Mortgage Lenders Are Easier Than Ever to Find

Posted by Credit Financing Guru on 25th February 2010

If you are in the market for a new home, or perhaps looking to refinance, you will need to know a thing or two about what to look for in a mortgage. You have a lot of options when you select a mortgage, and there are many mortgage lenders to choose from.

Deciding what type of loan you would like is the first step for you. There are many types of loans to choose from, and it is a critical step. Selecting the wrong mortgage might put you in an awkward financial situation down the road, so it is best to find out what you need from the beginning.

The oldest type of mortgage on the market is the fixed rate mortgage. Fixed rate mortgages are for a particular period of time, say 10 years, or 30 years. The length of the loan varies, and you have many to choose from. With a fixed rate mortgage, the interest rate will not change for the entire length of the loan. That can be great if you get the loan when rates are very low, but if rates drop after you take out the loan, you might want to refinance to get a better interest rate.

Another type of mortgage is the adjustable rate mortgage, also called an ARM. Adjustable rate mortgages do just what the name implies, they fluctuate with the market. With an ARM, the rate will change from time to time as the interest rates change. It could go up, or it could go down, depending on what the prime interest rate happens to be.

Other types of mortgages are designed for specific home buyers. FHA loans are great if you are buying your first home. FHA loans are backed by the government, so lenders are more likely to give you the funding you need. If you are a veteran, you can also apply for a VA loan. It is a great deal for veterans, because a VA loan does not require the borrower to have a down payment like other loans do. There are other types of loans on the market too, so do your research to determine what is best for you.

If you find the loan you want, but the interest rate is not quite as good as you want it to be, you can change it. Lenders will allow you to pay what they call points. You can pay some extra money on the front end to actually reduce the amount of the interest rate. Points are a percentage of the loan amount, so the larger the loan, the more it will cost to buy down the interest rate.

Mortgage lenders come in a variety of forms these days. You can get a loan at your local bank or credit union, if you choose to go a traditional route. You can also apply for a mortgage online. Online mortgage brokers often have the best rates because they are selling loans at a high volume. Most only mortgage brokers sell for several different lenders, so you will have many loans to compare.

Mortgage lenders are easier to find than ever before. With technology today, you can apply for a loan in the comfort of your home.

When you’re deciding to buy a house, some of the factors that you have to take into account are mortgage rates. As mortgage rates are important for home-buyers, GIC rates are important for investors. If you’re interested in a customized financial plan, remember to visit us.

Mortgage Lenders FAQ:

Question: Will mortgage lenders perform a credit check to add me to an already existing mortage?
My brother and girlfriend have just split up and they can’t sell the house due to the fee and the value of the house is much less than they originally paid for it. He wants to add me to the mortgage and take his girlfriend off (she consents) but will they perform a credit check? My credit is not brilliant, but will be able to afford my half of the mortgage as I earn more than my brother’s girlfriend.

Answer: The mortgage company is never going to take his girlfriend off the note. She can sign a quick claim deed, transferring ownership to you, or anyone she wants, but she will never get permission to be taken off. It’s just not done. Not even in divorces. For you to get involved, financially is a moot point. If you want to help out, just have the girl friend add you to the deed, and start making payments, or helping. The only way to change anything is to refinance the mortgage.

Question: Do all mortgage lenders look at the middle of your 3 credit scores?
I’ve heard there are some “niche programs” that will look at either your highest score or the average of the 3. My middle score is 5 below what it needs to be and all that’s standing between us and this beautiful home my husband and I found is that score!

Answer: Most use FICO and not the agencies’ scores. There is no averaging there.

Question: What is the best way to find a mortgage company without letting them pull my credit history?
I don’t have anything to hide, I just don’t want a bunch of lenders pulling it and hurting my score. Also, is the Better Business Bureau a good way to evaluate smaller, local mortgage lenders?

Answer: Get recommendations from people you trust. If you are honest with a loan officer from a local Mortgage Broker, he or she will be able to predict pretty accurately from experience what your credit score is going to be. Just remember, a good loan officer is worth their weight in gold.

