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to refi or not to refi

To refi, or not to refi: That is the question.

And we get this question a LOT. “Does it make sense to refi if I only plan to hold onto the property for a few more years?”

Earlier this week, we discussed the power of refinancing (and the math behind it.) Do the numbers support taking on extra years of payments?

For some of you, they do. For others, you might be left thinking, “But wait! What if I’m not going to keep the property for 24 or 30 years? At what point does it actually make sense to refinance?”

However, if you are not going to keep the property through the next 30 years, you’ll need to look hard at what the costs will be over the expected period. The key here is determining which path will cost you more money and which one will keep more in your pocket.

GOAL: Keep more money in your life and less in the hands of bankers.

Let’s look at an example:

You’re planning to keep a property for 3 years and then sell it. The question is, what will put more money in your pocket and cost you the least over those next 3 years?

Here is how we figure this out:

Step 1: Ask your mortgage company to run an amortization chart on your current loan and your new loan.

2: Then, pull your principal and interest from your current mortgage company’s website.

3: Next, ask your mortgage broker to give you the principal and interest from the new loan.

4: On each loan, multiply the payments by 36 (the 3-year window before you sell the property) and add the balance of your loan at the end of 3 years.

5. Lastly, compare notes and find out what would be the lowest amount. This is the one that will keep more money in your pocket.

Ultimately, this is just a pure and simple scenario of determining exactly how much the loan will take out of your pocket over the course of 3 years. We’re not looking at monthly cash flow, because true dollars out are pure and simple. This is your true cost out of your pocket.

If you need help, we’re happy to step in. Give us a call, and we can run all the numbers for you and see if it makes sense.  If it does, we can help you out even further by securing low rates and costs on your refi!

*All non-commercial and construction loans offered by TNS Loans NMLS #1719349

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Conventional mortgage rates are showing signs of improving.

Thankfully, it’s looking like another great week for standard conventional mortgage rates.

So far this week, all evidence is pointing towards increasing stability and improvements on the conventional mortgage front.

  • Depending on whether you pay your mortgage person points or you have them wrapped into your loan, rates fluctuate between low 3’s and low 4’s.
  • We’re seeing great rates on the conforming side.
  • Every week, the non-traditional loans are reappearing with increased frequency.  
  • Some lenders have decreased credit score requirements to 680.
  • Rates are still on average above 7%, but signs are showing that they will drop soon.
  • LTVs are inching higher, but not to the degree we have seen them in the past.

In short: conventional mortgage interest rates are really good. But what does that mean for you?

How do you know when it’s smart to refinance your rental (or any) property?

 

Let’s face it: as rates drop, the question of whether or not to refinance runs through all our minds.

Would you like to find out (without the sales pitch from your mortgage person?)

Anyone can crunch the numbers in just a few minutes with just a few items.

Yes. It involves math. But we swear it’s EASY

For now, all you need is a piece a paper, a pen, a calculator, and your mortgage information. (You can pull this info directly from your mortgage company’s website). Then, follow these three steps:

Step 1: Locate the amount you pay monthly for principal and interest. (Ignore everything but your principal and interest (i.e. taxes and insurance).

Step 2: Locate the number of months remaining on your loan. 

Step 3: Multiply your monthly payment by the number of months you have left on your loan. 

That’s it! 

 

Let’s look at an example:

A: Your monthly principal and interest payment is $1,200

B: You have 288 payments left on your loan.  

C: $1,200.00 X 288 = $345,600 

(Scary sometimes to see how much you really owe, isn’t it? Don’t panic.)

Now, let’s say that you have an opportunity to refinance and lower your interest rate with a new payment of $1,100. Should you do it?

 

Let’s take a look:

On your new loan, you’d pay $1,100.00 for 30 years (or 360 months). That’s $1,100.00 x 360 = $396,000.00

If you refinance, you’d increase your monthly cash flow $100.00. However, as a result, you’d pay an extra $50,400.00 over the life of your loan! 

So, is the extra $100/month worth an extra 72 months (6 years) of mortgage payments? Does refinancing make sense for you financially? Well, that’s up to you.

Perhaps cash flow is more important at this time in your business life and paying the extra years is ok with you. That’s a decision only you can make. At least when you know all the numbers, you can make your call an educated one.

 

Try it on all your loans and find out what makes sense for you!

 

Your payments __________________ Months remaining _______________

Total remaining to be paid ___________________

 

Okay, we’re sure a few questions are swimming around in your head, so we’ll see if we can answer some of the most common ones upfront:

Q: “What if I’m not going to keep the property for 24 or 30 years? At what point does it make sense to refinance?” 

