When Buying A Foreclosed Property With 100% Financing, What Are The Downsides?
Actually, my broker said she could get me 103%. What are the downsides to this? I just won a bid on a property and the estimated amount I will be out after all is said and done will be roughly around $3700. If I knew I could have gotten 100% financing at that time I would have. I'm currently looking for more property but before I jump I need advice the financing part.
So, any negatives anyone come think of regarding 103% financing will be greatly appreciated.
Quinn
Someone else probably has a better answer, but the only thing I can think of is that the interest rate would probably be a little higher -- depending on your credit. Plus there's that perception by mortgage holders that with 100% financing on an investment property, you're more likely to walk away if there are problems. They figure a substantial down payment is reason for you to stay put and pay the mortgage. Just my 2 cents.
Make sure that you are buying at a good price. If the numbers work then you are in good shape.
Your rate will be a bit higher. How much higher depends on the lender and your credit. If you have someone ready to move in then you really have a sweet deal. ROI is great when you have nothing in the deal.
If you are buying at a good price then you will be able to refinance in to a better loan later.
I have bought two properties with the same type financing and have done really well on them. Refinanced after a year to improve cashflow and pulled a little cash out.
It also depends on what you exit strategy is. If you are going to keep it for a rental than cashflow comes to mind.
Tom
Quinn, I believe what everyone else has already said is advisable. The negatives being higher monthly payment, paying PMI for anything over 80% FMV. If you were offered 103% then that sounds like that you are living in it so it really depends on what you are going to do with the property. I am currently in a house that I am fixing up for resale and I wish that I had done 100% financing also.[ Edited by MikeWood on Date 10/26/2003 ]
Are you sure you are buying this property as an investment property? I have never heard of any lenders lending 103% of the purchase price for an investment property. If you are buying this as a primary residence, you could be commitment a fraud. Be careful!!! Is this broker the same broker you were talking about. In my opinion, she is no good. If I were you, I would definately disassociate from her.[ Edited by SmileyFace on Date 10/26/2003 ]
Smileyface, I'm planning on living in this property myself. Thank you for being concerned
Now that I know alot more about this real estate game, I question everything with her. I just don't want to burn my bridges with her.
What I'm hoping to do is get a property in a great neighborhood thats in foreclosure and get it before the lender turns it over to a realtor. Or better yet, get to the homeowners before they list the property.
Thanks for the replys everyone
Quinn
Dear Mr. Quinn,
You seem to be doing very well indeed and perhaps your Broker is the perfect person for you. Just a couple of bobbles to observe.
Avoid PMI it is money wasted and may by its amount prevent you from leasing with option or whatever.
I like to buy over 100% whenever possible, but I try to do it with the help and assistance of the Seller.
I like to hold my loans at 80% of the new slightly inflated sales price. The Seller takes back a second for the difference. I really like it when the amounts generated pay for all costs of transaction.
Now I may move in or set out on a course of upgrading. Sometimes I add a small unit at the back or convert the garage, or a stand alone at the rear of the property. I have now improved a future income stream and that of course is reflected on any future sale. In the past I generaly just held for income and an increase in sales price as the market has been sipiraling upward.
Here in LaLa land I am beginning to notice the first hesitation on sales which as you know evidences the beginning of the establishment of a plateau in sales price. The sales prices are still above the excepted true values. So maybe the game plan should be adjusted to the new fast arriving change in the Real Estate Market.
My foreclosure statistics are fast increasing in the 30 to 60 day delinquency area. Still steady as to those which go all the way to Trustee Sale. But I can feel a wobble coming.
There was a French General who said, Apre ma le deluge. I agree just as long as I am ahead of the water. From the shore safe and sound I will then consider my next move which will be the time honored approach from the sea and the gathering again from the low side more and more properties.
An interesting game. Profits obtainable from the high market and the low market. Of course a downward spiral with any velocity is best of all.
Cheers Lucius
]
Possibly having to pay Mortgage Insurance until you have 20% equity.
It may be a higher rate than what you would get if you were coming in with 20% down.
Higher mortgage rate for the duration of the loan.
Sometimes that money comes more slowly than an HML, but those are the only potential downsides I can think of.
Apres moi, le deluge is attributed to Louis XV of France whose reign ended in 1774. Fifteen years later, the storming of the Bastille on July 14, 1789 marked the beginning of the French Revolution.
Quinn
Personally, I don't understand why you are doing business with somebody who is so unethical and down right a white color criminal. Anyway, it is your progative.
Smileyface, I no longer do "business" with her. She is a broker, who gets me money so I can invest in property. That is what I use her for. There is nothing illegal about her finding money for me to do business with.
Quinn
Dave T
You are correct in your quote and I am wrong, I attributed the remark to Foch who did all that clever planning for the french army during wwI. I guess he was attracted to trenches.
Thank you for your correction and more then that my spelling was also wrong. I am tying myself to an Ency and accepting 20 lashes. Keep up the good work.
Cheers, yur errant student Lucius
Always go with 80/20's 1st and 2nd mortgage to avoid mortgage insurance,
Quinn,
I have a 100% non-owner occupied program w/ no PMI. P.M. if your interested.
Quote:I attributed the remark to Foch who did all that clever planning for the french army during wwI. I guess he was attracted to trenches.Lucius,
At least you weren't making the same error as many who attribute the quote to Charles DeGaulle.
Do you want to gang up on bobo2 in the Paper/Notes Forum for his attrocious attempt at German?