Love Austin Homes Investing Blog

A Mexican couple is looking at buying a condo/apt/townhouse in San
Antonio as a weekend home. Since they are Mexican nationals, they have
no Social Security numbers or an available credit report in the US, or
any other way that we would consider standard to evaluate their credit
and prequalify them for a mortgage loan.
However, they are financially responsible and very well off in Mexico,
and they will have no problem presenting paycheck stubs or letters from
their banks, employers, credit cards, etc, verifying their good credit
to any US lender.
Have any of you worked with Mexican nationals before? What are the
requisites/paperwor­k that they need to provide in order to apply and
qualify for a mortgage loan?
They are coming up to San Antonio from March 1st through the 6th with
the intention of looking at properties and making offers, so they want
to get the prequal process started as soon as possible prior to their
trip.
Any advice would be greatly appreciated!
Thanks,
Helena

ANSWER

Helena,
You are looking for something called a “Foreign Nationals Mortgage”. Just do a search on-line and/or call some mortgage brokers.

Lending is become so competitive, that many lenders are now starting to offer these products, although because of higher risk, they will likely require a large down-payment, and only loan up to 70% Loan-To-Value.

Interestingly enough, there are also a growing number of loan products available for “Undocumented Aliens”. These are called ITIN (Individual Tax Identification Number) Mortgages, and require the illegal alien to get an ITIN number from the IRS (apparently you can do this without getting deported). Like a social security number, an ITIN allows someone to pay taxes.

Phill

Has anyone done a “find and assign”? If so, this is my question; Is
it necessary for the eventual buyer to know the price I purchased the
property for? I’m assuming that there is a simultaneous double
closing in which my option contract is taken by the title company and
processed along with my contract with the seller and I’m cut a check
for the difference and the buyer is none the wiser (as long as he’s
getting the property at a price he can live with).

ANSWER

In a simultaneous double closing, the end buyer IS NOT exposed to any of the terms of your purchase contract (other than when you closed), unless you allow them to be. In other words, you could purchase a home for $1 in the morning, and turn around and sell it for $100K in the afternoon, and you would receive the difference less some transfer costs (escrow and nuisance fees, and the delta in title insurance expense plus a title insurance transfer fee).

The problem is… most lenders will not fund this type of transaction, or if they do, they may ask to see the terms of the purchase contract (which you don’t have to provide), and in some cases, they may even have rules about how much profit, if any, you are allowed to take (typically <15%). So, if your end buyer is buying with a loan, these deals will get very tricky. There are work-arounds, but that is a very advanced topic…

If you do an assignment of contract, everything is transparent from the start. Essentially, the end buyer is putting their name on your contract and excepting ALL TERMS (not just price) of your contract. If you are taking an assignment fee, I recommend you document that fee in a separate contract/agreement. The assignment fee can then be transacted by the title company at the closing (with everything transparent)­, however, THIS TOO can (and probably will) trigger a red flag with the buyer’s lender, who may well not fund a deal that includes an assignment fee. The work-around here is to transact the assignment fee outside of closing. Unfortunately, this means it probably can’t be financed, which means many buyers won’t be able to pay it.

In the end, the easiest way to flip a house is always to a cash buyer… like me

Phill

I’m seeking some advice on how to structure, and what to be careful of in refinancing an all cash purchase.

In the past when buying RE I’ve put 20% down on a unit. My real estate criteria / investing system requires that I have 20% equity in a property for any number of reasons: avoiding PMI, better rates, ensure that the property cash flows, to protect myself against the vicissitudes of life, etc. My system is to hold units long term (10-20 years) as rentals. In the questions that follow I’m thinking of a single family detached unit.

This time I’d like to buy a unit for all cash, and at some point after purchase, i.e., within 30 days, I’d like to get my cash back out of the property. What should I consider in this scenario?

Is there a seasoning requirement?

I.e., do I need to own the property for some time before I can refinance? I’ve heard that I might but I don’t know under what circumstances / type of loan, etc.

Suppose that I buy the property substantially below market (e.g., 60-70% of market after fix-up costs) can I refinance at 80% of the unit’s appraised value? Again, what seasoning restrictions might exist in this scenario?

Are refinances more expensive, or less expensive than traditional financing?

Esp. when considering there are two transactions: one to purchase the property for all cash, and one to refinance the property.

Are refinance rates generally cheaper or more expensive than traditional loan rates?

How might refinance rates differ for owner occupants vs. investors?

Forgive me if these are naïve questions, because all my investing to date has been normal 80/20 type loans.

Thanks for you consideration and responses.

