Podcast #13: Commercial Lending and Real Estate

podcast 13 commercial lending and real estate
For this podcast about commercial lending I sat down with Angie Hoffman at U.S. Bank.  During the podcast we discussed investing in real estate, commercial lending, and how commerceial mortgages can help investors.  If you want to learn more about commercial loans this is a great pdocast for you.
I hope you enjoy the podcast and find it informative.  Please consider sharing with those who also may benefit. Listen via YouTube: You can connect with Angie on LinkedIn.  You can reach out to Angie for more information on their lending products by emailing her at angela.hoffman@usbank.com.
You can connect with me on Facebook, Pinterest, Twitter, LinkedIn, YouTube and Instagram.
About the author: The above article “Podcast #12:  Hard Money Lending” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.
TRANSCRIPT
Commercial Lending Podcast
 
Paul Sian: Hello everybody. This is Paul Sian, Realtor with United Real Estate Home Connections, licensed in the State of Ohio and Kentucky. With me today is Angie Hoffman with US Bank. Angie how are you today?
Angie Hoffman: I’m doing great Paul. How are you?
Paul Sian:  Great. Thank you for being on my podcast. We’re gonna start off. Today’s topic is ‘Commercial Lending’. Angie is a commercial lender with US Bank, as I mentioned. Angie, why don’t you tell us a little bit by your background. What you do with the US bank, and how did you get started in that field?
Angie Hoffman: Sure. So, I am a Cincinnati resident, have been my entire life. Was previously with a company called the ‘Conner group’, which is located out of Dayton, Ohio. They’re a private investment real estate firm. I was with him for about five plus years, just learned a ton of information, really loved the financing portion of their group. So, that turned me to the banking portion, which I ended up going with US Bank just because of the knowledge and the breadth of what they can do as well. Just the culture within US Bank has been phenomenal. I’ve actually been with us Bank now for five years; in the last three years I’ve been within the commercial real estate side as well as the business banking side.
Paul Sian: Okay. Your primary focus is commercial loans.
Angie Hoffman: Correct. Yes, both investment real estate as well as owner-occupied and small to medium businesses. 
Paul Sian:  Okay. The investment side, I represent a lot of buyers of multifamily. I know with the form below we do, the conventional space generally, and then when you’re in the five units and above. You go into the commercial space, which is your space. I have also heard it being covered with mixed-use buildings, industrial properties, is there something else that commercial loans would cover?
Angie Hoffman: Correct. I mean it can really be quite an array of properties, office is one that we see pretty often, and can tend to be either hot in certain areas, whether it’s office Class B or Office Class A. Retail strip centers, we’ll look at Triple Net properties, and absolute not properties. We are very popular, if you’re looking at diversifying a multi-family portfolio and adding in some triple net properties. We also do, obviously owner-occupied properties too. When you have that small business or medium business owner who wants to own their own real estate. We do that as well, and that’s again part of what my position entails, and then we will also look at portfolios will do single-family homes. 
I’m actually working with somebody now who has a portfolio of several single-family homes, that were looking to kind of restructure and refinance for him. We can even utilize current equity and properties to purchase additional properties to help you grow your portfolio. We do try to have a full understanding of your portfolio or a full understanding of what your strategy is. How partner with you, as you continue to grow that portfolio short- and long-term goals.
Paul Sian: For our listeners, who don’t know. What Triple Net means, do you mind explaining that.
Angie Hoffman:  Sure. So, Triple Net is gonna tend to be your properties that have the tenant itself is paying the taxes, the insurance, you may have some pretty minimal depending upon the property, responsibilities that are usually restricted to the exterior of the building. It may be like a roof or a parking lot. Type of maintenance but generally speaking the great thing about the triple net is that for some clients, it’s a property that you can basically own, and you have to do pretty much nothing with. So, you’re gaining that income without having to do a very minimal type of responsibility or maintenance. 
The downfall of that is that typically they’re gonna be somebody, who is gonna be a longer-term lease, which is great. However, you still have the issue that it’s a bigger square footage generally. So, five, ten, twenty thousand plus square feet. If you lose a tenant obviously, that can be very impactful. It just depends upon your, again your focus of your portfolio, and if you want to add in that. But it can be great opportunity, but tends to again be a little bit less of a return. Because of the minimal responsibilities.
Paul Sian: Going back to single family. That is similar, I am using the same term your bank use but to ‘wrap mortgage’. Is that what you use for single families?
Angie Hoffman:  We do have the ability, from the perspective of what you say wrap mortgage.  We’re typically calling that like an umbrella, if you’re grouping all, let’s call it, if there’s ten single family homes. You’re grouping this all into one, it lies together. We have the ability to do that depending again on the structure that the client is looking for. 
We also have the ability to separate out those facilities, and do a simultaneous closing for each one of them to have them separated out from each other. Obviously, there’s some contingencies but that the properties itself have to be able to cash flow by themselves, things along those lines that we would underwrite to. But we do have ability to look at it from both perspectives.
Paul Sian: Okay. The biggest advantage of that if someone has reached the maximum ten convention mortgage loanlimit. They can step into your space there and you could cover them, and they can either restart that or. With something like that, let’s say somebody does get ten properties, and are they able to finance in additional properties into that same loan or is that has to re-finance each time?
Angie Hoffman: No. We would be able to add in. I mean, if you’re asking like if they want to refinance these properties, and they’re also looking to maybe either use some of the equity in them or they’re also buying at the same time. We can do all of that together, so that’s not an issue at all.
Paul Sian: Let’s say to somebody new coming to investment. What is the typical down payment on commercial loans? That are looking to buy in the mixed-use space or multifamily space?
Angie Hoffman: So, generally speaking. We’ll go up to 80% loan-to-value. The biggest factor within that is gonna be how much the capability of the property to hold that debt. We’re gonna have, we have a pretty. I don’t want to say complex but we do have  multiple factors that go within our cash flow, and net operating, income calculation, that we’re gonna want to see. It balanced to a certain point for it to be able to hold the debt at an 80% loan to value. Again, we tend to partner with our clients. I have several clients who will send me properties on a daily basis, that they’re interested in. We will let them know what the debt capacity would be on that property.
Paul Sian: Okay. Income from the rents per sale, let’s say, something’s got a ten-unit building. Then you’re looking at the rents that are coming in. You’re also considering the buyers income level, income to debt ratio, all that as well.
Angie Hoffman: Yes. When I talk about the capacity, the debt for the property is being the one of the first things we look at is. In order to get to that 80% LTV, if you’re looking at the actual depth, they’re wanting the property to take on. Compared to other rent they’re taking in and the expenses, as well as some vacancy factors, things like that. That’s what we’re looking at to have a certain ratio, then on top of that. When we get to the next step would be look at the client globally, and their personal debt to income, and that factor too.
Paul Sian: Looking at that commercial mortgages, can buyer use the mortgage to upgrade property, to build in some equity in the property. Does the building of the equity get taken into account, and do you have a loan that allows them to do that?
Angie Hoffman: That question is kind of twofold. If you have a property, let’s say, it’s multiple unit, and you’re continuing to kind of do some improvements and renovations. If the property has the equity, we can look at small lines of credit to help with that renovation cost. Then once everything’s complete to be able to wrap that together. If you’re looking at a property that’s completely distressed, and doesn’t have any type of income. Then that’s gonna be something that generally we’re gonna have a harder time with. Because it’s a speculative type of scenario, and we want to typically see the actual income.
Paul Sian: How about converting something, I am interested in buying warehouse, either in retail space or multifamily. Do you offer products for that, or is that a similar situation when you’re looking at the risk as being a little high?
Angie Hoffman: Yes. So, that is gonna be a similar situation. Once the actual project would be completed again from a speculative standpoint, it just it becomes a little bit more difficult from a risk perspective. However, we’ve been in scenarios where we’ve worked with clients and partnered clients, people we know who work in that space more than we do. We can look to, guide them to what we would look at if we wanted to refinance that once it was completed, and there were leases in place.
Paul Sian: Okay. So, that is one of the benefits working with a big bank like US bank, is you can reach across departments there, and tap other resources within your organization.
Angie Hoffman:  Even if it’s within the organization, we have other resources whether it’s our private wealth or wealth group, have some capabilities that are different than what we have as well as from a CUI or network basis. It may be somebody just within my network that I know works within that space to introduce that way and hopefully can get that client taken care of.
Paul Sian: Are you able to comment on the underwriting process of commercial loans compared to residential. Is there a big difference in that process? 
Angie Hoffman: So, yes and no. I know we touch on it already a little bit. One of the biggest differences is obviously we’re gonna look at the actual collateral in a very different way, especially on the investment real estate side. When you’re looking at investment real estate, the factors that the net operating income as well as the cash flow of the property become factors. Whereas, when you’re buying a home, obviously it’s a lot more about the loan to value of the property. However on the other side of that, if we are looking at a property that’s gonna be owner occupied by a small to medium business. It becomes a lot more about the loan-to-value as well. So, it can depend upon the situation.
