The most common situations for mortgage penalties
(Note: This article is part of a series of articles on the subject of mortgage penalties. It is possible that your question on penalties may be better answered in another article. The list of the other articles on penalties can be found at the end of this article.)
There are penalties that lenders charge on loans that are paid off earlier than maturity. There are some cases where these types of penalties can be avoided. Of course, there are also situations where charges such as these cannot be avoided at all.
The sale of your home: Selling your home does not mean that you automatically have to break your mortgage contract and be subject to penalties (check if your mortgage is portable, for example), but if you are not going to buy another home, or are moving to another country, you will have to pay the pre payment penalty. There may be a solution; if you read our article How to lower or avoid a penalty?, you may be able to save some money.
Refinancing for debt consolidation:
Most people use the mechanism of mortgage financing in order to consolidate and lower their debt. It is a very good solution for most people, since it allows them to straighten up their financial situation. Sometimes, it is a better idea to take out a second mortgage instead, especially if you do not have a lot of time left on your original mortgage. You should speak to a qualified mortgage broker, who is able to make all of the calculations to find the best solution for your individual situation: decide upon a second mortgage or refinance your existing mortgage.
Refinancing for renovations:
Generally, when you perform a renovation, you require money to do it. If you are in a situation where you have decided to renovate, think about these ideas that will help you save money:
There is some work to your home that may have to be done right away because it is urgent work. If you have a situation like this, you may want to consider taking out a personal loan or a line of credit instead of negotiating a new mortgage. Once you do a new mortgage, the old loan can be incorporated into the new one and be paid off.
If you are renovating your home so that it will sell, or sell for a higher price, you may have the possibility of using an open mortgage to finance the improvement. In this case, you will not have a prepayment penalty on that mortgage or when you get the second home loan.
If you plan on purchasing a property that needs to be renovated, you can probably arrange to have the renovation financing included in your home loan. There is a special mortgage called the "renovation loan option" that covers these situations. You borrow funds now for renovations you plan once you own the house.
Marriage separation: If a couple separates, the most common thing that happens is that one of the partners will buy out the home from the other. In this instance, most banks do allow the new owner to merely have a balance transfer rate for any additional funds.
This is not a given; the income of the partner taking over the mortgage may not be sufficient to obtain a new mortgage. If you are encountering such a problem, please contact our office to see if you can use a specialized product called a self declared revenue loan to obtain the mortgage.
You probably will still have to pay the early payment penalty, but you can keep your home in this manner.
Executing a will: In the event of death, it is frequently]necessary to sell a home. Certain lenders do not charge a penalty in these cases. You have to investigate.
Carefully consider your options
All mortgage decisions are important, and you should take the utmost care to see if you have done everything you can to avoid a penalty. Sometimes you cannot avgod it, but if you consult with a professional mortgage counselor who is accredited (CHA), you will surely find out the best options available.
Mortgage penalties costs thousands of dollars; it is worth the time and troubleit may take some time to find out how to avoid them.
About the Author
Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage rates - taux hypothecaire, please visit: Mortgages - hypothèque
Thursday, September 6, 2007
Bankruptcy Mortgage Information For Homeowners
Bankruptcy attorneys estimate that one in every 53 U.S. households filed for bankruptcy in 2005. Most of these people didn't lose the farm in Vegas or drink away their life savings. Chances are their financial problems stemmed from one of three sources: job loss, divorce, or unexpected and expensive medical emergencies.
Most homeowners who file for bankruptcy do not lose their homes. Bankruptcy laws are designed to satisfy creditors and protect debtors. Putting a family out on the street helps no one.
Ted Janger of The American Bankruptcy Institute stresses that, "It is important to have competent counsel advise you, both about the choices among chapters and about how best to make sure that bankruptcy operates to solve your financial difficulties, rather than just as a hiatus."
Establishing Credit After Bankruptcy
For people who got into trouble with credit, the thought of using it again can be frightening. It's a catch-22. To be considered a good candidate for a new mortgage or car loan, consumers have to rebuild their credit. If they don't, when a prospective lender looks at their credit report, all they will see is the bankruptcy. There won't be a new track record of handling credit responsibly or of improved financial management skills.
It doesn't seem logical, but after people have successfully filed for bankruptcy, they will receive a flood of new credit offers. If they accept a few well chosen ones and pay more than the minimum payment each month, this will appear as positive data in their credit report.
One form of new credit would be a first mortgage refinance or a new second mortgage. Either transaction would depend on the amount of equity in the home and be subject to any guidelines established by the bankruptcy court.
To learn more about a Bankruptcy Mortgage, or to receive a complimentary quote, visit E-lends. Even after bankruptcy, you should still be able to get a competitive mortgage.
About the Author
Most homeowners who file for bankruptcy do not lose their homes. Bankruptcy laws are designed to satisfy creditors and protect debtors. Putting a family out on the street helps no one.
Ted Janger of The American Bankruptcy Institute stresses that, "It is important to have competent counsel advise you, both about the choices among chapters and about how best to make sure that bankruptcy operates to solve your financial difficulties, rather than just as a hiatus."
Establishing Credit After Bankruptcy
For people who got into trouble with credit, the thought of using it again can be frightening. It's a catch-22. To be considered a good candidate for a new mortgage or car loan, consumers have to rebuild their credit. If they don't, when a prospective lender looks at their credit report, all they will see is the bankruptcy. There won't be a new track record of handling credit responsibly or of improved financial management skills.
It doesn't seem logical, but after people have successfully filed for bankruptcy, they will receive a flood of new credit offers. If they accept a few well chosen ones and pay more than the minimum payment each month, this will appear as positive data in their credit report.
One form of new credit would be a first mortgage refinance or a new second mortgage. Either transaction would depend on the amount of equity in the home and be subject to any guidelines established by the bankruptcy court.
To learn more about a Bankruptcy Mortgage, or to receive a complimentary quote, visit E-lends. Even after bankruptcy, you should still be able to get a competitive mortgage.
About the Author
Mike Hamel is the author of three business books and several articles about mortgage financing. His material is featured on sites like E-lends.
Arizona Home Equity Loan For Remodeling Projects
Arizonians are among the millions of homeowners who have taken out almost $2.8 trillion in home equity loans in the last five years. Freddie Mac estimated that borrowers cashed out $170 billion of their home equity in 2006 alone. In 2005, the figure was a record $244 billion.
If you want to cash out some of your home equity, you have two options:
Home Equity Loan Or Line Of Credit?
An Arizona home equity loan will give you a set amount of money all at once. It can either be a fixed-rate loan or an adjustable-rate loan. Home equity loans makes sense when you need to pay for big-ticket items like major remodeling projects, or if you want to pay off high-interest credit cards or other debts.
