 Be
Aware of These Common Mortgage Pitfalls
One of the things that people that invest in real estate
sometimes have to do is get a refinance on their current
mortgage. This article details some of the issues that
I've had to deal with when getting a refinance.
Mortgage Brokers
This happens a lot. You start talking to a broker and
he promises you the earth, moon and stars all at 6 percent
interest. However when you get further along in the process,
usually after the point when you can cancel without losing
a ton of money or the house you want, the broker will
tell you that some aspect of your loan has changed. Whether
it be the interest rate or the fees, none of it is usually
good news. Now's a good time to remind you about the difference
between the interest rate and the APR. The APR is the
number that reflects the fees attached to your loan. The
mortgage officer will give you a Fair Lending truth in
lending statement that will have your interest and APR
rates. A rule of thumb I use is that your APR shouldn't
be more than .25 percent of your interest rate. I'd suggest
you try to beat your agent and your mortgage broker up
on his fees and get it in writing. If you're buying, I'd
suggest you tell the seller that you want him to pay all
closing costs. The real estate market is weak in just
about all areas of the country, so take advantage of some
deals.
Mortgage Seasoning
This is when you take a mortgage out on a property, fix
it up, then try to get it reappraised at the new higher
value so you can cash out your equity to pay for the repairs
and to pay yourself hopefully. Many banks will stop you
cold right there because the old mortgage hasn't been
'seasoned' enough. That is you haven't had the loan long
enough to justify the increased appraisal amount. The
reason why a bank would do this is to prevent fraud. Imagine
a situation where you buy a really rundown house. Then
an appraiser comes in and appraises it for a lot more
than what it's worth. Then you keep the difference.
If you get stuck by a seasoning rule at one bank, you
can always go to another. Sometimes the bank will accept
the receipts of the work done as proof that the house's
value has increased.
Commerical Property Loans
Most people know the rule that if it's over 4 units then
it's a commercial property loan. What about if one of
the units within the building used to be a commercial
storefront while the remaining units stayed residential?
There are some ways to cope with this. One is to tell
the bank that the commerical unit is no longer being used
for commerical purposes. That's what we did with the purchase
and refinance of our 4 unit building.
HUD Settlement Statement
Your HUD Settlement Statement is the document you get
at closing that details your transaction. It is frequently
wrong. I've done about 50 deals and on 10 percent of them
the statement had a wrong fact or misprint. Check with
your agent before going into closing to see if he can
review a trial HUD statement before you sign to make sure
you're not stuck with something that's not in your contract.
There are three things that you have to keep an eye out
for as a real estate investor. If you don't prepare for
it each one can cost a bundle.
About the Author
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