Paul Sian: Okay. How important is the person’s experience when they come to loan, get a loan for you. If it’s a new first-time investor looking at multi families versus somebody who’s already got five to ten units and then either self-managing or running it for a couple years.
Angie Hoffman: I mean, generally speaking, if you have somebody brand new, one of the biggest things is if you’re not familiar in the scope. You don’t have experience, you gonna be partnering  potentially with a property management company or somebody else who is maybe a partnership within the LLC or the property that you’re buying that has the experience. Just being able to show you may not have previous experience in this but you are partnering with a property management company that has historical success in these properties. You’re partnering with somebody, for instance, who has historical success in the properties.
Paul Sian: So, yeah boils down to your team then. What you’re bringing to the team. What kind of document requirements are there to start a commercial loan process with US bank?
Angie Hoffman: Generally speaking, in every situation is different, every request is different, client is different. But it’s typically going to be two to three years of taxes, personal and business, personal financial statements pretty standard as well. If it’s a purchase, we’re gonna want to see a purchase agreement or understand the purchase agreement as well. As you’re gonna want to have financials whether it’s profit loss or the rent rolls preferably a Schedule E or 8852 from the client. Showing what the historical trends of that property of have been. That’s where we really try and partner with our clients of understanding their portfolios, understanding what purchase they’re trying to make. So, that, does it fit, and is there anything we see because we see them on a very regular basis that. Maybe we need to discuss or let the client know that we are suggesting maybe prying a little bit more information.
Paul Sian: How important is ones credit score when they come to apply for loan with you?
Angie Hoffman: It is a factor, I mean. In any type of just like the traditional mortgage, it is gonna be a factor. But there are so many different factors that, it’s only one of many.
Paul Sian: One of the important things when it comes to purchasing real estate is I always tell the buyers that have a pre-approval letter ready. Is there something similar in the commercial loans place? A pre-approval letter, pre-qualification letter. Just something that says, somebody sat down with you, they started the initial process. They’ve got access to certain amount that they can borrow to purchase this property. Do you have something like that?
Angie Hoffman: We do. So, on the commercial side it’s gonna be called a letter of interest, and it basically lays out that we are working with a client. We have a price range or up to a price range that we’re looking for with the client, and depending upon the collateral. We are looking to work with him on the financing, again depending upon what the collateral is, and then we also have once we’ve actually maybe gone through a more official process of underwriting and submitted an actual financial package. We do have, depending again on what the financing contingency is for that client. 
We do have a letter of commitment, which lays out that there is an approval but it goes through all of the conditions as well like your appraisal certain things like that, that we’re gonna have to clear.
Paul Sian: Okay. How long does that process take? If you are writing an offer today for a client, and then usually you have to write in how many days we’re gonna close in. 30 days, 40 to 45 days. I know conventional, it’s usually a little quicker, a little easier. So, we can do it in 30 days or so. I mean, what would you recommend for a commercial loan?
Angie Hoffman: I think 45 days is very practical. One of the biggest things that I always talk about with my clients is that 45 days really is incumbent of me having a full financial package, meaning those two years of tax returns. The financials, I spoke about from the client that you’re purchasing, and or if you’re refinancing. To me, having that full financial package is really the key and then, again from there it’s gonna be some of the factors of the appraisal as well as the title work that would go along with it. But generally speaking, 45 days to close is pretty.
Paul Sian: Reasonable.
Angie Hoffman: Yes.
Paul Sian: You mentioned the documents that was my blog article documents for the conventional mortgage process. You mentioned W2s, 1040, tax returns, that is pretty similar the document requirements for commercial loans that it is for residential space?
Angie Hoffman: Yes. It’s very similar. With the PFS is gonna be one of the biggest as well as the two years of tax returns. Potentially three years depending upon, again the request size. Like you said, I mean, if they’re a W2 income type of employee, then we may need additional pay stubs. like I said, for any client, it could be very different depending again on what their history is. If they’re a business owner, then we may mean some more details but generally speaking, again it would be two to three years of personal business has returns, personal financial statement, and potentially obviously purchase agreement or additional documentation from that side.
Paul Sian: Okay. When it comes to partnership, people coming together, those documents from everybody. Correct?
Angie Hoffman: Correct. So, depending on what the ownership structure is. Generally, if somebody’s over 20% ownership within the property, then we’re going to need that financial information from them as well.
Paul Sian: Okay. I know with the conventional space. Lending into an LLC is generally impossible. Most lenders will not allow conventional borrowers to use an LLC. How does that work on the commercial side?
Angie Hoffman: The vast majority of the lending that I do is going to be through an LLC in a holding company. The clients are still a personal guarantor but the lending itself in the title is all within the LLC.
Paul Sian: Is it a requirement in LLC or is it an option for the buyer?
Angie Hoffman: It’s an option. I mean, one that again depending from an attorney’s perspective, if you’re talking about liability. It may be a best-case scenario to have an LLC with that property. But we always reference stuff talk to your attorney about what makes sense for you.
Paul Sian: How much, do you have any minimum loan requirements and your maximum loan requirement?  
Angie Hoffman: Up to ten million on the investment real estate side, and then once it’s beyond that, we do have a commercial group that we would work with a real estate group as well as our middle marker group that would potentially be involved. As far as minimum typically, again if it’s under 2,50,000. It’s still something that we would do. It just, we pull in a different partner to work with us on that too, because it kind of goes into a little bit different of a space.
Paul Sian: Is there, under 250,000$ or is there a lower minimum. I know some conventional lenders won’t touch anything fifty thousand and under.
Angie Hoffman: It’s pretty common. Yes, under fifty thousand is gonna be a little bit more difficult. 
Paul Sian: 50,000 to 2,50,000, and above that.
Angie Hoffman: But keep in mind too. I mean, if you have properties itself. It may be again, you see this more with the single-family home portfolios. You may have multiple properties that are under fifty thousand. But we’re looking at the entirety of the portfolio, makes a little bit different of a scenario. I would caution that anything that somebody is looking at from the perspective of either total lending amount or even individual property. We’re happy to take a look at it, have an understanding of what you’re looking to do, and if for some reason it’s not something that is in our world necessarily. Again, from an internal and external standpoint. We typically have somebody who I can contact.
Paul Sian: Discussing interest rates from general perspective, everybody’s situation is different and unique. But in terms of paying more, having a lower LTV, 60% LTV rather than 80%. People get themselves a better interest rate or is it generally, can we same and more just depending on credit and history.
Angie Hoffman: So, from an interest rate standpoint, the commercial side is a little bit different. Then maybe the mortgage or lines of credit side, then you then you generally see. Ours is based off of what banks cost the funds are, and then there is a spread that is on top of that. That’s where you get the percent from. Right now, cost of funds are pretty minimal. So, interest rates are extremely competitive. But from that perspective, it doesn’t necessarily factor in the actual loan it saw or the guarantor itself or the property itself.
Paul Sian: So, there’s some risk-based consideration towards interest rates. I guess a little higher risk project is that something you would price a little higher in the interest rate or generally that it’s not considered as much?
Angie Hoffman: No. That’s not considered as much, generally.
Paul Sian: Okay. Great. That’s all the questions I have for you today Angie. Did you have any final thoughts to share with the group?
Angie Hoffman: Sure. One thing I would say is if anybody has any questions about property specific, cash flow, if this property may fit into their portfolio or something that we would look to land up to 80%.I’m happy to partner with anybody on that side as well, and be resource for them. On top of that, I did want to mention that obviously US Bank is across the country. That gives us the ability even, if I’m your contact in Cincinnati to lend out-of-state borrowers.
I’ve worked with quite a few clients obviously from California that are buying in Cincinnati as well Chicago. So, those are people that I’ve worked with quite frequently as well.
Paul Sian: That is perfect. I’ve got a number of out of state clients to. That is one of the biggest challenges that I’ve faced with some local lenders is that they don’t lend to out of state. That’s a great ability to have.
Angie Hoffman: So, the key with in that too is just as I want to mention too. I mean, anytime that scenario comes up. We are happy to discuss it. One of the biggest factors with out-of-state lenders is that we do look for them to be within US bank footprint. So, we are very much on the west coast and Portland, all of those areas. If they’re somewhere you’re not familiar, if we’re within that area, please reach out. Let me know, and I’m happy to take a look.
Paul Sian: Great. Thank you again. I will leave your contact information on my blog post once it gets published live. Thanks again for being on the podcast.
Angie Hoffman: Thanks for having me. 