Brian

ANSWER

Brian,
Unfortunately, in Texas, refinancing is a royal pain in the rear.

Almost all lenders will have seasoning requirements and almost all lenders will refinance based on the purchase price and not the appraisal. I bought a home for $150K that was worth $250K, and I still had to put down $30K to avoid PMI. In other words, I could only get a $120K loan on a home worth $250K. Crazy!!

The only lender product I know of that allows you to easily get your cash back is a Wells Fargo loan that will lend up to 90% of the appraised value of a home you already own. The only catch is that you have to own it for 6 months, and they will only refinance 4 properties per customer with this product. If you need this product, I recommend my banker, Eduardo Reash, 794-4026.

Other products I have seen loan only lend 70% or 80% of the appraisal, or 80-95% of purchase price and require 9-12 months of seasoning. If someone out there knows of some other loan products for this type of refi – please let us all know.

Phill

I need some guidance on some deals that have been presented to me.
They basically look like this:

A small builder has a hard time getting enough credit from a lender to
get his project going as quickly as he would like.

Instead of using one bank and all his own credit, the builder offers a
profit-share to individual investors.

I, the investor, get a loan for construction of a home and the home
starts getting built.

Ideally, through the builder’s marketing efforts, the home is sold
before completion.

The builder and I split the profits. He is willing to do this because
we investors helped him get the project built much faster.

I know Maravilla in Austin has a program like this, and now I know of
an investor club that streamlines the process of hooking up investors
with builders.

Anyone have experience in this or can you tell me what pitfalls to
watch out for?

Thanks!

Andrew

ANSWER

Andrew,

Whereas this is probably a legitimate program with some builders, in general, I would say BEWARE of using your credit to help finance someone else’s project unless you really know what you are doing.

There are several scams going around where crooked investor-builders/­con-artists ask investor-civilians to ‘just use your good credit’ in order to ‘share in the profits’. This sounds great, but several things can go wrong:

1) The after repaired/after construction value is often over-estimated. In some cases, appraisers are in cahoots with the investor-builders. In other cases these deals involve difficult to appraise or highly subjective projects.

2) In some cases the builder will take his profit on the build and leave the investor with a home with zero or less equity.

3) Cost overruns can also leave the investor with zero or negative equity.

4) In some cases I have seem the investor-builder take cash out on the buy, or arrange a more complicated transaction where they are essentially flipping the home to the investor-civilian or taking an assignment fee on the sale of the home to the investor-civilian. Essentially, they are getting their $$ on the front end of the deal. After they get their $$, they have little or no incentive to hang around.

In one case I saw a woman from California finance an entire deal site-unseen. She got an inflated appraisal, inspection report done by the builder, and some pictures of the house. Compared to what she was paying for homes in CA, this home in Dallas looked like an awesome deal. She signed up and financed $350K for the home, only later to find out it was only worth about $280K on a good day. Net loss after resale – around $100K. Owch!

Phill

Hi Friends,

I’m with Wells Fargo and heard that Chase and other banks are more
helpful to investors. I want to open some lines of credit, checking
accounts, etc. for business and personal.

Any recommendations or should I stick with Wells?
Dee

ANSWER

Dee,
I’ve done some research of my own and have found Wells Fargo to have the best products that I know of for variables lines of credit (low cost credit lines secured by equity you have in existing properties), and refinancing/­cash outs.

One product that I have taken advantage of several times is where you buy a home for cash, do the renovation, and then get a mortgage on it (to keep it as a rental). Wells Fargo is the only bank that I know of that will provide a low-cost 30-year fixed mortgage based only on the appraised value. In other words you can get your $$ back, plus additional cash, and keep the property as a rental to boot. The only catch is that they will only do up to 4-5 of these loans per customer.

If someone knows of another bank that offers this sort of product – please let me know!! I’m in the market for such loans.

Wells Fargo also has some great commercial products as you grow your business larger. What they are weak at, is construction/­rehab loans, but then, I don’t know any banks that do that well.

I have a personal banker at Wells Fargo, Eduardo Reash, 512-794-4026, who will ‘represent you’ at the bank, making all of their various products and resources available to your business. If you call him, say hello for me.

Phill

What is the best way to find out how much was due on a loan after a
bank has foreclosed. I am looking at a foreclosure that is listed on
the mls but would like to know how much the bank is out so I know what
to offer. I was assuming the listing agent would not disclose this.

Braxton

ANSWER

Braxton,
Anyone can go down to the records office (off Airport for Travis), and look up the original deed of trust that will tell you the amount of the original loan. If you look at how old the loan is, you can estimate its current balance.

