Banks are ‘Full of it’

The media has been bombarding us about the “mortgage meltdown” or the credit crisis, and banks have been wringing their hands and denying investors credit because of the terrible situation–Hypocrites! It’s the institutional lenders that caused the credit crisis by handing out adjustable rate mortgages (ARM’s) like kids in a candy store.

What they did was actually quite clever–they exploited a loophole in their own underwriting rules. You see, one of the key factors about whether a borrower will qualify for a loan is whether their income is sufficient to pay the mortgage they will be taking on. Now, with ARM’s the initial mortgage payment for the first 6 months, 1year or longer, is very low. It’s the teaser rate. This is the rate the underwriters used to qualify applicants. There were situations where a buyer earnign $30K could qualify to buy a $500,000 home!

However, when those rates readjusted to some base rate (prime, libor) + 5 to 10 points, the payments skyrocketed, often to many times the monthly payment. For most, it was “game over”. Foreclosures and bankruptcies ballooned to the full-fledged “Foreclosurethon” we have today.

Now the banks have “tightened” their lending requirements to show how concerned they are. My prediction is that this will last for about a year. Then, there will be some new scheme, because unless lenders lend, they can’t make money.

By the way, if you want to know how to fund every deal you do, I’ve created the absolute best and most comprehensive funding manual you will ever see called “Show Me the Money“. It contains step by step instructions on how to get money from private lenders, high net worth individuals, lines of credit, financial institutions, buyers, sellers, notes, and much, much more. And, it’s a ridiculously low investment (for now!). Click here and Get in NOW.

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“Nothing Down” Can Cost a lot

Years ago Robert Allen introduced the concept of “nothing down”, meaning being able to acquire property without any cash out of your pocket for the purchase. For real estate investors today, these deals take the form of taking over a homeowner’s property “subject to” meaning that you the buyer gets a deed to the house, and only has to pay the former owner’s mortgage to avoid foreclosure. There are also seller financing deals where the seller creates a note which obligates to the buyer to certain payment terms.

Both these strategies can work well…If it’s a good deal. I mean that there is often a fine line between taking over someone’s property, and taking over someone’s problem. Some of the problem’s the unwary investor can encounter are:

1. additional liens that the seller didn’t reveal

2. mortgage arrearages the buyer will have to satisfy

3. repairs and operating expenses. And these repairs can be a lot more than the buyer counted on.

4. back taxes and unpaid utility bills

5. Not being able to rent the unit for enough to create a positive cashflow.

6. no financial “safety net” if things don’t work out as planned (holding the property without a tenant, eviction costs, etc.)

Bottomline - don’t be suckered into getting a “free” house, because it can seriously drain your finances unless you’ve done your homework and have done the math. How do I know this?? This is why I developed my Expert Deal Evaluation Tool. It’s an expert system that will tell you to the penny your projected costs, profit, cashflow, and quantify the risks so that you can always choose the best deal and terms. Click here to get it now.