Source: cincinkyrealestate.com

Benton County, Oregon VA Loan Information

Table of Contents

  • What is the VA Loan Limit?
  • How to Apply for a VA Home Loan?
  • What is the Median Home Price?
  • What are the VA Appraisal Fees?
  • Do I need Flood Insurance?
  • How do I learn about Property Taxes?
  • What is the Population?
  • What are the major cities?
  • About Benton County
  • Veteran Information
  • Apply for a VA Home Loan
  • VA Approved Condos

FAQ

What is the VA Loan Limit?

2021 VA Home Loan Limit: $0 down payment up to $5,000,000* (subject to lender limits) /2 open VA loans at one time $548,250 (Call 877-432-5626 for details).

How to Apply for a VA Home Loan?

This is a quick look at how to apply for a VA home loan in Benton county. For a more detailed overview of the VA home loan process, check out our complete guide on how to apply for a VA home loan. Here, we’ll go over the general steps to getting a VA home loan and point out some things to pay attention to in Benton County. If you have any questions, you can call us at VA HLC and we’ll help you get started.

  1. Get your Certificate of Eligibility (COE)
    • Give us a call at (877) 432-5626 and we’ll get your COE for you.
  2. Are you applying for a refinance loan? Check out our complete guide to VA Refinancing.
  3. Get pre-approved, to get pre-approved for a loan, you’ll need:
    • Previous two years of W2s
    • Most recent 30 days paystubs or LES (active duty)
    • Most recent 60 days bank statements
    • Landlord and HR/Payroll Department contact info
  4. Find a home
    • We can help you check whether the home is in one of the Benton County flood zones
  5. Get the necessary inspections
    • Termite inspection: required
    • Well or septic inspections needed, if applicable
  6. Get the home appraised
    • We can help you find a VA-Certified appraiser in Benton County and schedule the process
    • Construction loan note: Construction permit/appraisal info
      1. Building permit
      2. Elevation certificate
  7. Lock-in your interest rates
    • Pro tip: Wait until the appraisal to lock-in your loan rates. If it turns out you need to make repairs, it can push your closing back. Then you can get stuck paying rate extension fees.
  8. Close the deal and get packing!
    • You’re ready to go.

What is the Median Home Price?

As of August 31st, 2020, the median home value for Benton County is $385,002. In addition, the median household income for residents of the county is $58,655.

How much are the VA Appraisal Fees?

  • Single-Family: $775.
  • Individual Condo: $825.
  • Manufactured Homes: $825.
  • 2-4 Unit Multi-Family: $950.
  • Appraisal Turnaround Times: 10 days.

Do I need Flood Insurance?

  • The VA requires properties are required to have flood insurance if they are in a Special Flood Hazard Area.
  • In Benton County, most flood hazard areas are located along the Willamette River which borders the county to the east. Several other creeks within the county are also prone to flooding. However, one of the most significant flood hazard areas is Marys River which floods areas within the city of Corvallis.

How do I learn about Property Taxes?

  • The Benton county tax assessor’s office is located at 4077 S.W. Research Way Corvallis, Oregon, 97333. In addition, the office can also be reached by calling (541) 766-6855
  • Oregon offers businesses that invest and hire within enterprise zones the option to be exempt from property taxes for at least three years. In addition, the Oregon Investment Advantage encourages new businesses to start and relocating to the state. For example, the program offers income tax subtraction, and it can also eliminate state income liability for new businesses for many years.

What is the Population?

  • The county’s population of 93,053 is 79% White, 7% Hispanic, and 7% Asian.
  • Most county residents are between 18 and 65 years old, with 16% under 18 years old and 17% older than 65.
  • In total, the county has about 35,056 households, at an average of two people per household.

What are the major cities?

The county has five cities, including the city of Corvallis, which serves as the county seat. In addition, there are four other cities Adair Village, Albany, Monroe, and Philomath.

About Benton County

Benton County is located in western Oregon and is home to a friendly local community and excellent dining options. Fun in the Oregon wilderness is waiting at any of the beautiful outdoor spots in the county. Many fun and interesting attractions can be found all over the area, including museums, art galleries, golf courses, and much more. Don’t miss out on any of the exciting festivals held in the county, where you can truly celebrate like a local! Benton County was officially founded on December 23, 1847, and was named after Thomas Hart Benton, who served as a U.S. Senator. The current population of the county is 90,951.

