest. You maythink your lender won't find out about a minor credit issue, but the realityis: They probably will. If you're hidingfinancial skeletons in your closet, bring them out into the light of day. If your lender is aware of them, he or she ismore likely to be forgiving than if they discover them later on. A late discovery can ruin any chance youmight have had to get that all-important loan approval. If you disclose early, you could have time toremedy any defects and still get the loan you're looking for.
TheFinancing Package
Once your lender or mortgage broker has approvedyour loan, they'll present you with a loan package. Pay close attention to the overall packagebecause it will detail the amount of your loan, the interest rate, fees, andany pre-paid points. Many of these feeswill be required at closing, so be aware of what will be required of you.
Make sure you understand clearly what your loan packageconsists of ? and what it will cost. Inaddition, once approved, make sure you have your loan offer in writing. Here are a few other things you need to keepin mind:
? Don?tapply for other loans, credit cards, or lines of credit before closing ? Anyfinancial transactions can alter your credit score, your debt-to-income ratio,or your ability to close your mortgage loan. Your lender will be watching so avoid any credit transactions until youhave closed your loan.
? Don?tmiss ANY payments on other accounts ? A single missed or late payment onanother credit account can be enough to cause your lender to change their mindabout your loan approval, especially if it causes even a slight dip in yourFICO score. Because your credit score isan up-to-the-moment snapshot of your creditworthiness, this could conceivablybe enough to change your qualification.
? Don?tmove money into, out of, or between accounts ? The cash you have on hand playsa large role in your approval, so if you withdraw money (other than what youneed for day-to-day expenses) you could inadvertently shoot yourself in thefoot. If you receive a large influx ofcash, make sure it is from a traceable source, such as a wire transfer.
? Beavailable in the event of last-minute emergencies ? Last minute requests forinformation can come at any time, up to the morning of your loan closing. Try to avoid traveling out of town until youclose your loan so that you can answer any last-minute questions or provideyour lender with any documentation they might decide they need.
Closingthe Deal
On closing day, you'll seal the deal andcomplete the transaction. This is whereall your hard work will begin to pay off. Once you've read and signed all loan documents and handed over acashier's check for any necessary closing costs, your loan is closed and theproperty will be yours.
Be patient because there are a lot of documentsto review and sign. It really will beworth it, though, even if you begin to think midway through the signing processthat your arm might fall off sue to writer's cramp!
The mortgage loan process might seem a littledaunting the first two or three times through, but in time it will becomesecond nature to you. You'll enjoy thisprocess much more because of what it represents: The fulfillment of asuccessful real estate transaction and the realization of your hopes, dreams,and aspirations. This is what realestate investing is all about so enjoy the process!
Next Paragraph..
EditorialToday Home Decor has 1 sub sections. Such as Home Decor. With over 20,000 authors and writers, we are a well known online resource and editorial services site in United Kingdom, Canada & America . Here, we cover all the major topics from self help guide to A Guide to Business, Guide to Finance, Ideas for Marketing, Legal Guide, Lettre De Motivation, Guide to Insurance, Guide to Health, Guide to Medical, Military Service, Guide to Women, Pet Guide, Politics and Policy , Guide to Technology, The Travel Guide, Information on Cars, Entertainment Guide, Family Guide to, Hobbies and Interests, Quality Home Improvement, Arts & Humanities and many more.