A home equity line of credit (HELOC) is more like a credit card. You can draw on the line any time, up to the credit limit. HELOCs usually start with lower interest than fixed rate loans--usually one percent over prime--but the rate can climb quickly after the initial period. Once you draw on a HELOC, you will owe a monthly minimum payment on the outstanding balance.
Remodeling Projects
The Harvard University Joint Center for Housing Studies estimates that Americans will spend nearly $160 billion on home remodeling through the first half of 2007. And according to a report by the National Association of Realtors (NAR), "A year ago, many remodeling jobs returned 80 percent of their cost or more when the owner sold the house. Some of the most profitable renovations, such as an upscale residing, actually paid off more - 103.6 percent - than they cost. Other profitable renovations included midrange kitchen remodelings, which paid off 91.7 percent, and window replacement, which paid off 89.6 percent."
You can receive a free quote on an Arizona Home Equity Loan at Arizona Refinance Center.It is a no-obligation way to see how much you can borrow toward your next remodeling project.
About the Author
Mike Hamel is the author of three business books and several articles about home financing. His material is featured on sites like Arizona Refinance Center.
If you want to cash out some of your home equity, you have two options:
Home Equity Loan Or Line Of Credit?
An Arizona home equity loan will give you a set amount of money all at once. It can either be a fixed-rate loan or an adjustable-rate loan. Home equity loans makes sense when you need to pay for big-ticket items like major remodeling projects, or if you want to pay off high-interest credit cards or other debts.
A home equity line of credit (HELOC) is more like a credit card. You can draw on the line any time, up to the credit limit. HELOCs usually start with lower interest than fixed rate loans--usually one percent over prime--but the rate can climb quickly after the initial period. Once you draw on a HELOC, you will owe a monthly minimum payment on the outstanding balance.
Remodeling Projects
The Harvard University Joint Center for Housing Studies estimates that Americans will spend nearly $160 billion on home remodeling through the first half of 2007. And according to a report by the National Association of Realtors (NAR), "A year ago, many remodeling jobs returned 80 percent of their cost or more when the owner sold the house. Some of the most profitable renovations, such as an upscale residing, actually paid off more - 103.6 percent - than they cost. Other profitable renovations included midrange kitchen remodelings, which paid off 91.7 percent, and window replacement, which paid off 89.6 percent."
You can receive a free quote on an Arizona Home Equity Loan at Arizona Refinance Center.It is a no-obligation way to see how much you can borrow toward your next remodeling project.
About the Author
Mike Hamel is the author of three business books and several articles about home financing. His material is featured on sites like Arizona Refinance Center.
Stop Foreclosure And Save Your Home
Three out of four borrowers who enter the foreclosure process leave it through something other than a forced foreclosure sale or auction. They bring their loans up to date through payment arrangements worked out with the lien holders; they refinance their homes, or they sell them to stop foreclosure.
Main Causes of Foreclosure
Job loss - The Midwest has seen an increase in foreclosures in recent years due to the loss of manufacturing jobs; hardest hit are Michigan, Indiana and Ohio.
Natural disasters - Homeowners are still feeling the effects of Hurricane Katrina, which has contributed to rising foreclosure rates in Mississippi and Louisiana.
Adjustable-rate mortgages - Borrowers are getting behind on their adjustable-rate subprime mortgages. These high-interest loans account for about 4% of all mortgages. They start with low rates that can climb in a few years to where the payments are beyond the borrower's means.
Ways to Stop Foreclosure
Some owners are able to refinance their mortgages to catch up on their delinquent payments. "Rarely has there been such an advantageous time to refinance into a 30-year fixed-rate mortgage if you have an adjustable-rate loan," says Jeanne Sahadi, CNNMoney.com senior writer. "The average rate on the 30-year loan has fallen more than three-quarters of a percentage point since July, and it is near its lowest level since October 2005."
Some lenders will let borrowers add the payments they have missed onto the end of the mortgage to avoid foreclosure.
Stopping foreclosure proceedings is not easy but it can be done. Community groups and nonprofit housing counselors can serve as mediators between delinquent borrowers and anxious creditors.
One thing you can do today is get a free refinancing quote at Easy Mortgage Refinancing. Your information is completely secure and will only be used to prepare your complimentary quote.
About the Author
Mike Hamel is the author of three business books and several articles about mortgage financing. His material is featured on sites like Easy Mortgage Refinancing.
Main Causes of Foreclosure
Job loss - The Midwest has seen an increase in foreclosures in recent years due to the loss of manufacturing jobs; hardest hit are Michigan, Indiana and Ohio.
Natural disasters - Homeowners are still feeling the effects of Hurricane Katrina, which has contributed to rising foreclosure rates in Mississippi and Louisiana.
Adjustable-rate mortgages - Borrowers are getting behind on their adjustable-rate subprime mortgages. These high-interest loans account for about 4% of all mortgages. They start with low rates that can climb in a few years to where the payments are beyond the borrower's means.
Ways to Stop Foreclosure
Some owners are able to refinance their mortgages to catch up on their delinquent payments. "Rarely has there been such an advantageous time to refinance into a 30-year fixed-rate mortgage if you have an adjustable-rate loan," says Jeanne Sahadi, CNNMoney.com senior writer. "The average rate on the 30-year loan has fallen more than three-quarters of a percentage point since July, and it is near its lowest level since October 2005."
Some lenders will let borrowers add the payments they have missed onto the end of the mortgage to avoid foreclosure.
Stopping foreclosure proceedings is not easy but it can be done. Community groups and nonprofit housing counselors can serve as mediators between delinquent borrowers and anxious creditors.
One thing you can do today is get a free refinancing quote at Easy Mortgage Refinancing. Your information is completely secure and will only be used to prepare your complimentary quote.
About the Author
Mike Hamel is the author of three business books and several articles about mortgage financing. His material is featured on sites like Easy Mortgage Refinancing.
Bad Credit Refinancing: Making An Informed Decision
Refinancing as a way to improve a bad credit situation is nothing new. What is new is the range of refinancing options now available to homeowners. Here are the three most popular types of non-traditional bad credit mortgages:
1. Interest-Only Mortgages allow homeowners to pay only the monthly interest due on the loan for an initial period of time, usually from three-to-ten years. After this, the payments go up to cover both principal and interest for the rest of the mortgage term.
2. Negative Amortization Mortgages can have even lower initial payments because they let borrowers pay less than the interest due on the loan, with the unpaid balance being added to the principal. This means the amount owed on the mortgage actually increases rather than decreases over the years.
3. Option Payment ARMs let homeowners choose the type of monthly payment they want to make. The options include an interest-only payment; a minimum payment that does not cover the principal and interest due, (see above); or a payment calculated to pay off the mortgage in either 15, 30, or 40 years.