BBB is a non-profit organization that you pay to become a member of. They do not make laws, nor do they investigate anything.

Question: I’m 33 and my Husband is 41, is it to late to get a mortgage?
We have lived in our housing association house for 4 years however we are now debt free which means we feel we could afford to buy a house. Our ideal option is part buy/part rent scheme. We seem to fit most of the criteria for this type of housing but my main concern is our age. Would mortgage lenders even consider us?

Answer: On shared ownership you still need a deposit of at least 10% of the part of the house you will own. If you can get a property where you own the minimum share of 25% of a property then this will mean a smaller deposit but you would still need to raise this nevertheless. All mortgages whether shared ownership or for buying a property outright will require you to have 10% deposit at the very minimum.

Your age would not be an issue, most lenders will allow you to go to retirement age, some a little longer. Given your husbands age you would be looking at a maximum mortgage term of about 24 years.

Question: Can I refinance with a reputable lender following a loan modification?
I am anxious to leave the current lender that my mortgage is with and am working on bringing my credit up.

Answer: Yes, unless the modification had a provision saying that you had to make up any shortfall. Most lenders would not require that. They just want their money.

Question: Can someone obtain a mortgage through a bank or a lender for investment properties using an LLC?

Answer: If purchasing investment real estate, ALWAYS purchase it under an LLC and yes obtain a commercial loan for the property.

Question: Looking for bad credit lenders?
Does anyone know of any good lenders for people with poor credit? I’d like to be able to get a mortgage of up to $50,000.

Answer: If you live in the United States, look into an FHA loan. If you have been in the service, a VA loan is another possibility. Minimum down payment will be 3.5%, higher if your credit is poor but should not be over 10%. It is difficult for people with poor credit to get conventional bank financing and even if you did manage to find a lender such as a finance company who would be willing to take a chance, your interest rate would be astronomical.

Question: I’m on the deed but not on the mortgage and my ex wife left the country.
She is the borrower. What can I do to keep the house? Now that I’m in the last stages of modifications can the lender let me change the mortgage to my name and keep the house? What are my options?

Answer: Is she gone for good; in which case you better get a lawyer because you can’t modify her mortgage. Temporary; A POA should allow you to continue to work on her modification.

Otherwise, you’re talking about paying off the mortgage and re-fi in your name. Some companies may require you to get your wife’s name off the deed first.

Categories: Mortgage Financing

Buyout Financing – Everything You Need to Know

Posted by Credit Financing Guru on 23rd February 2010

When companies driven by strategic factors set out to acquire certain businesses/firms, they usually rely on the expert advice of a throng of financial and legal advisers. Financial partners also come in the form of business brokers which handle small- to mid-range transactions. Regional banks are the front runners in identifying possible businesses for acquisition.

Most firms/individuals deal with investment banks to facilitate the buyout financing and handle the nitty-gritty of obtaining controlling shares from the targeted firm. They generally help investors know what to anticipate and craft a profit strategy at the best workable terms.

When the stakes are high, some large companies or individuals hire an investment bank — usually with a breadth of global expertise — to provide a package of services — from conducting valuation (after making due diligence) from a buyout perspective, to compiling information detailing the target company’s worth (including assets and future worth), to providing legal advice on requirements depending on the corporation code (which every country has), to reviewing corporate By-Laws and Articles of Incorporation of the company to be acquired; to acting as broker to raise capital to buy the company (with a bigger acquisition target, the more fund managers there may be to provide capital).

The investment manager may also handle the public relations and investor relations requirements that are usually part and parcel of the buyout financing transaction. In return for its services, the investment bank gets a percentage of the total buyout financing cost apart from regular professional fees plus commissions.

In certain cases, a comprehensive management buyout feasibility study is also presented. This includes market analysis (along with competitive pricing information); current and future competition, facilities & equipment; and historical financial performance report (with future projections and valuation).