Enjoy all the beauty of the Oregon landscape at any of the scenic outdoor spots in Benton County. The E.E. Wilson Wildlife Area is the perfect place to get away from it all, featuring beautiful hiking trails and scenic campsites. For some of the best hiking and rock-climbing opportunities, be sure to check out Mary’s Peak, which offers majestic lookout points. Bring your friends and family to Riverfront Commemorative Park, which features walking paths, picnic areas, and much more. Other scenic outdoor spots in the county include the Alsea Falls Recreation Site and the Beazell Memorial Forest.

A great time is waiting at any of the amazing attractions in Benton County. The Arts Center is a can’t-miss for art-lovers, featuring a huge variety of paintings and sculptures made by talented artists. The Arts Center also hosts workshops, rotating exhibits, and special events. If you are interested in local history, then be sure to visit all the amazing exhibits and artifacts housed within the County Historical Museum. Check out the beautiful Darkside Cinema, which is independently owned and showcases both independent and art films. Other great attractions in the county include the Majestic Theater, Art in the Valley, and the LaSells Stewart Center.

A fun time for the whole family is waiting at all the exciting events held in Benton County. The County Fair and Rodeo bring out most of the local community to enjoy carnival rides, fun games, and delicious local food. Try a multitude of delicious drinks at Corvallis Beer Week. Other great events held in the county include the Corvallis Fall Festival and the Red Blue and Riverfront Festival.

Veteran Information

There are about 5,249 veterans currently living within Benton County, which offers assistance to veterans through:

Benton County is home to one VFW post:

  • Post 3957 Monroe Post – 605 Main Street, Monroe, Oregon 97456.

VA Medical Centers in the county:

  • Benton County VSO – 777 NW 9th Street, Suite 202, Corvallis, Oregon 97330.
  •  

VA Home Loan Information

  • For more information about VA Home Loans and how to apply, click here.
  • If you meet the VA’s eligibility requirements, you will be able to enjoy some of the best government guaranteed home loans available.  
  • VA loans can finance the construction of a property. However, the property must be owned and prepared for construction as the VA cannot ensure vacant land loans.

VA Approved Condos

There are currently no VA approved condos in Benton County, Oregon. However, if you’re interested in getting a condo through the approval process give us a call at (877) 432-5626. We can help you through the condo approval process.   

Oregon VA Loan Information: https://www.vahomeloancenters.org/oregon-va-home-loan-limits/

VA Loan Information by State: https://www.vahomeloancenters.org/va-loan-limit-maximum-va-loan-amount/

The post Benton County, Oregon VA Loan Information appeared first on VA Home Loan Centers.

Source: vahomeloancenters.org

How Equipment Financing for Businesses Works

Three forklifts at a warehouseFinancing the purchase of essential equipment lets businesses preserve cash for working capital, hiring staff, expanding marketing efforts or other purposes. Equipment financing can be done with term loans, SBA-backed loans, lines of credit and credit cards. Equipment loans are generally easier to get than other forms of financing and may require no down payment, since the loan will be secured by the equipment being purchased. If you’re not sure which option to take, consider talking to a financial advisor experienced in this area.

Many sorts of businesses use financing to acquire a variety of equipment types. Construction companies finance the purchase of bulldozers and cranes, restaurants finance refrigerators and ovens, fitness centers finance workout machines and computers to run their offices, to name a few.

Loans may be any amount up to the value of the equipment, with 100% loan-to-value financing, although 20% down payments could be required. Interest rates range from under 5% to more than 30%, with repayment terms extending 10 years or more, up to the useful life of the equipment. Approval for an equipment financing request often depends on the business credit score, size of the down payment and the existence of a business plan documenting cash flow projections adequate to repay the borrowed sum

Types of Equipment Financing

Businesses obtain equipment financing from a number of sources, including traditional banks large and small, online lenders, SBA-affiliated lenders and credit cards.

Term loans. Local and national banks and online lenders make equipment loans of one to 10 years in length for up to 100% of the equipment value, at interest rates ranging from 4% to 25%. Banks favor loans to established businesses with good credit scores and well-documented repayment plans. Online lenders have more flexible guidelines but also may charge higher rates and fees.

Small Business Administration 504 loans. These government-guaranteed loans are made by nonprofit Certified Development Company (CDC) lenders certified by the SBA. Known as 504 loans, they can only be for up to 40% of the cost of acquiring fixed assets, and require 10% down by the borrower, with a private lender providing the remaining 40%.

Lines of credit. Revolving lines of credit arranged through banks or online lenders can be set up in advance and used to purchase equipment as needed. Borrowers only pay for funds they have actually borrowed through the line of credit, and monthly payments may vary with changes in the balance owed. Lines of credit usually don’t require collateral or down payments but have higher interest rates than loans.

Credit cards. Business credit cards are easy to get as long as a business has a good credit score and some operating history. The application process is simple and funds are available immediately upon approval. Some other loans may take days or weeks before funding. However, the amount that can be tapped with a credit card is limited and rates and fees are higher than alternatives.

Equipment Leasing

Commercial refrigeratorBusinesses that lack the credit score, operating history or down payment needed to qualify for a loan or other purchase financing can acquire equipment by leasing it. Leasing requires no down payment and approval is much easier to get than when requesting a loan. Monthly lease payments may be less than a loan payment would be, freeing up additional cash. And when the lease term is up, the business can return the equipment without owing any more.

The downside of leasing is that it ultimately can cost more than buying. While monthly lease payments could be lower than loan payments, the total of lease payments may be more than the amount of all the loan payments. Also, while there is no down payment, the business won’t own the equipment at the end of the lease.

The Bottom Line

Mobile craneEquipment financing gives businesses access to essential machinery, fixtures, furniture and other assets without the need to devote large sums of cash to outright purchase. Equipment loans are available from a variety of sources, including government-guaranteed loans, and are generally easier to get than other forms of financing. Be sure to avoid taking out equipment loans with terms that exceed the useful life of the asset. Otherwise, you risk being on the hook to make payments on a piece of equipment that has already been retired or scrapped. With this in mind, leasing may be a better option than buying for equipment that quickly becomes obsolete.

Tips for Small Businesses   

  • Before signing a loan or arranging for another way to finance an equipment purchase, consider talking it over with an experienced financial advisor. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • How you finance equipment can affect your taxes. Tax rules for independent contractors differ from what a traditional employee experiences, but they’re not overly complicated. Getting familiar with the basics can make filing your taxes as an independent contractor easier to navigate.

Photo credit: ©iStock.com/Weerasaksaeku, ©iStock.com/zaemiel, ©iStock.com/ewg3D

The post How Equipment Financing for Businesses Works appeared first on SmartAsset Blog.

Source: smartasset.com

Colorado First-Time Homebuyer Programs

Housing prices are on the rise in Colorado making it more challenging than ever to become a first-time homeowner. Thankfully, the Colorado Housing and Finance Agency (CHFA) has several home buyer programs and grants for down payment and closing cost assistance for first-time homebuyers. Get Pre-Approved for a Mortgage and Check Rates National First-Time Homebuyer […]

The post Colorado First-Time Homebuyer Programs appeared first on The Lenders Network.

