How does PMI help lenders?

The main benefactor of private mortgage insurance is the lender. Borrowers have to purchase PMI when they are unable to make the required down payment. A borrower does not get the freedom to shop around and purchase this insurance. It is their lenders who will choose the insurance provider for the borrower. PMI enable lenders to offer home loans even with low down payments as it protects them against loss in case borrowers default on the mortgages. Though the lender becomes the beneficiary, the borrowers pay the premiums.

How does PMI help borrowers?

To purchase a house with a conventional home loan, borrowers will have to put down 20% of the purchase price of the property. If they do not have sufficient funds to make the required down payment, they can still purchase the house by obtaining private mortgage insurance. So, with the help of PMI, borrowers do not have to wait for years to accumulate the required down payment for fulfilling their dreams.

How much does PMI cost?

The cost of private mortgage insurance depends on the size of the home loan and the amount that borrower make as down payment. Typically, the cost of the insurance is about half of 1% of the home loan. Borrowers generally have to be pay the premiums on a monthly basis, included in the home loan payment. Private mortgage insurance is very lucrative for lenders and so they are often reluctant to end it on time. Hence, the Homeowners Protection Act (HPA) of 1998 was enacted to automatically terminate PMI when borrowers attain 22 % home equity and also gives the right to borrowers to request lenders for its cancellation when they reach 20% equity in home.

If deposits aren’t available as ready cash it is advisable to be able to borrow it. Bridging is of two types open bridging and closed bridging. In open bridging, lenders don’t know when the money will be repaid while in closed bridging they know it.

Closed Bridging or Deposit Bridging

It is offered as a secured short-term loan against any residential property. It requires Market Value lending where  investment doesn’t come from a vendor but a third party. Deposit bridging, works well for individual resale properties. If the incentives are high enough it can result in a No Money Down investment but it is usually a Low Money Down.

Same Day Bridge and Refinance

Mortgage Express allows investors to buy a property at a net price, using short term bridging finance (24 hours). The investor immediately re-mortgage the property, based on the market valuation. It was an excellent product but has been withdrawn recently. You can still use the bridge and re-mortgage (http://en.wikipedia.org/wiki/Remortgage) system, but have to wait for 6-12 months to do the re-mortgage.

Open Bridging

In this Short and Medium Term Techniques are used for Low and No Money Down. Lenders fund short term finance up to 12 months. They will lend up to 70% of Open Market Value. Many lenders restrict the maximum borrowing to 85% of the cost, no matter what the open market value and the purchase price is. However if you pledge another property, you can borrow up to 100% including all costs. This would result in a true No Money Down deal.

Open Bridging is suitable for investment property with large discounts, new build and re-sales, auction property and distressed sales. However open bridging isn’t advisable as the cost of open bridging is high, obtaining discounts is difficult and the investor cannot commit on a mortgage 6-12 months ahead.

There are many sourcing companies in UK which advise investors on deposit bridging. Axis Property Investment (http://www.axispropertyinvestment.com/) is one of them and has built expertise over this domain. To know more about deposit bridging and other investment methods visit  http://www.axispropertyinvestment.com/learn.html.

Summary: Deposit Bridging is becoming an integral part in a No Money Down investment. There are two types of bridging Open Bridging and Close Bridging.

This appears to be further tightening of standards that Wells Fargo announced on February 27, in which they were pulling some loan products out of some markets and increasing down payment requirements in others.  The February 27 report stated that underwriting standards are also being tightened in markets in Arizona, Colorado, Connecticut, Washington, D.C., Illinois, Louisiana, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Washington, Wisconsin and West Virginia, Reuters reported.

I was reading this week’s Carnival of Real Estate and Dan Green’s post on The Mortgage Reports.  He has a short example of why you should only be getting advice from professionals in the discipline.  Dan found a news article in his local newspaper that had just glaring mistakes.  Unfortunately, the unknowing public that reads this mis-information doesn’t know any better.  Check out Dan’s post at The Mortgage Reports.

All Banks, Mortgage Brokers and Mortgage Bankers are subject to this new law.  When looking at properties, it will become more important than ever to properly assess the value of a property before making an offer so you don’t run into an appraisal issues. To read more about these changes, check out the details at Investment Mortgage Guy.com

Rob Bonahoom, the expert in Investment Property financing, gives us the answer at Investment Mortgage Guy.

If you remember, in October 2008, Fannie Mae followed Freddie Mac and lowered the number of financed properties a person could hold to only 3 (4 if you include your personal residence). In an exciting and stunning change, Fannie Mae has reversed its decision effecting March 1. As you can imagine, these changes come with some extra hurdles, but that is OK. Read all the details at Rob Bonahoom’s Investment Mortgage Guy Blog.

I have been telling my customers that we would not see this reversed any time soon.  I am always a cynic and see the goverment of just getting in the way most of the time, by reducing free trade in place of government regulation.  I figured it was going to be a bank sometime in the future that would see a need for borrowing money to people like me that own more than 3 investment properties.  Today I am happily wrong!

When I was talking to Rob Bonahoom today, I realized that I preach about the fantastic opportunities to buy houses in North Minneapolis at incredible prices, but I rarely write about how the rehab financing works.

When you buy a house, traditional financing sources assume the house is move-in ready. They don’t care if the carpet is old or it needs paint, but they will not give you mortgage if the copper is missing or the furnace is dead. Rehab financing bridges the gap and give you cash to fix up the house and make it livable. It is meant as a temporary solution (most rehab loans are 6 months long), allowing you to buy and renovate the property. You will secure traditional financing via a refinance at the end of your rehab.

The program that we have in place allows a buyer to put 20% of the total rehab and purchase price into a secured savings account with our bank. You did not put in a down payment, but rather you pledged your money with the bank in case you can not finish the rehab and the bank needs to take back the property. The bank estimates the after repaired value by having an appraiser look at the property prior to any work starting and then reviewing the work to be performed and extrapolating a new value (after repaired value).

At closing, the bank will pay the seller and then reserve the remainder of the loan for construction/rehab. During your rehab, you or your contractor will make draw requests from the bank to pay off materials and work that has been completed.

At the end of your rehab, you simply contact your mortgage banker and have him refinance you into a traditional mortgage. If you are under 75% LTV, you may not need to put any money into this transaction. Once you close your refinance, our bank gives you your 20% back. Consequently, you have a fully renovated property that you have 25% equity in that you only spend $6-8000 in closing costs to acquire.

If you want more information on how you can acquire and renovate investment property for less than $10,000 per property, contact me now?