To raise management buyout financing on the best possible terms, check out online sites for a reputable firms specializing in structuring buyouts of firms, subsidiaries, divisions and product brands. It can be a long and tedious process, but hiring a competent firm can take care of just about everything, from orchestrating the efforts of, and dealing with, the financial institutions, partners or investors, as well valuation firms, accountants, and legal counsels, to the other professional management buyout advisers who may be part of the transaction.

Buyout financing may utilize the assets of the buyer. Through an investment banking firm, the buyer may trade in his shares of stock to buy out shares from a firm. Or the money may be borrowed based on the business value and assets of the company being acquired. Sometimes, a venture capitalist (a speculator who handles innovative projects, with an eye towards higher rate of return than that given by more traditional investments) is hired to build distribution channels, set up branches and factories, and handle the operating capital.

There is also what is known as leveraged buyout financing (LBO), whereby the interested buyer/investor goes to the open market to accumulate shares to obtain a seat in the targeted firm’s Board. LBO entails finding the right strategic partners to effect the desired transaction.

Buyout financing can be a highly suitable option that can work for you, especially with a good financial partner/advisor which can devise a program that makes the most sense for you and assist you every step of the way.

Buyout Financing FAQ:

Question: Can bank financing be secured to buyout a partner in investment real estate property?
My mother and uncle (her brother) inherited an investment property. This is not a rental property, but the property will have considerable worth upon its sale. If my mother wanted to buyout my uncle’s share today with the intent to sell within 3-6 months, could she secure financing from a bank for this purpose? I assume we’d have to prove to the bank that the property would be profitable (in this case, upon its sale).

Answer: If you are talking about land she will have a tough time. If she can not repay the loan without selling the land she will not get a loan.

Question: Would you be happy or unhappy if a company whose stock you owned was bought by a leveraged buyout specialist?
Here’s the catch, would you be happy if they financed the purchase with junk bonds? I was guessing no, because of course junk bonds carry a high risk of default which could throw the company into lots of debt, right? And if that happened your stock price that you owned would go down if not disappear because of bankruptcy right?

Answer: Usually the bonds are sold to other investors, and the shareholders are bought out with the proceeds. And what happens to the stock is the buyers problem.

Question: What is reverse buyout?

Answer: A reverse buyout is a technique used by a private company to go public without the regulatory requirements of an initial public offering (IPO).

Question: What is the difference between buying and leasing with equipment?
I am buying a dump truck and the finance company wants to lease it to me with a $1 buyout at the end. Why is it a lease instead of a purchase? How will it affect my taxes for my business at the end of the year?

Answer: With leasing you can expense the entire monthly payment. If you buy it, you have to capitalize it and depreciate it. The monthly depreciation may be less than the monthly expense deduction but you may be able to take sec 179 depreciation on it which means you could deduct the entire purchase in the year of purchase, BUT only to the amount of profit. Say your business made $15000 profit after all expenses except the truck. Truck costs 20000. You could take section 179 deprec for $15,000 and depreciate the 5000 balance over the remaining life (3-5 yrs). Talk to a CPA to get exact details.

Question: What is a leveraged buyout?

Answer: A LBO, or leveraged buyout, is a way to take a company private.

Say you have a publicly-traded company. But management believes that the market is seriously under-valuing the company and that the company could be worth more if it were private.

Management, or a consortium of other individuals, then borrow large sums of money from investment banks (this is the “leveraged” part – anything with leveraging involves debt/borrowing) and use it to buy out all current shareholders and retire the shares, thus becoming the sole owners of the company.

Categories: Business Financing

Financing a New Business – What You Must Know

Posted by Credit Financing Guru on 22nd February 2010

For anyone planning to put up a business, it is important to keep in mind that as much as possible, you should start it buy using cash or funds of your own in financing a new business. You can do this by starting small or slowly and even while you are still presently employed.

You can start a business by working hard. You can work during evenings and during weekends while keeping up with your current job. This will ensure you that you will still have a job even when the business will not come out as good. Other than that, you also haven’t acquired debt while you are financing a new business.

Sometimes however, other sources of funding might be required depending on what type of business you have. When you try to find out your financial needs, keep in mind that you have to do your planning in an organized way. Do not forget about other factors that might affect your business like disease, calamities or machine breakdown.

