Strategies for Getting Started in Real Estate HTML version

Getting Stareted in Real Estate
overnight just by taking cash advances.” They might say that $10,000 is as much
potential debt as they would like to see. You would best be served by reducing
your total ability to assume revolving debt overnight to a $10,000 limit. After you
close, you can raise it if you have to.
The more cash you can personally put into a deal, the more favorable lenders will
look upon you. You may be offered lower interest rates, higher qualifying ratios,
maybe even a toaster. That brings us to PMI, or private mortgage insurance. This
is an ugly product you pay for to protect the lender. Basically, what it does is
cover the top 20 percent of your loan.
Let’s say you were able to put down 3 percent to purchase a property but you
didn’t make your payments like you promised in your lender’s mortgage note.
The bank can foreclose and take back your property, and sell it quickly for 80
percent of its true value because you have given them 3 percent down and your
PMI policy will pay them the other 17 percent. If you can afford to self-insure,
then put down 20 percent of the value of the house when you buy it. That way,
you don’t throw away your money on insurance that is no benefit to you. You get
a lower house payment and the bank still has their margin of safety with no
mortgage insurance required. (Don’t confuse this with homeowner’s insurance.)
15- or 30-Year Mortgage Pros and Cons
A standard 30-year mortgage is often easier to qualify for since your
payments are lower, but in the long run you’re going to pay a lot more
interest to your lender. If that’s all you can qualify for, take it because
you can still shorten the duration of your loan by paying extra money
toward the principle when you can afford to. Always ask if there are
any prepayment penalties. These clauses prevent you from
accelerating your mortgage, or rather paying it off faster than the lender wants
without paying a penalty. Most of these clauses have been outlawed but they do
exist. After all, if you sold your house before the 30 years were up, they could
penalize you for early repayment. That clause was and is a bad deal. Don’t accept
The 15-year mortgage saves you 15 years of payments but it takes more income to
qualify for it and your monthly payments are higher, and unlike the 30-year