Source: thelendersnetwork.com

The REO Guide: 10 Steps to Buying a Bank-Owned Home

The REO Guide: 10 Steps to Buying a Bank-Owned Home

Many potential homebuyers and investors overlook bank-owned properties, but for buyers who take the time to understand the REO process, these homes can be a significant opportunity.

Some homebuyers are intimidated by foreclosed and bank-owned homes because they often require more renovations — and a different type of negotiation — than other options on the market. However, some REO properties come at a significant discount, and, if you’re willing to work through some of the nuances of the post-foreclosure market, you can set yourself up for a great deal.

What is a Real Estate Owned (REO) Property?

REO, which stands for “Real Estate Owned,” is a term applied to foreclosed properties whose ownership has transferred to the bank or lender.

In order to become an REO property, it must go through these general steps:

  1. Loan Default. The homeowner/borrower defaults on (fails to make) their mortgage payments for a certain length of time, with the qualifying amount usually specified in the mortgage terms.
  2. Foreclosure. The lender initiates legal proceedings against the borrower to foreclose on the property.
  3. Auction. The property is then offered to the public at a foreclosure auction and typically sold to the highest bidder. If the property sells to a third party at the auction, the bank or lender recoups some of the cost of the outstanding loan balance, interest and fees from the sale of the property.
  4. REO Status. If the home fails to sell at auction to a third party, possession typically passes to the lender and it becomes a Real Estate Owned (REO) property. The lender prepares to sell it, which may involve evicting occupants and removing outstanding liens attached to the property.

REO properties are attractive to homebuyers or real estate investors for several reasons. In many cases, lenders are motivated sellers who do not want to sit on their REO inventory, and (depending on the bank’s history with the property) these homes may be priced at a discount. However, other factors — like the home being sold “as is” — may affect the ultimate price, so it’s important to work through the process methodically to make sure you account for every variable.

10 Steps to Buying REO Properties

The process for buying an REO home is similar to the standard home buying process, but there are a few key exceptions to keep in mind. Whether you’re buying the home to live in or as an investment, these 10 steps should help set you up for success with bank-owned properties.

Step 1: Browse Available REO Properties

Before you get too far into the process, take a look at the properties available in your target market or price range. There are several ways for prospective homebuyers to browse available REO properties:

  • Bank and lender listings: Lender-specific listings, such as PennyMac REO listings, show all available bank-owned properties from a certain lender.
  • Multiple Listing Service: Lenders and Realtors® often use the Multiple Listing Service to list REO properties, making it easy to find options from multiple lenders in one place.
  • Real estate agent: A real estate agent will be able to find REO offerings from multiple lenders in your desired area.
  • Online services: Other online services, such as Zillow, offer tools to look up foreclosures by certain characteristics or in certain areas. Some of these tools are free to use, while others may charge a fee.

Step 2: Find a Lender and Discuss REO Financing

Once you’ve found a property you are interested in, talk to a lender about your financing options. This is particularly important because of the timing of the REO homebuying process; lenders are motivated to sell and want to get these homes off of their books, so the more prepared you are with financing, the better.

One thing that can speed up the REO homebuying process is getting pre-approved by the lender that owns the home. With this pre-approval, the lender that owns the REO property will know that you are financially qualified to purchase the property, making them more likely to accept your offer.

Step 3: Find a Real Estate Buyer’s Agent Who Knows REO Homes

A buyer’s agent is a great partner to have while you navigate the home buying process. Your buyer’s agent helps make sure you are finding the best properties at the best possible prices, and they will use their experience to guide you through every stage of the process. Your agent should also be able to tell you if you need to hire anyone else, such as an attorney or an inspection service, depending on your state and situation.

If you are specifically interested in REO properties, try to find a buyer’s agent who works with REO properties frequently. This way, your real estate agent knows the ins and outs of negotiating with a lender, how to calculate the cost of necessary repairs, how to work within the lender’s timeline and how to prepare you for what comes next.

Step 4: Refine Your List of Lender-Owned Properties

Once you are working with a buyer’s agent, you can start narrowing down your list of REO properties. Some major characteristics that should be taken into account include the following:

  • Listing price
  • Significant repairs needed (and the overall impact on price)
  • Location (and proximity to a school, workplace, or other desired area)
  • Number of bedrooms and bathrooms
  • Quality of neighborhood and surrounding areas
  • Community resources in the area, such as parks, gyms, places of worship, etc.
  • Lender-specific contingencies or requirements

Once you have taken your “must have” features into account, if you are left with multiple properties, refine your list based on “nice to have“ features like a large yard, a finished basement or an in-ground pool. Share your favorite homes with your agent, who can set up tours for properties at the top of your list.

Step 5: Get an Appraisal on Your Ideal Property

Some REO homes go for a great price, but buying a bank-owned home is not an automatic bargain. An REO property may be discounted based on an undesirable location or severe damage, or it can be overpriced based on comparable sales in the area or the lender’s desire to recoup the money spent. Either way, it’s a good idea to consider getting an appraisal so you know how the true value compares to the asking price.

An appraisal will help you get an objective estimated value, which you can compare to the bank’s asking price to see if the price is fair. During the appraisal, a licensed appraiser will take inventory of major systems (i.e., HVAC, plumbing), the structural integrity of the home, and check the prices of comparable homes in the area.

Note: An appraisal, which tries to estimate true home value, is different from a home inspection, which tries to take inventory of current and potential issues. An appraisal will help you decide whether or not the asking price is fair; an inspection will help you understand the repairs and renovations needed, which is critical for a bank-owned home.

Step 6: Make an Offer

Once you’ve found a property that is right for you, it’s time to make an offer.

Your agent will help you decide what kind of offer is likely to be accepted, put together the offer and submit it to the lender. Depending on the lender, you may need to submit special contract forms or paperwork. It is also common to attach an earnest money deposit check to your offer. This check (commonly 1-2% of the purchase price) is usually held in an escrow account until the purchase is finalized.

Make sure to consider the inspection process as you are making your offer. You may choose to make the offer contingent on inspection so you are protected if the inspection uncovers significant (and potentially dangerous) issues. If necessary repairs are well-documented, you can use that documentation to make your case for a low offer. Talk to your agent to understand your options when it comes to inspection contingencies.

Step 7: Have the Property Inspected

An inspection should be part of buying any home, but it is crucial for bank-owned homes. Real estate owned properties are typically sold “as is,” meaning the homebuyer is on the hook for any repairs — including major structural issues — that need to be fixed. An REO home may have been vacant for weeks or months, it may be neglected due to the homeowner’s financial trouble, or the previous owners may have removed items or damaged the property before vacating. Additionally, it’s possible that the property has gone through non-permitted renovations.

With that in mind, you need to be 100% sure you know what needs to be fixed before finalizing the loan. Having a home inspection done is the best way to take a thorough inventory of what repairs need to be made. The cost of these repairs should be added to the asking price so you have a better idea of what the home will cost you (and whether it’s still a good deal after repair costs are factored in).

In some cases, the lender may conduct an inspection when the home becomes bank-owned. If so, make sure you get a copy of the inspection report and review it thoroughly to decide if it is comprehensive enough to help make your decision.

