Wednesday, April 30th, 2008
I have had several conversations with investors who are worried about what many are experiencing currently. With core interest rates being lowered by the FOMC (another 25-basis point cut today), foreclosures are standing at all time highs and sub-prime mortgages being completely eradicated by the likes of Freddie Mac, banks are getting quite picky about who they lend money to.
Even in today’s market where you can get an agreement to acquire a property for 20 to 25% below asking price (and appraised value), banks are not quick to lend money for real estate right now.
So what is one to do?
Here are a few things to keep in mind and to help you close on the funding you need to complete your deals.
- Keep your credit score high – This cannot be stressed enough. I think you know why.
- FHA Loans are our friends – If you haven’t noticed, with the FHA raising its funding percentage to 100% LTV (Loan to Value), the FHA has assumed the majority of the sub prime market. This means that brokers can be more successful with approvals through the FHA than they can with Citibank or GMAC.
- Look for alternative funding methods – Private equity lenders, family, friends and donations can be quite significant if solicited correctly. In addition, repayment plans with these sources are usually more lenient and flexible.
- Hard Money Lenders can take up the slack – Use hard money lenders when you positively need money. Also, pay close attention to cash flows and exactly when you plan to realize profits in the deals you put together. But be careful, hard money lenders may charge higher interest rates or request that they assume the property if you fail to repay.
- Build bank relationships – If your banker knows you, personally, based on previous deals and timely repayment, you will get benefit of the doubt on subsequent deals. The old saying, “it’s not what you know, it’s who you know…” holds true in this regard. This relationship can start with your own home and mortgage payments.
QUESTIONS? COMMENTS?
|
|
|