In preparation of financing a new business, remember these things: equipment, business license or permit, legal fees, salaries, advertising, office supplies, etc.

What any starting businessman should avoid is to obtain additional financing while on the starting phase. There are two types of financing: debt and equity financing. The first one means that you make a loan from anybody and you are compelled to repay the sum you borrowed. The latter one has something to do with advertising or selling a part of your company to another investor. In other words, you are not forced to repay the funds. Generally, this form of funding is given by venture capital companies.

Most small scale businesses will then to make use of debt financing because equity financing are only interested in lending huge sums of money. So we will talk more of the sources of debt financing as a way of financing a new business.

Here are debt-financing sources:

1. Own Savings. This is the best option for you if you have set aside some amount. You have to remember though, that you must have a separate and sufficient amount for cases of emergency.

2. Your Relatives. Usually, your family and your relatives the easiest people to lend money from. If you will be able to persuade or convince them of your business idea, they may be willing to let you borrow money. You also have to make sure that you have an official loan document which states your interest rate and terms of payment. Just make sure that you will be able to return their money in the agreed length of time even when your business fails.

3. Banks and Lending Investors. There are a lot of local banks that allow you to loan money for putting up a business. This move will involve a presentation of a legal plan that justifies the amount that you are planning to borrow from them.

4. Equity Loans. The interest rates for equity loan are usually low. Just be careful and remember that your home is at stake

Financing a New Business FAQ:

Question: What is the best way to obtain financing for a new business startup?
If you had a business plan but little cash, how do you acquire enough cash for your business?

Answer: You should not start a business if you cannot pay cash for it. If your business fails (and many of the new ones do) and you paid cash, you simply move on. If you borrowed money, you are left with debt you have to pay – possibly for a long time to come.

Also, paying cash will prevent you from making many mistakes you will make if you borrow. It is plain psychology: we think before paying cash and do it much less (or do even not at all) when we borrow.

So, if you truly believe your business plan is sound, save what you can, get an extra job, save more, then and only then start it. As it develops, reinvest part of what you make into it to make it grow.

Question: I need money financing for a new business and because of my ex I can not go to the banks or loan companies.
He’s totally screwed me over. Paying money back isn’t a problem. Any ideas? And I don’t mean debt consolidation etc.

Answer: You need to put together a firm and realistic business plan and use it for financing and/or grants. Do some research online for resources, then take a trip to your local library.

Question: What is the importance of financing for a new business?

Answer: All businesses need money. Start with capital – your own money or your investors. Financing costs interest. You can’t afford too much interest to start with.

Most businesses fail because of undercapitalization. Get enough startup capital to last at least a month and preferably 3-4 months.

You will have to buy things to get going, both goods and services. And you will need working capital to support your business until you start getting income.

So finance your business with capital if at all possible. Finance your long term fixed assets with a term loan if you need to. Get a line of credit so that you can have short term working capital as you need it but resolve to keep that line as low as possible and use it only when you need it.

The line could be at a floating rate related to prime. The equipment long term loan should be at a reasonable fixed rate, like a car loan or other capital equipment loan would be. You should pay that loan off prior to the end of the effective life of that equipment.

Question: Where can I find financing for a new business (I have no credit)? Can do approx 15 to 20 mill a year.
This is a new newspaper like nothing else on the market. Basically for those who ride public transportation.

Answer: What you need is a Venture Capitalist but they aren’t easy to please. You better do your research & homework. Have a Solid business plan before you start contacting them.

Question: Financing Question on opening a new business?
We have decided to start a small business. I favor a 75% debt (mixed short and long term) 25% equity financing plan, while my husband favors a 80% equity (some preferred, but mostly common stock) 20% debt (long term) structure. We will be opening a small chain of pet grooming shops including building, land and equipment, and pet products for resale. I have come to you for advice in settling the financing tradeoff struggle.

Answer: I would suggest speaking with a business consultant/accountant/lawyer in your area. I would ask for referrals from other business owners or check the phone book and web.