Step 8: Negotiate Details

For better or worse, negotiating with a lender for a bank-owned home is different from negotiating with a homeowner.

On one hand, dealing with a bank instead of a homeowner means you don’t have to worry about emotional attachments to the home influencing the decision. You are also usually dealing with a very motivated lender who wants to get rid of the property (especially if it’s been on the market more than 30 days).

On the other hand, banks typically take longer to respond to an offer (or a question) than a homeowner because the offer must be reviewed by several individuals or companies. When the lender does respond, they will expect you to respond quickly to keep the process moving.

Working with a lender also means jumping through more corporate hoops. Banks are also more likely to present a counter offer because they must demonstrate they tried to get the best possible price for the property. In addition, the lender may ask you to sign a purchase addendum (which you should thoroughly review with your real estate agent or lawyer) and your final offer may be contingent on corporate approval.

Step 9: Finalize Your Loan

Now that you have submitted an offer, several things will be going on at once: the home inspection, negotiations with the bank, and the finalizing of your loan. During this time, you will be filling out paperwork and sharing information with your lender to ensure your loan is the right fit for the offer you have submitted.

Now is also the time to verify the status of the title. The bank typically clears the title before selling a bank-owned home but you can never assume this is the case. Contact the lender to see if the title has been cleared. If not, the lender may have a title company standing by to perform these services. If you are expected to do so yourself, hire a title company to run a full, insured title search before closing the deal.

Step 10: Closing

Once all of the paperwork is in place, you’ve wired in your down payment and your loan funds are in place, it’s time to close.

Closing on an REO property is similar to any other closing, with a few notable exceptions. If you’re unable to close by a predetermined closing date, the lender may charge a penalty for each day beyond the deadline. (You can try to avoid these delays by getting pre-approved for a loan and getting assurance that your financing will come through by a given date.)

At the closing, you and the lender representative will sign the documents necessary to transfer the house into your name and to finish your mortgage. After you’ve signed everything and the money goes to the right place, you’ll get the keys and a new title: homeowner.

Is an REO Home the Right Fit For You?

A bank-owned home can be a great opportunity for homebuyers or investors to find a good deal — but only if you’re willing to be patient and thorough. Dealing with a lender rather than an individual seller may mean slower response times and a more difficult negotiation, but it can lead to a potentially lower price from a motivated seller that has already handled outstanding taxes.

Browse PennyMac REO listings to see available bank-owned properties from PennyMac, or call a PennyMac Loan Officer to discuss your options today.

Source: pennymacusa.com

Paying Off Debt to Buy a House

A brown brick house at sunset

When you buy a house, a big part of a lender’s decision whether to approve your mortgage rests on whether or not you can afford it.If you have a lot of debt, the monthly payments on those obligations chip away at the total amount you can pay each month on a mortgage.

But that doesn’t mean it’s impossible to buy a house if you’re in debt. It’s just a bit more challenging. If you want to stop paying rent and enter the exciting world of homeownership, here’s how you can pay off debt to buy a house.

1. Calculate Your Debt to Income Ratio

Your debt-to-income ratio, often called DTI ratio, is a measurement that compares the amount of debt you have to your income. It helps determine how much you can actually afford when it comes to mortgage payments.

How Much Debt Can You Have and Still Qualify for a Mortgage?

Most lenders won’t approve you if your DTI is higher than around 43%.

For example, let’s say you make $52,000 a year. This means your gross income each month is around $4,333. If half your paycheck is devoted to paying off debts, then about $2,166 of your income goes towards paying off your various debts.

By these numbers, your DTI would be 50%. The bank would probably not approve you for a mortgage since your DTI is higher than the maximum 43%. To fix this problem, you can do one of two things: start making more money and/or lower your monthly recurring debt payments.

2. Find Ways to Decrease Your Debt

Consolidate Loans

Qualifying for a mortgage partially depends on what part of your monthly gross income is paid towards the minimum amount due on recurring bills. These might include credit card bills, student loan payments, car loans and other payments. Consolidating can be a way to reduce that amount.

What does consolidating mean? Consider an example where you have five credit card payments each month. Consolidating them means that instead of making five separate payments to individual lenders, you make onepayment each month.

If your credit is good enough, you may be able to get a consolidation loan with better terms. That means your one consolidated payment may be lower than the five payments combined. You can consolidate student loans, too, and get the same potential benefits.

After you’ve consolidated, you can re-calculate your DTI ratio. If it’s lower, you may fall below the DTI threshold required to be approved for a mortgage.

Pay Off or Pay Down Some Debt

If you make an effort to pay off or pay down some of your existing debt, this can help decrease your DTI ratio and make your financial picture look more favorable to lenders. It may be best to concentrate on paying off recurring debts, such as credit cards, to help your chances.

Is It Best to Pay Off Debt Before Buying a House?

There’s no one right answer to this question. It can depend on your mortgage lender. Your mortgage lender may want you to pay off debt before making a down payment while others may be okay with your DTI and want a larger down payment. If you’re under the 43% DTI and have a good credit history, you might consider working with a mortgage lender to find out what your options are.

Credit Repair

If any debts listed on your credit report aren’t yours, this could be hurting your overall financial health. Make sure to closely examine the details of your credit report and make sure the accounts listed are actually ones you’re responsible for. If you do notice errors on your credit report, you can work to repair your credit by disputing the entries.

3. Find Ways to Increase Your Income

One of the ways to make your DTI more favorable is to increase your income. You can usually do this by either getting a better paying job or by getting a second job if you have the means. If you’re married and are applying for a mortgage with your joint income, perhaps your spouse can get a job to help increase their income. One drawback to this solution is that it’s a long-term solution and not a short-term one. Getting a new job, whether primary or secondary, takes time and effort.

4. Consider Making a Down Payment

Contrary to popular belief, a 20% down payment on a home isn’t required in many cases. FHA loans, for instance, only require 3.5% down, and some mortgage lenders may only ask for 5% down on a conventional loan.

However, keep in mind that the more you put down upfront, the less your monthly payments are and the lower your interest rate is likely to be. If you can put more money down, it makes the mortgage more affordable. If you’re hovering at the higher end of an acceptable DTI ratio, that may make a difference.

Looking at the Big Picture

When you’re ready to buy a house, it’s important to consider your level of debt, how much money you have coming in and your job security. If you’re able to consolidate your debt and get lower monthly payments as a result, your job is well-paying and seems secure and your credit is excellent, you can probably buy a home even if you have other debts.

Assess the Risks

Remember that just because you might qualify for a home loan doesn’t mean you should buy a house. Stretching your limits to meet that 43% DTI ratio can be risky unless you foresee your income continuing to rise oryou know any debt obligations you have are set to be paid off in the future.

Can Paying Off Debt Hurt My Credit Score?

Most of the time, paying off debt has a neutral or positive impact to your credit score. First, you decrease your credit utilization, which accounts for 30% of your credit score. A lower credit utilization can bring up your score. Second, you show the lender that you have the means to pay off debts, which can be a positive factor in whether you’re approved.

However, in a few cases, paying off debt could lower your score. If you pay off old accounts, you could change the age of your credit. How old your accounts are play a role in your score. You could also reduce your credit mix, which also factors into your score.

Neither of these factors plays as large a role as credit utilization, though. And if your mortgage company wants to see you with less outstanding debt, a tiny and temporary hit to your credit score may be worth getting approved for a loan.