Fixed-Rate or Adjustable-Rate Refinancing
CNNMoney.com senior writer Jeanne Sahadi points out that, "Rarely has there been such an advantageous time to refinance into a 30-year fixed-rate mortgage if you have an adjustable-rate loan. But homeowners' love affair with riskier ARMs is still strong . . . One in three homeowners refinancing today is choosing the financially riskier interest-only and payment-option ARMs, according to data from Loan Performance."
Learn how to save money on bad credit refinancing and get a free loan quote at Easy Second Mortgages. Find out how much you could be qualified to borrow and what your monthly payments might be. The information you provide will not be shared or sold but will only be used to prepare your free quote.
About the Author
Mike Hamel is the author of several business books and articles about refinancing. His material is featured on sites like Easy Second Mortgages.
1. Interest-Only Mortgages allow homeowners to pay only the monthly interest due on the loan for an initial period of time, usually from three-to-ten years. After this, the payments go up to cover both principal and interest for the rest of the mortgage term.
2. Negative Amortization Mortgages can have even lower initial payments because they let borrowers pay less than the interest due on the loan, with the unpaid balance being added to the principal. This means the amount owed on the mortgage actually increases rather than decreases over the years.
3. Option Payment ARMs let homeowners choose the type of monthly payment they want to make. The options include an interest-only payment; a minimum payment that does not cover the principal and interest due, (see above); or a payment calculated to pay off the mortgage in either 15, 30, or 40 years.
Fixed-Rate or Adjustable-Rate Refinancing
CNNMoney.com senior writer Jeanne Sahadi points out that, "Rarely has there been such an advantageous time to refinance into a 30-year fixed-rate mortgage if you have an adjustable-rate loan. But homeowners' love affair with riskier ARMs is still strong . . . One in three homeowners refinancing today is choosing the financially riskier interest-only and payment-option ARMs, according to data from Loan Performance."
Learn how to save money on bad credit refinancing and get a free loan quote at Easy Second Mortgages. Find out how much you could be qualified to borrow and what your monthly payments might be. The information you provide will not be shared or sold but will only be used to prepare your free quote.
About the Author
Mike Hamel is the author of several business books and articles about refinancing. His material is featured on sites like Easy Second Mortgages.
Mortgage Financing and Adjustable Rate Mortgages
Adjustable rate mortgages (ARMs) have been a popular form of mortgage financing in recent years. These mortgages start out at low rates for a set period; then adjust along with the index to which they are tied. As interest rates go up, so do the monthly payments.
The index to which the interest rate is tied varies from lender to lender. The most common indexes are the rates on one, three, or five-year Treasury securities. Another favorite is the average cost of funds to savings and loan associations. To the index rate, the lender adds a few percentage points called the "margin."
The main attraction - The main attraction of adjustable rate mortgage financing is that it is initially cheaper than fixed rate financing for the same size mortgage. Not only does this mean lower monthly payments to start with, it means borrowers can qualify for larger loan amounts. That's because lenders sometimes decide whether to make a mortgage based on the ratio of current income to monthly payment.
The main drawback - The trade-off for low initial rates is the risk of rates going higher in the future--much higher. Many borrowers who run into this problem have to refinance, as Frank Nothaft, Freddie Mac's chief economist points out. "But the wide proliferation of adjustable-rate mortgages originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage."
Right for you? - Adjustable rate mortgage financing make sense for borrowers who cannot qualify for a fixed rate mortgage large enough for the house they want to purchase, or for those whose income is likely to rise enough to cover higher payments in the future. It would not be a good move for those who might move in the next few years.
Learn more about your mortgage financing options by visiting Bad Credit Second Mortgage Now. The site also offers free mortgage quotes at today's most competitive rates.
About the Author
Mike Hamel is the author of many business books and articles about home financing. His material is featured on sites like Bad Credit Second Mortgage Now.
The index to which the interest rate is tied varies from lender to lender. The most common indexes are the rates on one, three, or five-year Treasury securities. Another favorite is the average cost of funds to savings and loan associations. To the index rate, the lender adds a few percentage points called the "margin."
The main attraction - The main attraction of adjustable rate mortgage financing is that it is initially cheaper than fixed rate financing for the same size mortgage. Not only does this mean lower monthly payments to start with, it means borrowers can qualify for larger loan amounts. That's because lenders sometimes decide whether to make a mortgage based on the ratio of current income to monthly payment.
The main drawback - The trade-off for low initial rates is the risk of rates going higher in the future--much higher. Many borrowers who run into this problem have to refinance, as Frank Nothaft, Freddie Mac's chief economist points out. "But the wide proliferation of adjustable-rate mortgages originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage."
Right for you? - Adjustable rate mortgage financing make sense for borrowers who cannot qualify for a fixed rate mortgage large enough for the house they want to purchase, or for those whose income is likely to rise enough to cover higher payments in the future. It would not be a good move for those who might move in the next few years.
Learn more about your mortgage financing options by visiting Bad Credit Second Mortgage Now. The site also offers free mortgage quotes at today's most competitive rates.
About the Author
Mike Hamel is the author of many business books and articles about home financing. His material is featured on sites like Bad Credit Second Mortgage Now.
Earn fast money from business tips - pay attention
HI - my name is Dan, and my article will be about life, family, success, and all about them.I learned 8 years in college, earned 2 degrees and never worked as an engineer for 1 single day. My college is in Haifa- Israel. During my studies I used to think wheather it is useful or am I doing garbage time. Fortunately or not, I am working as a freelance. I have a very good salary - I teach, I am a computer technician, and many other things. Most of all, I could watch my kids growing and I have been with them many hours a day for years. In my article, I will try to give some tips about freelance work. Hope you would enjoy.
Tip #1: If you have an administrative skills you can try to there. Want to try data entry try to work for 600$ a per project on this site when approved. To get the job you needto have all your past works resume arranged, catalogued, and once you organized you can start fight for your most important resource of your life - time vs. money.
Tip #2: Before you start working on a project try to prepare your day order to do more in less time . Dont you forget to negotiate your fees, they want you, but they dont want to pay. For writers, you have to read the Top 5 Professional Qualifications for Freelance Writing. Translators, can see many programs here.
Tip 3: So we decieded that beeing a freelance is the best. You dont want to refinance the bank...though the evil bank wants you to show your salary in order to get mortgage. you can bring a statement from your c.p.a -(accountant) that shows your earnings. that is the part you need to show "ruchel" she was wrong. using mortgage calculator, you can ask from your bank to get at least 70% of your home value. dont pay more han 30% of your declared income - it is hard to do it!. than - you can buy your home - and keep beeing a freelance. Deal with rejection: I am proud to copy/paste samples of rejection to my job application the past years, and it goes like this: "Sorry. Your resume doesn't match our needs. Thank you, and good luck in your projects. ruchel" well ruchel - what are your needs? you want to tell the world you are here. If they wanted a reliable supplier,you are one of the "good fellas" and still - "your application doesnt match our needs?" - you have to to implement your dream - success, so you have to keep believe in yor skills and abbility to do great projects. improve your time utilization - When I worked full time (banks in israel) , each hour seems to look like a day. I think I have sold 50 financial programs to customers who wanted to buy stocks.... I have done this for 8 years, and couldn't stand myself, the pressure was too high. I wanted to do an urjent switch to work for myself and not for big institution. When I started to feel bad, my resignation was quick. I know you can manage your time well, and i hope for your success.