You will need to look at cash flow projections and credit ratings to determine how much debt your business can carry and how much equity you can raise.

Question: What is the best way to get financing for a new business venture?

Answer: To get a loan, you need to write a business plan. Go to the SBA website for instructions on how to write a business plan and sample business plans.

Go to the SCORE website and in the upper left hand corner, enter your zip code. On the next screen, you will get information on the nearest SCORE chapter. Call them and arrange for a free meeting with a SCORE counselor to discuss you business plan.

SCORE is a nonprofit association dedicated to entrepreneur education and the formation, growth and success of small business nationwide. SCORE is a resource partner with the U.S. Small Business Administration (SBA).

SCORE has 389 chapters in locations throughout the United States and its territories, with 10,500 volunteers nationwide. Both working and retired executives and business owners donate time and expertise as business counselors.

Question: What kind of company do I need to contact for financing for construction on a new business in the Caribbean?

Answer: Depends. If you have enough money to cover 30%-35% of construction cost, you can get bank financing for the rest. If not, you need to arrange equity investment first.

Question: How does one get financed for a new business idea?
I am looking for financing for an independent music label, but cannot seem to find resources for financing. I am looking for start-up finances, but all I can find are resources for small businesses that have already been active.

Answer: To get started, I suggest contacting the Small Business Administration Financing Page (SBA). Entrepreneur also offers a great site dedicated to money & finance. The SBA site has sample plans and instructions on how to write a business plan. Then, take the business plan to a bank.

Categories: Business Financing

How Does Owner Financing Work? Your Ultimate Guide

Posted by Credit Financing Guru on 6th February 2010

Financing a business venture sets the profitable idea to work. Without any means of financing, a great concept would never really be called a business until some form of financing is guaranteed.

Owner financing is one of the riskiest types of business financing. “How does owner financing work?” an entrepreneur may ask. Owner financing or seller financing is a form of financing where the original business owner or the property seller partly funds or shoulders the cost of the sale.

The usual setup is that the buyer would usually pay off the amount of the sale to the seller slowly over time. In such way, there would still be shared ownership of the business where the seller and the buyer would continue to share control management of the business. In effect, co-laboring for the business-on-sale becomes somehow inevitable where responsibilities, business operations’ costs and expenditures are still shared.

In this setup, there is a tendency for a troubled sale because during the process, the buyer may mismanage the business and just run around and hide from payments. Should this take place, the only recourse of the owner financing party or the property seller is to foreclose on the note and repossess the business. This leaves the seller to further complication as he would be left to look for another buyer and begin with the sale again.

Some business owners yield to owner financing mainly because there are certain businesses which are difficult to sell. In a way, shouldering the note or part of the purchase price of the business may be an attractive component for a potential buyer.

The owner financing setup, in fact could be a godsend opportunity to a small-time entrepreneur as the seller usually requires relaxed qualification standards and more lenient terms toward the sale of the property. Oftentimes, the sale terms are even more relaxed than those offered by loan firms or banks. Usually, this setup allows adjusted payment schedules, interest rate negotiation, loan period stretch and mostly everything palatable to the potential buyer’s preferred terms.

On one hand, a seller should always be covered and must be able to protect his interest. One option is that the seller may require the buyer to secure a more extensive loan. This way, the business-on-sale would not be the only collateral available for foreclosure in case of default in payment. In effect, should there be “more costs” on the buyer’s end; he would be more diligent in payment. Furthermore, he would be more determined in making the business work and speeding up the payment to completely acquire rights to the business.

Owner financing is jump started by having the buyer pay a sort of down payment. The business or assets attached to it acts as a collateral for the note. For the security, information of a “third party” acting as witness to the sale, a lien on the property is usually filed to the secretary of state’s office where the extent or coverage of the business is declared. If at some point, the buyer defaults on the note, the owner financing party or the seller should be the first in line to step back in and take over the business.