To find out more about your credit score and where you stand with financial health, sign up for a free Credit Report Card today. You’ll get feedback about the five major areas that impact your score and how you can improve them before applying for a mortgage.

The post Paying Off Debt to Buy a House appeared first on Credit.com.

Source: credit.com

Alaska First-Time Homebuyer Programs

The Alaska Housing Finance Corporation (AHFC) offers low-interest mortgage loans, and down payment and closing cost assistance to first-time home buyers and repeat buyers. This article takes a look at the requirements and provides links to the homebuyer program page for every city in Alaska. Get Pre-Approved for a Mortgage and Check Rates If you […]

The post Alaska First-Time Homebuyer Programs appeared first on The Lenders Network.

Source: thelendersnetwork.com

Choosing the Best Mortgage Lender

The process of finding the best mortgage loan begins with finding the best mortgage lender. They can ensure this process runs smoothly, you get the best rates, and any issues are dealt with in a timely and satisfactory manner.

But with so many different lenders, how do you know which one is right for you?

How to Find the Best Lender and Get the Best Mortgage Rates

The following tips should help you to find the best mortgage rates and lenders, potentially saving you a great deal of time, stress, and money.

1. Improve Your Credit Score

Your credit score is an important part of the mortgage process and is considered for all loans and new lines of credit. It tells lenders what kind of borrower you are and is used to determine the likelihood that you will default on your debt. If the likelihood is high and your credit score is low, you may be refused a new mortgage altogether.

There are types of mortgages that don’t require high credit scores, including those backed by the FHA. However, your credit score will still be considered and will influence the interest rate you’re offered.

2. Improve Your Debt-to-Income Ratio

Can your finances bear the weight of a new loan, one that comes with a large upfront payment and a large monthly payment? By calculating your debt-to-income ratio you can find out.

Your debt-to-income ratio estimates your affordability by comparing your monthly debt payments to your gross monthly income. For example, if you have an income of $3,000 and monthly debt payments of $600, your debt-to-income ratio is 20%, as $600 is 20% of $3,000.

Anything under 43% should be accepted once your mortgage payments have been added to the total. Some mortgage lenders will go as high as 50%. However, the higher it is, the more at-risk you are by adding new debt to your total, because once you add living costs and bills to the mix, you’ll be left with very little cash and will be one unexpected bill from complete disaster.

Reduce your debt-to-income ratio as much as possible before you apply for any new credit.

3. Reduce Your Budget

The right loan amount is more important than the right mortgage lender. The majority of borrowers overestimate how much they can afford, stretch their budgets to the maximum, and suffer the consequences years down the line. 

Most homeowners have regrets and for many, the biggest regret is not buying a cheaper house and believing they can afford more than they actually can. Your monthly mortgage payment shouldn’t stretch you too thin, nor should it leave you crippled financially. There should be some room to maneuver, some room to make extra payments when you can and to use that money for other bills and expenses when you can’t.

Think twice about spending big on your dream home and look at the benefits of getting a cheaper house. For instance, you’ll require a smaller mortgage total, could secure a better interest rate, can get a shorter term, and, therefore, will pay much less over the life of the loan.

A fixed-rate mortgage over 15-years will cost less than the same rate over 40-years. With the former, as much as 60% of your initial monthly payment could go towards the principal, and that will increase every month from there. With the latter, you could be paying just 20% to 30% towards your principal, which means you’ll clear equity at a snail’s pace.

4. Think About Your Options

You have more options than you realize when it comes to mortgage lenders and loan programs. These options include:

Conventional Loans

A conventional home loan is one that’s not backed by any government agency and typically requires a 20% down payment. These loans often used a fixed rate of interest but there are also adjustable-rate versions known as Hybrid ARMs.

Conventional loans can be conforming, which means they are less than the maximum limits set by the Federal Housing Finance Agency and meet the standards required by Fannie Mae or Freddie Mac, or non-conforming. There are also low down payment versions where as little as 3% is required. However, in such cases, borrowers will be asked to pay Private Mortgage Insurance (PMI) until 20% equity is attained.

FHA Loans

​FHA loans are backed by the Federal Housing Administration and offered by traditional lenders. The down payments are smaller and there is built-in insurance protection to cover the lender in the event that the borrower fails to keep up with monthly mortgage payments.

Borrowers need a credit score of 500 and a down payment of 10% or a credit score of 580 and a down payment of 3.5% to get an FHA loan. As a result of these reduced requirements, FHA loans may be better suited for most first-time home buyers, but that doesn’t necessarily make an FHA loan the best choice. What’s more, as they are offered by multiple mortgage companies, you still need to find the right lender and lock-in the best rate.

VA Loans

Offered by the Department of Veteran Affairs, these loans make it easier for military veterans and active personnel to get home loans. You can get a VA loan with no down payment and 90% of borrowers do just that. However, as with all other types of loans, by increasing your down payment you can reduce your rate.

USDA Loans

Offered by the United States Department of Agriculture, these loans don’t require a down payment and can be used for homes in rural areas.

Down Payments

One of the most important aspects of the home buying process is the down payment, which is the amount that you pay upfront. The higher this amount is, the lower your mortgage loan needs to be and the less interest you will pay as a result. What’s more, a down payment can also take you above the magical 20% mark with a conventional loan. 

Not only will this massively reduce your total interest, but it will negate the need for Private Mortgage Insurance (PMI) which could cost you as much as $100 a month on the average house purchase.

Many borrowers overlook these benefits because they focus on the short term. They don’t care if they are paying 50% more over the life of the loan, as the house is still technically theirs and the end result will be exactly the same. If they’re not paying much more per month and don’t notice the impact on a month to month basis, what’s the point?

The point it, you could save huge sums of money over the life of the loan and own 100% of your house much sooner. This gives you more options in the future with regards to equity loans, cash-out refinancing, and more. 

It also prevents any issues for your heirs when if you die before the mortgage clears in full. This way, you’re leaving them a house that is fully paid off and can be passed on directly, as opposed to one that has debt attached and needs to be handed down with that debt and that responsibility.

5. Compare and Get Pre-Approval

The next step is to work with mortgage lenders and mortgage brokers, see which ones work best for you and can provide you with what you need. You can look into online lenders, banks, and credit unions, check online reviews, speak with friends and family, ask experts, and generally do everything you can to find the best one. Ultimately, however, it all comes down to what they can offer you.

Once you find the one that is right for you, the one that offers the lowest rate and gives you what you need, you can get a pre-approval. The lender will check your credit report and give you a loan estimate, which will give you an idea of how much you can borrow and what you can expect to pay.

It’s worth noting, however, that this pre-approval isn’t set in stone. It is subject to additional checks performed prior to the loan. If you apply for a lot of credit cards and lose your job between pre-approval and mortgage, you’ll likely be rejected and that contract will be ripped up.

6. Check the Small Print

Don’t let your excitement get the better of you, don’t be too eager. Read the small print, make sure you understand the loan terms and know what sort of origination fees and other closing costs you’ll be expected to pay. These differ from lender to lender and some of them can be negotiated, so don’t assume that they are standard across the board and can’t be changed.

