How to Finance the Deal

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The FHA loan limit reduction will  mainly affect home buyers in higher-end properties.  Homebuyers who once could buy with less capital will now have to invest more cash into the deal or buy less house. If you are investing in those higher end areas, as are many according to recent reports, this is good info to know. Some of these changes are particularly shocking to the so called “Sand States”  that are still recovering from the housing bust and relying on the flipping houses market to bring them back. For example, in Las Vegas, the FHA loan limit will drop from $400,000 to $287,500 on Jan. 1. The Fannie Mae loan limit will remain at $417,000.

Here are some of the changes  to FHA Loan Limits that Part-Time REI thinks flippers should pay attention to.

1. Your Mortgage Limits Will Be Reduced: Most counties will see the maximum loan limits decrease, on average, by $67,250 beginning January 2014.  In fact there are 146 counties that will experience declines of 20% or more.  FHA has offered no explanation for these significant decreases.

2. Get Your Credit Score in Order: You’ll need at least a 700 credit score to sit at the big kids table. The best terms and rates will go to those with 740 scores or better. One of the first to do’s on your list of getting started in to make sure you know where you stand on your credit. This will greatly affect how much and from whom you can borrow money. There are many free outlets to check your credit score.

3. A 20% Down Payment May Be Required: No longer will homebuyers on the higher-end market be able to purchase a home with less than 20 percent down if the loan is not conforming high balance or FHA. In other words, 20 percent down is going to be the new normal in most markets for majority buyers. Here also keep in mind that many investors simply do not allow for mortgage insurance on larger loan sizes.

For a comprehensive list of the FHA new loan limits please refer to this link from AOL Real Estate.

Link to press release from HUD http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-184

More resources:

http://www.fha.com/lending_limits

http://www.realtor.org/articles/new-fha-loan-limits-for-2014

To learn more about Part-Time REI visit us at http://part-timerei.com/

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Where can I find money?

If you have done any investing in real estate you have probably had this happen. You are sitting around with other real estate investors and it takes just under 37 seconds before someone mentions how many more fix and flip deals he would be doing if he could just get a loan. Much like after a fisherman finishes a tale about the one that got away, the audience nods knowingly. While some people are actually un-lendable, most are not. As a part-time real estate investor, you have a huge advantage—Your Job! The real problem is knowing where to look when getting started.

Big Banks are a Waste of Time

While the large banks (Chase, BOA, Wells Fargo) are a waste of time, many local banks are more than willing to do loans for fix and flip properties. Call the bank, ask for a loan officer, and ask him or her if they do Construction or Rehab loans. When you find someone who says yes, set up an appointment to meet. Ask what financial information the bank will need and bring it to the meeting. Most will ask for a Personal Financial Statement which you can download from the SBA. I also recommend a sample proforma or a one-page document showing your goals, what type properties you intend to purchase, etc. This will show you are serious, prepared and have put some thought into the concept and plan. This will set you apart from other borrowers.

Meet with your Loan Officer Soon!

There are 3 reasons to meet with the loan officer as soon as possible. The great thing is you can do this on your lunch hour. First, having a lender in place shows your real estate agent that you are a serious investor. Second, you often need a pre-approval letter when you make an offer. If the bank already has your financial information, it only takes a few minutes to generate a letter. Third, the lender will be able to give you terms and estimated closing costs. This will help as you prepare your estimates.

a financially secure future awaits…

For reference, here are some sample terms.

1. 6 month interest only loan at 6.5%

2. Investor puts down 20% or purchase price

3. Investor pays for appraisal, title work, and ½% origination fee

4. Rehab costs are reimbursed as draws with proof of work being complete

5. Loan can be extended another 6 months for a nominal fee

Search Outside Your Hometown

Finally, do not limit your search to your home town. Part-Time REI has several lenders who are almost 50 miles away. Lot’s of times those smaller town lesser known banks have less red tape and better loan opportunities for flippers. Don’t count them out.

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