Friday, July 17, 2009

Update on Real Estate Financing

It is the old Chicken or the Egg dilemma, Catch 22. We are faced with a Real Estate crisis comparable to the Great Depression of the "30's" . So what does the Fed do but tighten all the loan products out there. They have put harder rules out to stop all these bad loans. The problem is common sense has gone right out the door with it.
Getting a commercial loan is like finding gold in the mountains. This is so stupid, because we have all these foreclosed homes that could become investments and retirement vehicles for those who still have a job. There are no investor loans out there that don't rob you blind. The banks that are giving investor or commercial loans want "A" property. New development. So what happens to all this foreclosed property? If you don't have cash you can't buy. I would love to take out my 401 k, whats left of it any way and invest it in one of these bank owned foreclosures. My goal would be to pay it off in the next ten years so that I might have a chance to retire and use the rental income to live on. The old days if you had 20 to 25% down on an investment property good credit,and a relationship with the bank you could get a loan on that property based on the income flow of the property. I just had a bank turn down a perfectly good loan because the bank decided they didn't like the property. The buyers had excellent credit and income. The property brought in more than three times the amount of the loan payment, the buyers have other income property, but no they turned it down 6 weeks after it sat on the banker desk! The terms were horrible. Either they were willing to give a 6.5% deal adjusted every three years amortized over 20 years but only a 15 year commitment with nasty pre payment penalties or a 4.25% one year adjustable with no pre payment penalties amortized over 20 year with only a 10 year commitment. Now I know some banks got burned,but the loans they were doing had no common sense. People with sketchy credit and unverified income got low down payment loans with nasty ARM adjustments. I am no rocket scientist but it seems to me that if we want to heal this housing crisis we need to put some loan packages together that are targeted toward getting rid of inventory. We can couple this with an incentive to buy the neighborhood foreclosure and use your IRA to fund it. This investment then becomes another investment tool for the future of the buyer.This will help fix the next crisis of a bunch of aging baby boomers with no income to support themselves in their golden years. Maybe we need to speak up and start a grass roots campaign before this crisis gets out of hand. If you can't finance these properties the values will continue to fall.
If you are going to buy one of these to live in you can get an FHA 203 k loan at 3% down and if you qualify you can get a 2% grant from OHFA so that you only need 1% to buy and then with the 203 k loan you can finance the repairs into the original loan. This avoids second mortgages and works extremely well. They should have this package for the investor but require 20% down. I feel if someone has shown good credit and the skill of owning rental property they should be able to qualify for an FHA 203 k investor loan. The problem is there isn't one. Maybe if we write our congressman and use the term FHA 203 K investor loan long enough they will make it happen.Kind of like putting the cart before the horse!

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