A: That’s coming up in the next article.

 

Q: “What if I want to use those savings and pay down my mortgage?” 

A: We’ll be addressing that in a future article as well.

 

Q: “What is my breakeven interest rate?”

A: There are so many paths you can go down and we’ll cover as many as we can. We’ll also provide a tool for you to run all these scenarios.

 

Today, it’s all about knowing your raw numbers.

Want an investor tool that can run these numbers (plus your breakeven rate and many more) in seconds? We have one in the works. Just get on our contact list, and we’ll let you know when it’s ready!

By knowing these numbers, you can save tens of thousands on each refinance.

 

Don’t feel like doing this or worry the math might overwhelm you? No worries! Shoot us an email with your current statement and we can run them for you.

*All non-commercial and construction loans offered by TNS Loans NMLS #1719349

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Mortgage industry is showing signs of recovery.

The Mortgage Market is Showing Signs of Being on the Mend.

What We Know:

The mortgage market is finally showing signs that it is starting to recover and heal. As states begin to lift travel and business closure restrictions and reopen for commerce, lenders appear to be relaxing some of their restrictions in-kind.  Last week, we welcomed back a few lenders offering loans outside the standard conventional box.

This week, we see even more positive progress, such as lenders expanding the LTVs up to 70% on their investor cash flow loans (based on credit score and lease.)

We are noticing the lending requirements are a little more restrictive than before Covid-19, but at least additional options are making a comeback. Hopefully, this upward trend will continue over the following weeks.

What You Can Expect:

A return to business-as-usual won’t happen overnight, of course. The lower credit scores and higher LTVs will more than likely take some additional time to return to their pre-COVID closure state. Lenders will want more data on the unemployment and rental payment front before expanding.

Real estate investors may have to be more patient for normalcy to return to their lending markets.

Rates in the standard-conforming market are coming down.  For investors, 30-year rates are in the mid 3’s for purchases and no cash-out refinances.  Cash-out refinances are still a big challenge for investors, and will more than likely continue to be so for the next few months.

Expect to find the expanded requirements (up to 6 months reserves for each property) to be in place with underwriters through the end of the year.

*All non-commercial and construction loans offered by TNS Loans NMLS #1719349

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Refinancing may have just become more expensive for both rate and lower LTVs.

 

Wow, what is this? The powers that be are still messing with our beautiful lending world. It’s not a shock that government officials seem more focused on getting votes at the cost of property owners and mortgage companies, encouraging tenants not to pay rents and not lending a hand with evictions.

 

What We Know:

Mortgage rates are so low right now (in the mid 2’s for owner-occupied, and low 3’s for investors) that still-employed buyers should be running out and buying homes left and right.  After all, the number one reason buyers purchase is that they can fit the payment into their monthly budget. We should be seeing mortgage companies throwing money out to everyone. We should see buyers buying and investors refinancing (increasing that cashflow without adding more properties.)

 

 

So why isn’t that happening?

 

In short- our government is hard at work wreaking havoc in the lending markets, making it harder for all of us to get a loan, especially refinances.

 

Sure, it sounds good in theory: Allow anyone who wants to defer a payment or 4 during an economic crisis to do so, without proving any reason based on financial hardship.

 

How does this impact us all?  Glad you asked.

 

If a lender helps someone out and refinances them and they decided to go directly into forbearance, (yes, people WERE doing cash-out refinances with the plan of deferring payments to take advantage of the government’s kindness,) that lender cannot sell or move that loan off of their books to those that service FHA, VA, Conventional loans, etc, unless they want to take pay a huge fee. So, they decide to hold the loans, thus filling up their lending bucket.

 

So what happens next?  The lenders don’t want to take a chance that a percentage of people are going to take advantage of this opportunity, so they raise the cost of refinancing for everyone.  On top of that, they will start lowering the LTVs (loan-to-value ratios,) making the box for traditional financing harder for all.

 

Yes, obviously those that need mortgage forbearance should be able to use it, but it’s the ones who are not in financial need that are making these numbers grow, creating more costly financing for us all.

 

Let’s look at the numbers from an article from MBA.com from the end of April:

 

Key findings of MBA’s Forbearance and Call Volume Survey – April 13-19, 2020

  • Total loans in forbearance grew relative to the previous week (from 5.95% to 6.99%.) In comparison, only 0.25% of all loans were in forbearance for the week of March 2.
    • By investor type, Ginnie Mae loans grew the most relative to the prior week: from 8.26% to 9.73%.
    • The share of Fannie Mae and Freddie Mac loans in forbearance increased relative to the prior week: from 4.64% to 5.46%.
    • The share of other loans (e.g. private-label securities and portfolio loans) in forbearance increased relative to the prior week: from 6.43% to 7.52%.
  • Forbearance requests as a percent of servicing portfolio volume (#) dropped relative to the prior week: from 1.79% to 1.14%.