This is a list of few freelancer jobs that I think can give you and money.Typing - money is not so good but if you will be qualified your salary will go up. Writing and submission of articles for money - there are some good tutorials that can guide you. Design of all the next - graphic,website, interior design, kitchen,logo,house,garden,games,car,product and in fact, everything. You can start trade and selling some stuff on e-bay .You can be the developer of a good product and by selling it you will be rich. Well, opportunities to earn career and get a freelancer job are everywhere - just take them.
About the Author
http://www.goarticles.com/cgi-bin/showa.cgi?C=587583
Tip #1: If you have an administrative skills you can try to there. Want to try data entry try to work for 600$ a per project on this site when approved. To get the job you needto have all your past works resume arranged, catalogued, and once you organized you can start fight for your most important resource of your life - time vs. money.
Tip #2: Before you start working on a project try to prepare your day order to do more in less time . Dont you forget to negotiate your fees, they want you, but they dont want to pay. For writers, you have to read the Top 5 Professional Qualifications for Freelance Writing. Translators, can see many programs here.
Tip 3: So we decieded that beeing a freelance is the best. You dont want to refinance the bank...though the evil bank wants you to show your salary in order to get mortgage. you can bring a statement from your c.p.a -(accountant) that shows your earnings. that is the part you need to show "ruchel" she was wrong. using mortgage calculator, you can ask from your bank to get at least 70% of your home value. dont pay more han 30% of your declared income - it is hard to do it!. than - you can buy your home - and keep beeing a freelance. Deal with rejection: I am proud to copy/paste samples of rejection to my job application the past years, and it goes like this: "Sorry. Your resume doesn't match our needs. Thank you, and good luck in your projects. ruchel" well ruchel - what are your needs? you want to tell the world you are here. If they wanted a reliable supplier,you are one of the "good fellas" and still - "your application doesnt match our needs?" - you have to to implement your dream - success, so you have to keep believe in yor skills and abbility to do great projects. improve your time utilization - When I worked full time (banks in israel) , each hour seems to look like a day. I think I have sold 50 financial programs to customers who wanted to buy stocks.... I have done this for 8 years, and couldn't stand myself, the pressure was too high. I wanted to do an urjent switch to work for myself and not for big institution. When I started to feel bad, my resignation was quick. I know you can manage your time well, and i hope for your success.
This is a list of few freelancer jobs that I think can give you and money.Typing - money is not so good but if you will be qualified your salary will go up. Writing and submission of articles for money - there are some good tutorials that can guide you. Design of all the next - graphic,website, interior design, kitchen,logo,house,garden,games,car,product and in fact, everything. You can start trade and selling some stuff on e-bay .You can be the developer of a good product and by selling it you will be rich. Well, opportunities to earn career and get a freelancer job are everywhere - just take them.
About the Author
http://www.goarticles.com/cgi-bin/showa.cgi?C=587583
Reigning Foreclosures Create the Perfect Storm
Just how bad is it?
* Subprime loans represented 8% of total originations in 2003 but increased to 20 percent in both 2005 and 2006 [1]
* Most subprime loans issued were hybrid adjustable rate mortgages (ARMs) - 2/28 and 3/27's [1]
* Reports indicate more than half of all foreclosures at the end of 2006 involved subprime loans [1]
* Delinquencies on subprime loans are hitting wealthier areas as well as lower income areas. In the Sacramento CA area, 60 day or more delinquencies on subprime loans hit 14.1% in December 2006 [2]
* It is estimated the cost of a foreclosure is $40,000 to $50,000 with some lenders reporting losing as much as 50 cents on the dollar [1]
* 60% of all subprime mortgages originating in 2006 were 2/28 and 3/27 ARMs [1]
Adjustable Rate Mortgages are just that - they're mortgages that have adjustable rates. It appears both buyers and lenders fell into the ARM trap - buyers by not fully understanding the requirements of their loans, and lenders by not completing sufficient risk assessments on potential buyers. Lenders must ensure their borrower can pay both the current mortgage and the future mortgage payment on ARMs.
There are several key items that must be understood by borrowers purchasing homes with ARMs [3]
* Some ARMs have lower interest rates at the beginning of the loan - hence the name 2/28 or 3/27. For the first two years in a 2/28 ARM your rates are lower, or for the first three years in a 3/27 ARM.
* Some ARMs have a 'balloon payment' - You may have a 30-year loan and for the first 10 years your payment remains the same, but at the end of 10 years a 'balloon' or full payment of the balance outstanding is due. Your option is to refinance and if you're unable to refinance then you must sell.
* Some ARMs have increased interest due to reduced documentation. Full documentation loans require you to supply proof of income, assets and liabilities to the lender and generally have lower interest rates.
* Some ARMs carry a large prepayment penalty if you sell your house or refinance within the first few years of the loan.
* Some ARMs do not incorporate taxes and insurance into their payments and the buyer must come up with a lump sum payment to cover these expenses.
The following sample chart indicates the difference in payment requirements on a $200,000.00 loan at a fixed 30-year rate of 7.5% compared to a $200,000.00 "2/28" ARM at 7% for 2 years then adjusting to a variable maximum rate of 10% - in year 3, an 11.5% maximum rate year 4, and a 13.0% variable maximum rate in years 5-30.
The sample indicates no rate change in years 3 & 4 and a 2% rate increase in year 5. The sample includes $200.00 per month for taxes and insurance. [3]
Click for larger version of chart ARTICLES and ANSWERS
While the fixed mortgage rate remains constant at $1,598.00 per month, the ARM mortgage increases $839.00 per month, from $1,531.00 in years 1 and 2, to $2,370.00 in year 5.
Wall Street Journal online has an excellent interactive map indicating the areas of the country that have been hit by the worst subprime delinquencies.
Some newspapers lumped families who have been caught in the subprime mortgage crisis with speculators who purchased houses for flipping purposes. Somehow we just don't have the same amount of sympathy for the speculators as we do for the families that are going to lose their homes.
If all those subprime mortgages were still held by the banks that granted them, they wouldn't have become the problem we have today.
But, they were rolled up, sliced and diced to serve as securities for further issuance of debt. When it all starts to unravel, we have the credit crunch that Bernanke is trying to alleviate with the cut in the discount rate.