Owner Financing FAQ:

Question: How does owner financing affect your credit oppose to financing your home through a bank?
I bought my house by financing through the owner (Owner financing) because my credit was not great. I have never had anything repossessed or any major credit problems. Yet my credit is not all that great. I am wondering if it has to do with not financing my house through a mortgage company.

Answer: Chances are that private lenders do not report your loan and payment history to the credit bureaus.

Question: How long does it take to close with owner financing when the owner has a mortgage?
In other words, what time-consuming activities have to happen before closing, when the owner providing the financing is already satisfied of the property’s value and condition, so there is no need for additional inspection, appraisal, etc.?

Answer: If you want title insurance (and you do) that could take a couple of weeks. Other than that this could be done in a few days. Just schedule a closing with title company.

Question: What are the pros and cons of owner financing a home?
I have a home that I am interested in selling and am looking at various ways to entice buyers in this tough market. One option told to me was owner financing the property. What are the pros and cons as a person that would be financing my property? Also, what would be the difference if I still have a small mortgage on my property?

Answer: Pros: you will have lots of buyers to choose from, you can make a good profit, you have the right to foreclose and take back the home if payments are not made as the promissory note states
Cons: You will need to screen all of those buyers, Profit is long term, You will have to go through the legal process to foreclose if necessary
This is in my state of Texas, you should find out what the rules are where you are. Many investors in my area have become quite wealthy with owner financing. One reason is that when the owner forecloses, they lose all equity in the home and the financier can then sell the property again, keeping the last person’s equity. Not saying this is right or wrong, just a fact.

Question: Where should I look for an owner financing option as a buyer?
I am ready to buy and make 150,000 payment on a house. My credit is bad, should I look for an owner financing option as a buyer? What are my options?

Answer: This is a searchable field in the MLS, an agent can give you a list of owners willing to carry paper.

Question: Can someone explain to me what owner financing is?
Can someone explain to me what owner financing is? Please provide examples, with numbers. I get confused when % and this “balloon” thing is mentioned.

Answer: Owner financing is when the seller will hold title to the property instead of the mortgage co. A balloon payment means after so many years, usually 5 years, the balance has to be paid. This means you then have to go to a bank or mortgage broker to finance the remaining balance. In most cases, the balance of the mortgage is about the same because you pay about 70% of the interest of the first 15 years of the life of the mortgage. You’d be better off going to a Bank for your financing because in 5 years interest rates might be higher than where they are now. Make sure it’s a fixed rate open end mortgage which means you can pay down the mortgage anytime.

Question: What are the pros and cons of 100% Owner Financing?
Is it the same as a 30 yr fixed rate home loan? Is the interest rate usually higher? There is a house I am interested in but I don’t want to call and be an idiot not knowing how Owner Financing works?

Answer: The terms and conditions are whatever you and the seller decide AND put in writing. The rate can be higher but that just depends on what you agree to. You can do a 30 yr fixed with a balloon after 5 years if you wish and then at that point you can refinance with a conventional mortgage. You can do 5,6,7,8+% interest. Whatever you want to do. Negotiate the best deal for yourself. They are offering to finance it because they probably have tried to sell it conventionally and in this slow market were unsuccessful. I would recommend getting either a good Real Estate attorney or a quality title company who will assist you in getting things documented. Things can go sour on a handshake because it is not in writing.

Question: How could I structure owner financing on this deal?
I may be getting a property under contract very soon for the deed. If I do, then I have the option to do owner financing. I don’t really understand how to structure owner financing deals which is holding me back from trying to get the deed versus doing a regular lease option.

Answer: Owner financing and lease option are two separate and totally different things. Also buyer and tenant are not the same.

Owner financing is where you would hold the note and the buyer would pay you instead of them paying directly to a mortgage company. Lease option is where they have a one to two year lease with you and can either purchase or not purchase the property. In both cases this would be a Buyer/Seller transaction because you are selling the property. If you were renting out the property than it would be landlord/tenant.

Question: What is owner financing all about? How does it work?

Answer: The owner takes back a mortgage and acts like the bank. It is a transaction that most, if not all, attorneys advise against doing.

Categories: Business Financing