If you’re not sure about any step of the process, ask questions. If you feel a little out of your depth, do some more research. We have countless articles on mortgages here and can help with everything from mortgage terms to the actual mortgage application, after which we can guide you towards the best strategies for paying off your balance.

Choosing the Best Mortgage Lender is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

First Time Home Buyer Programs for Veterans

Numerous programs exist to help veterans and service members who are first-time buyers with their closing costs and other expenses.

Indeed, it’s perfectly possible for those who are eligible for VA home loans to become homeowners with very little — or even nothing — in the way of savings.

Check today's VA rates by completing this quick online form.

Advantages of VA home loans for first-time buyers

The most famous housing benefit associated with the VA loan program is the zero down payment requirement. That can be hugely valuable for first time home buyers.

But it’s just one of a whole range of advantages that come with a VA home loan. Here are some more.

Low mortgage rates for VA loans

According to the Ellie Mae Origination Report, in October 2020, the average rate for a 30-year, fixed-rate mortgage backed by the VA was just 2.75%. That compares with 3.01% for conventional loans (ones not backed by the government) and 3.01% for FHA loans.

So VA home loans have lower rates. And that wasn’t just a one-time fluke. VA mortgage rates are lower on average than those for other loans — month after month, year after year.

Lower funding fees for first-time buyers

When you buy a home with a VA loan, you need to pay a funding fee. However, you can choose to pay it on closing or add it to your loan so you pay it down with the rest of your mortgage.

But, as a first-time buyer, you get a lower rate. For you, it’s 2.3% of the loan amount (instead of 3.6% for repeat purchasers) if you make a down payment between zero and 5%.

That’s $2,300 for every $100,000 borrowed, which can be wrapped into the loan amount. It’s a savings of $1,300 per $100,000 versus repeat buyers.

Put down more and your funding fee drops whether or not you’re a first-time buyer. So it’s 1.65% if you put down 5% or more, and 1.4% if you put down 10% or more.

Although it might seem like just another fee, the VA funding fee is well worth the cost since it buys you the significant financial benefits of a VA home loan.

No mortgage insurance for VA loans

Mortgage insurance is what non-VA borrowers usually have to pay if they don’t have a 20 percent down payment. Private mortgage insurance typically takes the form of a payment on closing, along with monthly payments going forward.

That’s no small benefit since mortgage insurance can represent a significant amount of money. For example, FHA home buyers pay over $130 per month on a $200,000 loan — for years.

Mortgage insurance vs funding fee

Let’s do a side-by-side comparison of the mortgage insurance vs. funding fee costs of a $200,000 loan:

  VA Loan FHA Loan
Payable on closing $4,600* $3,500
Payable monthly $0 $133 per month**
Paid after five years (60 months) $4,600 $11,500

*First-time buyer rate with zero down payment: 2.3%. $200,000 x 2.3% = $4,600
** $200,000 loan x 0.8% annual mortgage insurance = $1,600 per year. That’s $8,000 over five years. $1,600 divided by 12 months = $133.33 every month

It’s clear that mortgage insurance can be a real financial burden — and that the funding fee is a great deal for eligible borrowers.

Better yet, that makes a difference to your buying power. Because, absent mortgage insurance, you’re $133 a month better off. And that means you can afford a higher home purchase price with the same housing expenses.

Ready to buy a home? Start here.

Types of first-time homebuyer programs for VA loans

You may find two main types of assistance as a first-time buyer:

  1. Down payment or closing cost assistance
  2. Mortgage credit certificates

Down payment and closing cost assistance

There are thousands of down payment assistance programs (DAPs) across the United States and that includes at least one in each state. Many states have several.

Each DAP is independent and sets its own rules and offerings. So, unfortunately, we can’t say, “You’re in line to get this …” because “this” varies so much from program to program.

Some help with closing costs as well and down payments. Some give you a low-interest loan that you pay down in parallel with your main mortgage. Others give “forgivable” loans that you don’t pay back — providing you stay in the home for a set period. And some give outright grants: effectively gifts.

Mortgage credit certificates (MCCs)

The name pretty much says it all. In some states, the housing finance agency or its equivalent issues mortgage credit certificates (MCCs) to homebuyers — especially first-time ones — that let them pay less in federal taxes.

The Federal Deposit Insurance Corporation explains on its website (PDF):

“MCCs are issued directly to qualifying homebuyers who are then entitled to take a nonrefundable federal tax credit equal to a specified percentage of the interest paid on their mortgage loan each year. These tax credits can be taken at the time the borrowers file their tax returns. Alternatively, borrowers can amend their W-4 tax withholding forms from their employer to reduce the amount of federal income tax withheld from their paychecks in order to receive the benefit on a monthly basis.”

In other words, MCCs allow you to pay less federal tax. And that means you can afford a better, more expensive home than the one you could get without them.

Speak with a mortgage specialist today.

Dream Makers program

Unlike most DAPs, the Dream Makers Home Buying Assistance program from the PenFed Foundation is open only to those who’ve provided active duty, reserve, national guard, or veteran service.

You must also be a first-time buyer, although that’s defined as those who haven’t owned their own home within the previous three years. And you may qualify if you’ve lost your home to a disaster or a divorce.

But this help isn’t intended for the rich. Your income must be equal to or less than 80% of the median for the area in which you’re buying. However, that’s adjustable according to the size of your household. So if you have a spouse or dependents, you can earn more.

It’s all a bit complicated. So it’s just as well that PenFed has a lookup tool (on the US Dept. of Housing and Urban Development (HUD’s) website) that lets you discover the income limits and median family income where you want to buy.

What help does the Dream Makers program offer?

You’ll need a mortgage pre-approval or pre-qualification letter from an established lender to proceed. But then you stand to receive funds from the foundation as follows:

“The amount of the grant is determined by a 2-to-1 match of the borrower’s contribution to their mortgage in earnest deposit and cash brought at closing with a maximum grant of $5,000. The borrower must contribute a minimum of $500. No cash back can be received by the borrower at closing.”

So supposing you have $2,000 saved. The foundation could add $4,000 (2-to-1 match), giving you $6,000. In many places, that might easily be enough to see you become a homeowner.

You don’t have to use that money for a VA loan. You could opt for an FHA or conventional mortgage. But, given the advantages that come with VA loans, why would you?

The Dream Makers program is probably the most famous of those offering assistance to vets and service members. But there are plenty of others, many of which are locally based.

For example, residents of New York should check out that state’s Homes for Veterans program. That can provide up to $15,000 for those who qualify, whether or not they’re first-time buyers.

Start your home buying journey here.

State-By-State Home Buyer Assistance Programs

We promised to tell you how to find those thousands of DAPs — and the MCC programs that are available in many states.

It takes a little work to find all the ones that might be able to help you. But you should be able to track them down from the comfort of your own home, online and over the phone.

A good place to start is the HUD local homebuying programs lookup tool. Select the state where you want to buy then select a link and look for “assistance programs.”

Your best starting point is probably the state’s housing finance office though it might be called something slightly different. You should find details of programs or just a list of counties with phone numbers. Call the number where you want to buy, explain your situation and ask for advice. It’s their agents’ jobs to point you to local, state, or national programs that can help you.

If you look in the right place, you could secure some very worthwhile financial help to assist you in buying your first home.

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Source: militaryvaloan.com