This wasn't the rate cut everyone was looking for, but there will be a cut in the Fed fund rate in the very near future. In the meantime, the cut in the discount rate - the discount rate window - will help, but will it be enough?
Sources: [1] John C Dugan, OCC, April 2007 [2] WSJ Online - Subprime Mortgages [3] Federal Reserve
About the Author
* Subprime loans represented 8% of total originations in 2003 but increased to 20 percent in both 2005 and 2006 [1]
* Most subprime loans issued were hybrid adjustable rate mortgages (ARMs) - 2/28 and 3/27's [1]
* Reports indicate more than half of all foreclosures at the end of 2006 involved subprime loans [1]
* Delinquencies on subprime loans are hitting wealthier areas as well as lower income areas. In the Sacramento CA area, 60 day or more delinquencies on subprime loans hit 14.1% in December 2006 [2]
* It is estimated the cost of a foreclosure is $40,000 to $50,000 with some lenders reporting losing as much as 50 cents on the dollar [1]
* 60% of all subprime mortgages originating in 2006 were 2/28 and 3/27 ARMs [1]
Adjustable Rate Mortgages are just that - they're mortgages that have adjustable rates. It appears both buyers and lenders fell into the ARM trap - buyers by not fully understanding the requirements of their loans, and lenders by not completing sufficient risk assessments on potential buyers. Lenders must ensure their borrower can pay both the current mortgage and the future mortgage payment on ARMs.
There are several key items that must be understood by borrowers purchasing homes with ARMs [3]
* Some ARMs have lower interest rates at the beginning of the loan - hence the name 2/28 or 3/27. For the first two years in a 2/28 ARM your rates are lower, or for the first three years in a 3/27 ARM.
* Some ARMs have a 'balloon payment' - You may have a 30-year loan and for the first 10 years your payment remains the same, but at the end of 10 years a 'balloon' or full payment of the balance outstanding is due. Your option is to refinance and if you're unable to refinance then you must sell.
* Some ARMs have increased interest due to reduced documentation. Full documentation loans require you to supply proof of income, assets and liabilities to the lender and generally have lower interest rates.
* Some ARMs carry a large prepayment penalty if you sell your house or refinance within the first few years of the loan.
* Some ARMs do not incorporate taxes and insurance into their payments and the buyer must come up with a lump sum payment to cover these expenses.
The following sample chart indicates the difference in payment requirements on a $200,000.00 loan at a fixed 30-year rate of 7.5% compared to a $200,000.00 "2/28" ARM at 7% for 2 years then adjusting to a variable maximum rate of 10% - in year 3, an 11.5% maximum rate year 4, and a 13.0% variable maximum rate in years 5-30.
The sample indicates no rate change in years 3 & 4 and a 2% rate increase in year 5. The sample includes $200.00 per month for taxes and insurance. [3]
Click for larger version of chart ARTICLES and ANSWERS
While the fixed mortgage rate remains constant at $1,598.00 per month, the ARM mortgage increases $839.00 per month, from $1,531.00 in years 1 and 2, to $2,370.00 in year 5.
Wall Street Journal online has an excellent interactive map indicating the areas of the country that have been hit by the worst subprime delinquencies.
Some newspapers lumped families who have been caught in the subprime mortgage crisis with speculators who purchased houses for flipping purposes. Somehow we just don't have the same amount of sympathy for the speculators as we do for the families that are going to lose their homes.
If all those subprime mortgages were still held by the banks that granted them, they wouldn't have become the problem we have today.
But, they were rolled up, sliced and diced to serve as securities for further issuance of debt. When it all starts to unravel, we have the credit crunch that Bernanke is trying to alleviate with the cut in the discount rate.
This wasn't the rate cut everyone was looking for, but there will be a cut in the Fed fund rate in the very near future. In the meantime, the cut in the discount rate - the discount rate window - will help, but will it be enough?
Sources: [1] John C Dugan, OCC, April 2007 [2] WSJ Online - Subprime Mortgages [3] Federal Reserve
About the Author
Patricia L Johnson is a writer/photographer residing in northern Illinois and former special assignment writer/photographer for Lakeland Media.
Richard E Walrath is a freelance writer and former budget analyst residing in Ohio with his family.
Patricia and Richard are co-owners of the Articles and Answers sites, online news and information resources. Articles and Answers
Keeping More Money From Your Mortgage
For most people, financing real estate using mortgages is a fact of life. Most people don't have the cash to pay for the entire purchase price of a property, and many people want to leverage their cash to boost their return on investment.
So mortgages are here to stay... at least until tenants pay them off. In the mean time, mortgage payments must be made every month, easily accounting for 50% or more of a rental property's monthly cash flow.
While it's true that for most mortgages, a portion of each payment is principal repayment (and not really an 'expense'), with such a significant impact to the bottom line, a good investor does everything they can to minimize the monthly out of pocket cost and keep the cash flow positive.
Choosing an appropriate mortgage that reduces out of pocket costs is not always an easy decision to make. Anyone who has ever obtained a mortgage knows what it's like... they may ask questions like:
* is the cheapest interest rate always the best one?
* what amortization period should I pick?
* should I choose a long or short term?
* what about fixed interest rates or variable?
* is an open or closed mortgage better?
* do I need pre-payment or payment increase privileges?
* which lender should I choose?
These are not always easy questions to answer, as the mortgage industry varies widely and the answers depend on the individual. The answers for a new home buyer may be substantially different than for a real estate investor. Even among investors, the answers can different based on their tolerance for 'risk' (ie. the chance their monthly payments may go up, etc.). The following are some things to consider when making decisions:
* Interest rates - The interest rate affects your monthly payment and therefore your cash flow. Obviously, lower interest rates are better, but all mortgages are not created equal (see the section below about lenders). Most banks will lock in rates for you (even on a refinance or renewal) for 90-120 days. Use this to your advantage while shopping around for the best mortgage.
* Amortization period - This also greatly affects your monthly payment and therefore your cash flow. Longer amortizations are better, but as a result, it takes longer to pay off the mortgage. Normally investors don't care about paying off the mortgage early, so it is best to select a longer amortization (ie. 25 years or more)
* Long or short term - Deciding the answer to this almost requires a crystal ball. An investor must predict things like where interest rates will go over time, and how long they will hold a property. There is a measure of risk when using short-term mortgages, as rates could go up at renewal time, causing a severe reduction in cash flow. Long-term mortgages reduce that risk, but can prevent taking advantage of drops in interest rates, so it ends up costing more. Ultimately, flips should use short term mortgages, while the term can vary for buy and hold properties based on investor preference and risk tolerance.
