One of the best things you can do for your self is getting a pre-approval

Getting a pre-approval for mortgage financing before you start to look for a home is the best way to go, whether you are buying a property to live in or as an investment

If you want a get a clear-cut sense of how much you are eligible to borrow then you want to get a pre-approval. A pre-approval will also assure you of a locked-in mortgage rate for a set period of time, so there is no risk of any interest rate increases while you are house hunting. When you use a mortgage broker, the broker may be able to obtain a longer pre-approval rate hold.

Remember that the property you intend to purchase – along with your supporting information (such as income, down payment and employment history) will have to meet the financial institution’s criteria to be approved for lending. An important note to remember is that a pre-approval is not a guarantee of financing, and does not eliminate the need to make a conditional offer. When giving details to your mortgage broker or agent be truthful, you don’t need to have your deal held up because you gave inaccurate information.

Hans

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If you have equity built up why not refinance then use the money for purchasing investment properties such as buying foreclosures or tax liens.

There are many advantages to a mortgage refinance to consider that are available to you. If refinancing is going to be a suitable option for your financial needs then you should know that you can get many different refinancing benefits, including lowering your monthly payments and consolidating your debts, among other things.

One of the best refinancing benefits that you can get in most cases is that you can have a lower level of monthly payments for the loans that you already owe. When you refinance your home you can get lower interest rates and therefore lower monthly payments as a result. This works in that every month you will send in a mortgage payment which will help to repay part of the interest and a part of the principle amount of the loan that you took out in the past. With refinancing you will be able to reduce the monthly payments that you have to make for both the interest and principle.

The reason why there are lower payments is because when you refinance your home you will be taking out a second mortgage that will help you to pay off the first mortgage. If the first mortgage was taken out many years ago and you had already paid off a good amount of it you will be able to take out a smaller mortgage because your debts will be smaller than what they were when you took out the first mortgage.

Debt consolidation is another of the refinancing benefits that you will be able to get. This is one of the refinancing benefits that will be especially useful for those who have high interest debts. These debts can include credit card debts in many cases. The equity that you have already will be used as collateral to help you get a lower interest loan as one of the best refinancing benefits. Of course, you won’t immediately get an increase in savings through refinancing for this purpose.

Debt consolidation will be useful in that it will help to make it easier for you to pay off all of your bills. It can be difficult to take care of all of the bills that you have in one month, so with debt consolidation you will be simplifying the payments that you have to make.

The last of the refinancing benefits is that you can use the equity that you already have built up. You can cash out the equity for various purposes, including financing your future education needs or improving your home. A line of credit with equity can be taken out, but the money will not be sent to you all at once. Don’t forget that while this is one of the best refinancing benefits you are using your home as collateral.

Talk with your tax accountant and find out if it would be to your advantage to use money through refinancing for real estate investing. With all the opportunities that are out there why not see if you can capitalize on them.

Hans

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I’ve written 5 important points that you need to be aware of when getting into real estate investing.

1. Don’t confuse an appraisal with a home inspection – you need both! An appraisal determines the worth of the property by estimating the market value of the land and building. A home inspection inspects the adequacy and condition of the building and all major systems.

2. Place conditions on your offer. Conditions provide you with the flexibility of withdrawing your offer if you are unable to obtain the necessary financing, or if the inspection reveals structural problems with the property. Even with pre-approval, Investors who make an offer without conditions do so at their own risk.

3. Understand closing costs. When buying a home, it pays to be informed about closing costs, which can represent up to three per cent of the purchase price, including: land transfer tax, lawyer’s fees, appraisal fees, title insurance and home inspection fees.

4. Have a firm strategy for a bidding war. In a competitive market, it is not uncommon for vendors to hold offers off until a particular date. This means you could be bidding for a property along with several other parties. It’s easy to get caught up in the emotion of the bidding war, so know your maximum price before you bid and stick to it!

5. Don’t do it alone – explore the benefits offered by mortgage brokers. Mortgage brokers act as a one-stop shop for planning advice and the best rates

Hans

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I thought I’d take this opportunity to explain what lenders are looking for before they will lend money. If you qualify they will finance your purchase.

THE FIVE “C’s” of CREDIT

Lenders are in business to make (not lose) money. Consequently when a bank lends money it wants to ensure that it will get paid back. To maximize the possibility of being paid back, the bank wants to make sure that there is sufficient assurance that a person can and will pay back a loan. The lender must consider the 5 “C’s” of Credit each time it makes a loan.

Character is the general impression you make on the potential lender. The lender will form a subjective opinion as to whether or not you are sufficiently trustworthy to repay the loan. Your educational background and experience in business will be reviewed. The length of time at your current employment and your current residence will be considered. The longer you have been at both, the higher you will score on the character scale.

Collateral is additional security you can provide the lender. In real estate transactions this generally means the property. If for some reason, you cannot repay the mortgage, the bank wants to know that the real estate the mortgage was taken out for, is good and marketable real estate. A real estate appraisal will determine the value for the property in today’s market. The appraisal will also indicate to the lender the type of property being financed and any deficiencies that may affect the ability to re-sell, in case of default. Generally, a property located in a North York sub-division is considered a better risk than a farm in rural Ontario. Simply, there are more buyers for the home in the city than for a rural farm and therefore is easier to re-sell.

Capital is the money you personally have invested in the purchase, otherwise known as your down payment. The more of your own money you invest as a down payment, the more likely that you will do all you can to maintain your payment obligations. This fact was evident during the recession of the 90s where a large number of the power of sale properties, were at one time, purchased with small down payments. Capital is also reflected by your ability and willingness to save money and accumulate assets. The higher your net worth, the more you have as a cushion for repayment in the event you run into a financial set-back.

Credit is the evaluation of your habits in performing credit obligations. The information about your credit history is stored at the “credit bureau” and indicates how well you paid your bills over the last 6 years. All major credit cards, auto loans, leases etc. are reported to the credit bureau. A lender will evaluate your ability to maintain your obligations and try and determine how well you live within your means. Some individuals make the mistake of not paying the minimum monthly obligations on loans and credit cards with the expectation of making a larger payment the following month. These missed payments appear on their credit report branding them as chronic “late-payers” for the next 6 years.

Capacity to repay the loan is probably the most critical of the five factors. The lender will want to know exactly how you intend to repay the loan. The lender will consider your income as it relates to the loan that you are applying for. Does the monthly carrying costs of the loan represent less than or equal to 32% of your total monthly income? If it is, the probability of you successfully repaying the loan is fairly high. Prospective lenders will also want to know about any other sources of income you may have to repay the loan, if your steady income stream is interrupted.

A traditional bank may not even lend to someone who is looking to purchase an investment property. Banks mortgage products are continuously changing with today’s economics. My suggestion is to use a mortgage broker and let them find a lender for you.

Hans Anderson

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