What You Can Do:

Keep up with your payments if you’re able. The more of us that are paying on time and in full, the quicker the lenders will start to relax and start loaning again. Everyone wins.

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Investor mortgage report

Why did all the banks just make it damn near impossible to get a loan on an investment property?

 

 

For lenders, times are more uncertain than ever.

 

With conventional/standard loans as the only lending option available for rental investors, lenders went and changed the rules…and not in the investor’s favor.

 

As of this week, the new underwriting criteria has hit 90% + of the market for investor loans on rental properties. Plus, most lenders now require a minimum of 6 months reserves (and, a lot of times, up to 12 months) for every rental property that has a loan on it. That’s right. If you have four rental properties, you now need at least 6 months of payment reserves on each property. That adds up quickly.

 

That may not even be the worst of it.

 

In addition, most lenders are not allowing borrowers to use the rental income from their properties to qualify. If they do, they might only allow a very low percentage of the rent (like 50% of gross rent). That means if you have rent coming into a property at $2K, they may only count 50%, or $1K, of that towards your expenses (if they allow you to use it at all). In this example, if the rental property has expenses at or above $1K (and most will) the underwriters will expect you to cover the shortage with other non-rental cash flow.

 

So, if you don’t have great credit (lenders have raised the threshold here, too) and other income to qualify for a new loan, you will be out of luck…for now.

 

We don’t know how long this will last. It might be weeks, but more likely months. Nobody will know until banks and lenders figure out how current stay at home orders will affect the markets.

 

So, why exactly is this happening?

 

 

Once the lenders get the data, they will adjust. Let’s cross our fingers that rents are being paid and, likewise, mortgages are kept up.  This flow of money will help bring lenders and loan choices back to our market.

 

What can you do?

 

  • Keep informed on what is happening in the lending markets. If you are selling properties, then stay updated for your potential buyers, too.
  • Keep paying your mortgages. This will help the overall market, but especially you when you are looking to borrow in the future for better rates (the rates are expected to be great after we return to some normal) or new opportunities.
  • Keep your credit score high and keep working with your renters to pay what they can when they can.

 

Remember the loans and rates will come back. When they do, be prepared to take advantage.

 

If you have a credit score at or above 760, and have ability to income qualify, then your rate estimates this week for conventional loans look like the following:

 

  • Paying closing costs rates for rental properties (1-4 units) in the high 3’s for a rate and term. Typical break-even point is between 2 and 2.5 years.
  • Paying little to no closing costs rates are high 4’s (best for strategies for keeping a property under 2.5 years).

 

If you want to know where you stand and what you can do, schedule a time to discuss your lending needs with us today by emailing mike@thecashflowcompany.com.

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Check out this real life example of BRRRR (Buy, Renovate, Rent, Refinance, Repeat). Matt McKeever offers an excellent illustration of the popular investment strategy.

Ready to give the BRRRR method a try, but need help with your financing? No worries. Contact us to figure out your financial path and take advantage of our 2-Step Loan Program.

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Fix and flip shows present a skewed reality. There is a defined formula that’s followed throughout each episode. Every moment of the show presents the best experience of working on a fix and flip without including much of the hard work that happens behind the scenes.

Read the whole article here.

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Deals and Closings

One of the key factors to making more on your investments is working with a lender who can handle your short-term AND long-term loans. Or rather, being able to quickly buy and quickly refi a property.

Why find a 2-Step Loan Program?

Well, most investors don’t have the luxury of closing a deal in 30+ days. They need to close as fast as possible, especially if they’re buying from a wholesaler with a strict deadline.

However, many investors are nervous about using non-traditional funding to close a deal upfront. What if they get stuck in a hard money loan for months and months? What if they can’t get approved for a long-term loan and get stuck with an expensive loan?

That’s why it’s so important to work with a lender who can handle both sides of the coin. And not just any lender, but a lender who has experience with short and long-term loans.

When you work with an experienced lender who offers a 2-Step Loan Program, you’ll:

  • Be able to quickly buy and quickly refinance a property.
  • Maximize your return on credit.
  • Maximize your refinance.
  • Enjoy less confusion and stress.

Think of a 2-Step Loan Program like a one-stop-shop for all of your real estate loans.

Less work, less hassle, more money.

Ready to learn more? Contact us today to get the ball rolling.

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Friday Fun – Do Math

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Friday Fun – Do Math

Friday Fun – Do Math

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