* Fixed or variable - Most people use mortgages that are locked in for a fixed term. This can be a disadvantage if an investor decides to sell a property or interest rates drop substantially. On the flip side, variable rate mortgages allow an investor to take advantage of rate drops, but they can also easily increase. Variable rate mortgages also tend to have lower interest rates than fixed mortgages, thereby boosting cash flow. Flips should use fixed mortgages, as this allows accurate forecasting of holding costs. Long-term buy and holds can use fixed or variable, depending on investor preference and risk tolerance.
* Open or closed - Open mortgages tend to have higher interest rates than closed ones, but have no penalties for full repayment. Closed mortgages should be used for long-term buy and hold properties, while open should be used for flipping.
* Pre-payment or payment increase - For long-term buy and hold properties, ensure the mortgages terms allow partial pre-payment (at least 10%-15%) and an option to increase monthly payments. This provides flexibility to use excess cash flow to pay off the mortgage faster. For flips, a good sized pre-payment privilege will help reduce penalties if the property is sold before the mortgage term is complete.
* Lenders - This is a tough one and an investor will have to rely on their mortgage broker and referrals to find good lenders to work with. Some lenders may have the lowest rates, but the mortgage is difficult to qualify for, they may have high fees for breaking the mortgage, etc. Find a lender who is flexible, without high fees for everyday items (like extra statements, NSF charges, etc.), good customer service (this is important), and of course the easiest qualification criteria (would you rather jump through 37 flaming hoops to get a mortgage, or just 3?).
The above sections don't really provide the answer to choosing fixed/variable or long/short term because it really depends on the individual. However, the following articles published by Moshe A. Milevsky, Ph.D, a Finance Professor at York University and Executive Director of the IFID Centre, may help an investor make a decision.
* Mortgage Financing: Floating Your Way To Prosperity - Published in 2001, this article describes his approach to finally answering the question of whether to go long or short on a mortgage. He uses sophisticated mathematical analysis based on historical interest rates to come to his conclusions.
* Mortgage Financing: Should You Still Float? - Published in 2004, this article discusses his original suggestions in light of today's very low interest rates, and provides recommendations for different types of people (ie. new home buyers, etc.)
Once an investor has had a mortgage for awhile, they may discover that their cash flow is low, so they make want to find ways to boost it. The following are some suggestions on how to do this:
* Skip a payment - This is our favorite and one of the easiest. Many mortgages have the ability to skip one or more payments. Even if this isn't part of the mortgage agreement, many banks will make exceptions. The advantage of this is that you can boost your cash flow with one phone call. If you pay $1500 per month on a mortgage, that's $1500 you can keep in your pocket.
* Interest only - This requires refinancing, and may not be available in all cases (especially for rental properties), but it can dramatically boost cash flow. No principal repayment is included in your monthly mortgage payment -- only interest costs. The disadvantage is that no equity is being built up through mortgage 'pay down'. Instead, the equity is kept in your pocket every month by not having to pay the principal.
* Extend amortization period - If you've had a mortgage for a few years, normally upon renewal or refinance, the amortization period is reduced by the length of time you've held the mortgage. To reduce your monthly payments, extend the amortization period back out to 25 years or more.
Using the above information to select the proper mortgage, and the extra techniques to boost cash flow, an investor should be able to keep their monthly debt servicing costs to a minimum so they can keep more money in their pocket and for long-term buy and holds, keep the property long enough to benefit from one of the best parts about real estate -- long-term appreciation.
About the Author
Paul Blacquiere, and his business partner Joanne Beehler, are full time real estate investors in Ottawa, Ontario, Canada. They are owners of Spirepoint Properties, a Canadian real estate investing company dedicated to making real estate investing easy. Sign up for their FREE newsletter at http://www.spirepoint.ca that offers free investing education, and more.
So mortgages are here to stay... at least until tenants pay them off. In the mean time, mortgage payments must be made every month, easily accounting for 50% or more of a rental property's monthly cash flow.
While it's true that for most mortgages, a portion of each payment is principal repayment (and not really an 'expense'), with such a significant impact to the bottom line, a good investor does everything they can to minimize the monthly out of pocket cost and keep the cash flow positive.
Choosing an appropriate mortgage that reduces out of pocket costs is not always an easy decision to make. Anyone who has ever obtained a mortgage knows what it's like... they may ask questions like:
* is the cheapest interest rate always the best one?
* what amortization period should I pick?
* should I choose a long or short term?
* what about fixed interest rates or variable?
* is an open or closed mortgage better?
* do I need pre-payment or payment increase privileges?
* which lender should I choose?
These are not always easy questions to answer, as the mortgage industry varies widely and the answers depend on the individual. The answers for a new home buyer may be substantially different than for a real estate investor. Even among investors, the answers can different based on their tolerance for 'risk' (ie. the chance their monthly payments may go up, etc.). The following are some things to consider when making decisions:
* Interest rates - The interest rate affects your monthly payment and therefore your cash flow. Obviously, lower interest rates are better, but all mortgages are not created equal (see the section below about lenders). Most banks will lock in rates for you (even on a refinance or renewal) for 90-120 days. Use this to your advantage while shopping around for the best mortgage.
* Amortization period - This also greatly affects your monthly payment and therefore your cash flow. Longer amortizations are better, but as a result, it takes longer to pay off the mortgage. Normally investors don't care about paying off the mortgage early, so it is best to select a longer amortization (ie. 25 years or more)
* Long or short term - Deciding the answer to this almost requires a crystal ball. An investor must predict things like where interest rates will go over time, and how long they will hold a property. There is a measure of risk when using short-term mortgages, as rates could go up at renewal time, causing a severe reduction in cash flow. Long-term mortgages reduce that risk, but can prevent taking advantage of drops in interest rates, so it ends up costing more. Ultimately, flips should use short term mortgages, while the term can vary for buy and hold properties based on investor preference and risk tolerance.
* Fixed or variable - Most people use mortgages that are locked in for a fixed term. This can be a disadvantage if an investor decides to sell a property or interest rates drop substantially. On the flip side, variable rate mortgages allow an investor to take advantage of rate drops, but they can also easily increase. Variable rate mortgages also tend to have lower interest rates than fixed mortgages, thereby boosting cash flow. Flips should use fixed mortgages, as this allows accurate forecasting of holding costs. Long-term buy and holds can use fixed or variable, depending on investor preference and risk tolerance.
* Open or closed - Open mortgages tend to have higher interest rates than closed ones, but have no penalties for full repayment. Closed mortgages should be used for long-term buy and hold properties, while open should be used for flipping.
* Pre-payment or payment increase - For long-term buy and hold properties, ensure the mortgages terms allow partial pre-payment (at least 10%-15%) and an option to increase monthly payments. This provides flexibility to use excess cash flow to pay off the mortgage faster. For flips, a good sized pre-payment privilege will help reduce penalties if the property is sold before the mortgage term is complete.
