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Obtaining Finance for Your First Rental Property – Guest Post by Angela Brown

AngelaBrown December 30, 2010

Obtaining Finance for Your First Rental Property – Guest Post by Angela Brown

You can obtain finance for your first rental property through various ways. There are various options for a person trying to invest in real estate property. However, before you do this, you will have to determine on your affordability and what is your goal after you achieve this rental property. Depending on this you will be able to buy the rental property according to your affordability and finance it. This will help you to avoid falling in debt. Home loans are secured loans and if you are unable to make payments on this, you won’t even be able to include it in a consolidation program.

Ways to obtain finance for rental property

There are basically two ways in which you can finance your rental property. One is taking out a new home loan or mortgage or if you have a home, you can take out a home equity loan (if applicable).

1. Taking out a new home loan – In order to finance your first rental property you can take out a new home loan. However, you need to have a good credit score and a clean credit report with good payment history in order to qualify for a loan with favorable terms and conditions. So that you qualify for a home loan with low interest rate and low payments, you need to have a credit score above 730. However, you may also qualify for home loans with a score below 700 but as the score lowers your options lower too. You may also get FHA loan with your score at 620 but the options are really less.

2. Taking out a home equity loan – However, if you have already a home and if you had taken a mortgage against it, and if you have been making regular payments on the loan you can take out a home equity loan. When you make on-time payments on your mortgage, equity builds up on your home. Later you can tap this equity as per your financial needs. So, taking out a home equity loan is your other option to finance your rental property. Home equity loans are generally available at low interest rates.

Another option for you to finance your first rental property is getting a loan from family or friend. If you have close ties and understanding with your family members and your friends, you can borrow money from them. However, you will have to keep a track of your loan payments as you can’t include it in consolidation in case you default on it.

Author Bio: Angela Brown is a contributory writer associated with a US-based debt consolidation community and has written several articles for various financial websites. She holds her expertise in the Debt industry and has made significant contribution through her various articles.

Filed Under: Buying, Financing, Investing Tagged With: financing, home equity loan, home loan, mortgage, rental

HAMP and New Revelations about Securities Fraud With Consequences

realpropertycheck.com November 20, 2010

HAMP and New Revelations about Securities Fraud With Consequences

As of October 2010, HAMP (the Treasury Department’s Home Affordable Modification Program) had generated about 520,000 active permanent loan modifications, far below its stated goal of modifying three million mortgages and helping to staunch the housing crisis. The program has been mired by bureaucratic delays and chaotic foreclosures triggered by trial payments (see: “HAMP (…ered) Recovery and the Flood of Foreclosures: Why Banks Can’t Lose”).

Double Standard In Loan Modification

HAMP is famous for sinking homeowners under piles upon piles of paperwork. Banks, on the other hand, receive as much as $1500 per HAMP loan modification in subsidies from the federal government without having to produce any proof that they actually own the mortgage in question.

HAMP participation does not require banks to provide any physical proof of a note underlying a property. Zip. Nada. Do the banks even own the mortgages they participate in modifying? Who knows.

Many lenders pooled and securitized their loans, then sold the securities to investors. Some of these lenders could still produce physical proof of a mortgage even though they had sold it to investors. How is that even possible? An excellent question.

It is really quite simple but could have messy consequences.

Who Owns What

Some lenders simply failed to deposit the notes in the mortgage pool and no one noticed. They got the money but forgot to hand over the goods. What would you call that in the real world?

According to court testimony of an executive at Bank of America, Countrywide (now owned by Bank of America) sold what it claimed were mortgage-backed securities but kept the notes underlying the loans. It did so not by oversight but as a policy.

In a lawsuit brought up in the United States Bankruptcy Court in Camden, N.J., an executive at Bank of America said that Countrywide’s practice was

to maintain possession of the original note and related loan documents.

Investors in mortgage backed securities can sue lenders for failing to fulfill their contractual obligations and force them to buy back the loans they failed to hand over.

There is a possibility that this could actually happen at a larger scale. There are many cases in which proper procedures for setting up mortgage securities trusts were not followed. Now there will be mortgage modifications based on missing documentation or false premises. How can a bank modify a loan if it does not own it?

The Congressional Oversight Panel concludes in its report:

Claimants will contend that the securitization trusts created securities that were based on mortgages which they did not own(…) Since the nation’s largest banks often created these securitization trusts or originated the mortgages in the pool, in a worst-case scenario it is possible that these institutions would be forced to repurchase the M.B.S. [mortgage-backed securities] the trusts issued, often at a significant loss.

This would also mean that HAMP subsidies already paid out by the government would have to change hands.

But there is a larger issue at stake. If these lenders had followed proper procedures, they would not be able to legally receive government subsidies for modifying loans they no longer own.

Should courts force these banks to buy back the securities they had improperly (or fraudulently) set up, not only some weaker banks but even the nation’s biggest financial institutions could be shaken.

It is not yet clear whether this is going to affect borrowers who have successfully received their HAMP loan modification, but should lawsuits materialize at a larger scale, it could bring the program to a screeching halt.

You can read the full report by the Congressional Oversight Panel right here.

Filed Under: Investing Tagged With: HAMP, loan modifications, mortgage

Gary Shilling Predicts Home Prices Will Fall Another 20%

realpropertycheck.com November 15, 2010

Gary Shilling Predicts Home Prices Will Fall Another 20%

A. Gary Shilling, who predicted the U.S. housing collapse and the Greek crisis of 2010, says house prices will fall another 20% before the market hits bottom. With excess inventory of unsold homes in the millions he sees no other way for house prices but down.

Massive Deleveraging

Shilling, who is president of the investment research firm A. Gary Shilling & Co. in Springfield, New Jersey, believes the Fed’s efforts in stimulating the economy will fail. He says that this recession is unlike the others: This time around, massive deleveraging is under way.

Savings rates will keep climbing as consumers realize they have not retained enough resources to retire on. Home equity withdrawals have already ceased as a result of falling house prices.

A Stock Market Sell Off Will Decimate Retirement Savings

Shilling also thinks the stock market is overvalued and we are in for a “significant” sell off within a year as the Federal Reserve fails in its efforts to stimulate economic growth. This will further decimate many Americans’ retirement savings.

No matter how hard the Fed tries, Shilling believes overall borrowing will continue to decrease.

Given his recent track record, you can’t dismiss him out of hand. He predicted the housing collapse. He foresaw the Greek crisis of 2010 and called for investors to short the euro only days before its spectacular collapse in early May.

Shilling sees this trend continue for at least another decade. He lays out his outlook in his new book, “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.”

Shilling’s predictions are in line with the outlook in the most recent research report by Zillow (we have a summary for you right here).

If the purchasing power of Americans keeps sinking and with it the rents, some seemingly cash-flowing real estate deals may turn out not to be such great investments. Prepare for the worst.

Please comment below.

Filed Under: Books, Buying, Investing, The Economy Tagged With: A. Gary Shilling, home prices, investment strategies

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