* Lenders - This is a tough one and an investor will have to rely on their mortgage broker and referrals to find good lenders to work with. Some lenders may have the lowest rates, but the mortgage is difficult to qualify for, they may have high fees for breaking the mortgage, etc. Find a lender who is flexible, without high fees for everyday items (like extra statements, NSF charges, etc.), good customer service (this is important), and of course the easiest qualification criteria (would you rather jump through 37 flaming hoops to get a mortgage, or just 3?).
The above sections don't really provide the answer to choosing fixed/variable or long/short term because it really depends on the individual. However, the following articles published by Moshe A. Milevsky, Ph.D, a Finance Professor at York University and Executive Director of the IFID Centre, may help an investor make a decision.
* Mortgage Financing: Floating Your Way To Prosperity - Published in 2001, this article describes his approach to finally answering the question of whether to go long or short on a mortgage. He uses sophisticated mathematical analysis based on historical interest rates to come to his conclusions.
* Mortgage Financing: Should You Still Float? - Published in 2004, this article discusses his original suggestions in light of today's very low interest rates, and provides recommendations for different types of people (ie. new home buyers, etc.)
Once an investor has had a mortgage for awhile, they may discover that their cash flow is low, so they make want to find ways to boost it. The following are some suggestions on how to do this:
* Skip a payment - This is our favorite and one of the easiest. Many mortgages have the ability to skip one or more payments. Even if this isn't part of the mortgage agreement, many banks will make exceptions. The advantage of this is that you can boost your cash flow with one phone call. If you pay $1500 per month on a mortgage, that's $1500 you can keep in your pocket.
* Interest only - This requires refinancing, and may not be available in all cases (especially for rental properties), but it can dramatically boost cash flow. No principal repayment is included in your monthly mortgage payment -- only interest costs. The disadvantage is that no equity is being built up through mortgage 'pay down'. Instead, the equity is kept in your pocket every month by not having to pay the principal.
* Extend amortization period - If you've had a mortgage for a few years, normally upon renewal or refinance, the amortization period is reduced by the length of time you've held the mortgage. To reduce your monthly payments, extend the amortization period back out to 25 years or more.
Using the above information to select the proper mortgage, and the extra techniques to boost cash flow, an investor should be able to keep their monthly debt servicing costs to a minimum so they can keep more money in their pocket and for long-term buy and holds, keep the property long enough to benefit from one of the best parts about real estate -- long-term appreciation.
About the Author
Paul Blacquiere, and his business partner Joanne Beehler, are full time real estate investors in Ottawa, Ontario, Canada. They are owners of Spirepoint Properties, a Canadian real estate investing company dedicated to making real estate investing easy. Sign up for their FREE newsletter at http://www.spirepoint.ca that offers free investing education, and more.
What Investors Should Know About Local Customs
As a commercial real estate investor, there is a good chance that you will invest in a property located in another state in which local customs may be very different from where you live. Knowing some of these customs may help you avoid mistakes that may cost you money. While people say when you are in Rome, do what Romans do. However, there is often disagreement about whether the seller or buyer is in Rome. This article discusses some of the common customs that you should know. It may or may not explain why these customs are what they are which could be a very long story.
Independent Consideration
You often see this independent monetary consideration in contracts in Texas (TX), Georgia (GA), and North Carolina (NC) but not in California (CA) where love and affection are acceptable consideration. Listing brokers in these states often insist that you pay the seller $1000-$5000 as independent consideration for the right to cancel the contract during the typical 30-day due diligence period. As an out-of-state investor, you have to pay for air fare, hotel, food, and car rental to visit the property as part of your due diligence. So if you decide that the location is not as good as it appears from satellite map or whatever reasons, it does not make sense to pay another $1000-5000 to cancel the contract. While the law in these states requires an independent monetary consideration, it does say what that amount must be. So you should pick a big number between $1 to $10 to make the contract legal!
Nonrefundable Earnest Deposit
In CA, there is no such thing as nonrefundable deposit per a CA court ruling. Most if not all real estate contracts in all states have a paragraph addressing damages due to contract breaching by either party. This is often sufficient. However, some listing brokers and sellers outside of CA often insist that all the earnest deposit "going hard", i.e. becoming non-refundable and released to the seller, after the expiration of due diligence period. While the purpose is to make sure you think twice about breaching, it could be difficult to get any of earnest deposit back if
* You, for unforeseeable position, e.g. hit by a truck or have a heart attack and go to heaven or wherever, cannot close the transaction.
* The property is partially damaged, or even burned down by arson.
* The seller spends it all and your loan is not approved due to soil contamination discovered later on!
You are in a bad position to negotiate with nothing to offer when the money is in possession of the seller. It is therefore advisable to keep the deposit in escrow until closing. However, sometimes you have to make a tough choice, especially when there are multiple offers so you can buy a desirable property.
Property Taxes
In CA, the property is automatically reassessed at the purchased price. The property tax rate is about 1.25% of the purchased price. Due to the Proposition 13, property taxes can only increase by a small percentage annually unless there is change in ownership.
In TX, the property tax rate is about 3% of the assessed or taxable value. However, the taxable value may or may not be the purchased price which is often higher. If the higher purchased price is reported to the county then you will pay property taxes based on the higher purchased price. So it's a good idea not to report this higher purchased price since it is not required. Lately in TX, the local government tries to raise revenue by aggressively reassess the property values. The new assessed value could be significantly higher than, e.g. 100% the old assessed value. Should this happen to your property, you may want to hire a professional company to protest this property taxes increase even on a property with NNN leases. The success rate appears to be fairly high. As an investor, it's wise and prudent to keep the NNN expenses as low as possible for your tenants. You definitely want your golden goose to keep laying eggs.
In Florida, there is a monthly state sales tax for commercial properties, so make sure you know who is supposed to pay it. In Illinois, the property taxes rate is fairly steep at about 5%. The property tax rate for NC is about 1.45% of the taxable value which is not changed after the sale.
Attorney States
In CA, an escrow company can handle the closing of a real estate transaction. In GA, FL, or NC, escrow companies can only hold the deposit for you and you must hire an attorney licensed in that state to do the closing. These states are often called "attorney states". The proponents say that a real estate transaction is very complex so it must have an attorney to assist you. For opponents, it's all about job security for lawyers. If you invest in a property in an attorney state, you want to hire an attorney who charges a flat fee since the amount of work is very much predictable. You will receive an estimate based on what you need the attorney to do. He or she won't start working until you authorize him or her in writing to do it. The attorney will review all the documents and give the blessing before you sign them. It is advisable to avoid an attorney who charges you by the hours. Most likely you are dealing with a lawyer looking for a big pay day.
In CA, the buyer automatically receives the Preliminary Title report which shows the owner and various information, e.g. liens and loan amount on the property. If you cancel the transaction, you normally don't pay escrow any fees. In attorney states, the attorney will do the title search and review. The title company then issues a title commitment to insure against any title defects. Should you cancel the transaction, the attorney and Escrow Company may charge a fee for the work done.
Closing Costs
When you make an offer, you often state that buyer and seller split closing costs based on the custom in the county where the property is located. In CA or TX, the sellers customarily pay for owner's title insurance premium based on the purchased price which guarantees the buyer of a clear title (technically you should not have to buy owner's title insurance when you refinance the property because the title was already insured when you bought the property.) The buyer pays for the lender's policy premium based on the loan amount. This lender's policy is required by the lender to protect it against losses resulting from claims made by others against the property. Of course, if you pay cash for the property then there is no lender's policy. However in GA, it's customary for the buyer to pay for both owner's and lender's policy. So make sure you have sufficient fund to close the transaction.
Deeding Instrument
In CA, the sellers often transfer his interest to the buyers by a grant deed. In other states, the seller will transfer his interest to the buyer by a general or special warranty deed.
* General warranty deed is used to convey the seller's interest in real property to the buyer. The seller certifies that the title on property being conveyed is free and clear of defects, liens, and encumbrances. The buyer may sue the seller for the damages caused by the defective title.
* Special warranty deed is also used to convey an interest in real estate. However, the grantor does not warrant against the defects arising from conditions that existed before he/she owned the property. So the special warranty deed is not as good as the general warrant deed. However, most sellers will use this deed for obvious reasons.
About the Author
http://www.goarticles.com/cgi-bin/showa.cgi?C=601583
Independent Consideration
You often see this independent monetary consideration in contracts in Texas (TX), Georgia (GA), and North Carolina (NC) but not in California (CA) where love and affection are acceptable consideration. Listing brokers in these states often insist that you pay the seller $1000-$5000 as independent consideration for the right to cancel the contract during the typical 30-day due diligence period. As an out-of-state investor, you have to pay for air fare, hotel, food, and car rental to visit the property as part of your due diligence. So if you decide that the location is not as good as it appears from satellite map or whatever reasons, it does not make sense to pay another $1000-5000 to cancel the contract. While the law in these states requires an independent monetary consideration, it does say what that amount must be. So you should pick a big number between $1 to $10 to make the contract legal!
Nonrefundable Earnest Deposit
In CA, there is no such thing as nonrefundable deposit per a CA court ruling. Most if not all real estate contracts in all states have a paragraph addressing damages due to contract breaching by either party. This is often sufficient. However, some listing brokers and sellers outside of CA often insist that all the earnest deposit "going hard", i.e. becoming non-refundable and released to the seller, after the expiration of due diligence period. While the purpose is to make sure you think twice about breaching, it could be difficult to get any of earnest deposit back if
* You, for unforeseeable position, e.g. hit by a truck or have a heart attack and go to heaven or wherever, cannot close the transaction.
* The property is partially damaged, or even burned down by arson.
* The seller spends it all and your loan is not approved due to soil contamination discovered later on!
You are in a bad position to negotiate with nothing to offer when the money is in possession of the seller. It is therefore advisable to keep the deposit in escrow until closing. However, sometimes you have to make a tough choice, especially when there are multiple offers so you can buy a desirable property.
Property Taxes
In CA, the property is automatically reassessed at the purchased price. The property tax rate is about 1.25% of the purchased price. Due to the Proposition 13, property taxes can only increase by a small percentage annually unless there is change in ownership.
In TX, the property tax rate is about 3% of the assessed or taxable value. However, the taxable value may or may not be the purchased price which is often higher. If the higher purchased price is reported to the county then you will pay property taxes based on the higher purchased price. So it's a good idea not to report this higher purchased price since it is not required. Lately in TX, the local government tries to raise revenue by aggressively reassess the property values. The new assessed value could be significantly higher than, e.g. 100% the old assessed value. Should this happen to your property, you may want to hire a professional company to protest this property taxes increase even on a property with NNN leases. The success rate appears to be fairly high. As an investor, it's wise and prudent to keep the NNN expenses as low as possible for your tenants. You definitely want your golden goose to keep laying eggs.
In Florida, there is a monthly state sales tax for commercial properties, so make sure you know who is supposed to pay it. In Illinois, the property taxes rate is fairly steep at about 5%. The property tax rate for NC is about 1.45% of the taxable value which is not changed after the sale.
Attorney States
In CA, an escrow company can handle the closing of a real estate transaction. In GA, FL, or NC, escrow companies can only hold the deposit for you and you must hire an attorney licensed in that state to do the closing. These states are often called "attorney states". The proponents say that a real estate transaction is very complex so it must have an attorney to assist you. For opponents, it's all about job security for lawyers. If you invest in a property in an attorney state, you want to hire an attorney who charges a flat fee since the amount of work is very much predictable. You will receive an estimate based on what you need the attorney to do. He or she won't start working until you authorize him or her in writing to do it. The attorney will review all the documents and give the blessing before you sign them. It is advisable to avoid an attorney who charges you by the hours. Most likely you are dealing with a lawyer looking for a big pay day.
In CA, the buyer automatically receives the Preliminary Title report which shows the owner and various information, e.g. liens and loan amount on the property. If you cancel the transaction, you normally don't pay escrow any fees. In attorney states, the attorney will do the title search and review. The title company then issues a title commitment to insure against any title defects. Should you cancel the transaction, the attorney and Escrow Company may charge a fee for the work done.
Closing Costs
When you make an offer, you often state that buyer and seller split closing costs based on the custom in the county where the property is located. In CA or TX, the sellers customarily pay for owner's title insurance premium based on the purchased price which guarantees the buyer of a clear title (technically you should not have to buy owner's title insurance when you refinance the property because the title was already insured when you bought the property.) The buyer pays for the lender's policy premium based on the loan amount. This lender's policy is required by the lender to protect it against losses resulting from claims made by others against the property. Of course, if you pay cash for the property then there is no lender's policy. However in GA, it's customary for the buyer to pay for both owner's and lender's policy. So make sure you have sufficient fund to close the transaction.
Deeding Instrument
In CA, the sellers often transfer his interest to the buyers by a grant deed. In other states, the seller will transfer his interest to the buyer by a general or special warranty deed.
* General warranty deed is used to convey the seller's interest in real property to the buyer. The seller certifies that the title on property being conveyed is free and clear of defects, liens, and encumbrances. The buyer may sue the seller for the damages caused by the defective title.
* Special warranty deed is also used to convey an interest in real estate. However, the grantor does not warrant against the defects arising from conditions that existed before he/she owned the property. So the special warranty deed is not as good as the general warrant deed. However, most sellers will use this deed for obvious reasons.
About the Author
http://www.goarticles.com/cgi-bin/showa.cgi?C=601583
Subscribe to:
Posts (Atom)