UPDATE: goto to the usefull links section of www.loveaustinhomes.com and you will find a link for searching Travis County liens on-line!

Of course, this amount is probably useless or irrelevant in a foreclosure situation, as any home that is foreclosed on, has had many missed payments increasing the amount owed. Additionally, taxes may not have been paid for a while, and insurance and penalties may have also been piled on by the lender.

But, more importantly, when a lender forecloses and resells the home as an REO, whatever was owed is irrelevant. The lender will in all cases simply list the home for market value (as determined by a realtor or BPO) and get what they can get for it regardless of the history.

Phill

Does anyone have recommendations on getting long term financing on
property with a mobile home? Thanks much!

Debbie

ANSWER

Debbie,
Do you need financing on a $90,000 new mobile home, or $15,000 for the same mobile home used?

Just about everyone I have seen finances used mobiles with owner financing, or they just take cash to dump them. They lose so much value after you buy them that you can generally only sell them with financing. If the property includes land, you can get conventional financing on the land.

Phill

I’ve got a question. I recently purchased a home and
initially I was going to ask that the seller pay all my closing cost
and try to haggle from there. But my mortgage broker told me that the
maximum amount the seller could pay is 3% for an owner occupant and 2%
for an investment property? Is this true??, or was it solely the
requirement of the loan provider? It was news to me, if anyone can
shed some light on the subject I would appreciate it.

ANSWER

I have seen sellers pay 6%. Your lender is limiting how much your seller can contribute. Various loans require the buyer to make specific contributions, and they sometime even make a buyer document where their down payment and/or closing costs funds are coming from, to ensure it’s not someone else’s money.

I have no idea why lenders do some of the kooky things that they do. I’m sure they are trying to avoid fraud, but much of it does not make sense.

Anyway, in most cases when a broker tells you something that does not sound right, it’s time to shop around for another broker so you can see if a better product/solution is available. It was not appropriate for you broker to imply that it’s not possible for a seller to contribute more, for example. Just about anything is possible…

For example, you can always explore supplementary transactions that take place outside of closing. This could be as simple as asking the seller to throw in furniture, appliances, or other improvements, or even asking for art, furniture, or automobiles. I have seen all of these negotiated through various creative deals. The only caution I will offer is that transactions outside of closing do not involve the lenders, realtors, or title companies, and are not insured with your title policy. Also, if you are getting a loan, the loan may stipulate that there are no other aspects to the transaction, and your contract may stipulate that it documents the deal in it’s entirety. In other words, you have to make sure you have some way to make sure the deal outside of closing is honored, legal, and possibly reversible if the sale is reversed or does not take place.

Phill

Sir,
You always seem happy to help newbies in real estate business. I can really appreciate this. Helping others. Your information has been “right on” in most cases.

I have been in the real estate business all my life. I’m 63 years tired. I live in the hill country. On Lake Buchanan to be exact. In my past I’ve been very active in investment Real Estate but am too far from the Austin market to become actively involved. Too young to retire, but do want to slow down. So I have been toying around with the idea of becoming a “hard money lender.” This is a problem, because I’ve never been involved in this type of lending. I have bought several discounted mortgages in the past, but never loaned out money.

To keep it simple, I’m looking for a Mentor, someone to teach me the business, hold my hand, lead me thru a couple of deals. I don’t want to get burned. Been there done that. Can’t find much information, and no books or tapes. I guess the business is too state specific.

I operate using LP’s and LLC’s so i am familiar with how they work. I’ve never seen a partnership agreement as you mentioned above. I would be very interested in reading such a document or examples of such a document. It would give me some guidance in what issues need to be addressed before checks are cut.

Any suggestions as to where I can get some information would be greatly appreciated.

Thanks in advance for any guidance in this area.

Thank You
Philip

ANSWER

Philip
I do these frequently with other investors. Partner find deals, I fund them, we split the profits.

I use a simple Limited Partnership Agreement that we customize for each deal. It defines the responsibilities of each party, what is considered as profit and expense, and how profits/losses are to be divided, etc. It also has other boilerplate needed in limited partnership agreements.

The actual buying and selling is generally done in the name of the person/company funding the deal, or in an LLC created to hold the property (if it will be held for a long time), or in an LP created to flip properties (this is what I use). Most people don’t care who’s name the property is in, they just want their fair share of the profits.

CONTINUED

Regarding you question on lending:

Philip,

I’ve come to know a lot of people that do various types of lending. Most fall into the category of ‘hard money lenders’ and ‘private money lenders’.

Hard Money lenders get higher interest rates, but also have to work a lot harder for the money. The work is in the form of responding to lots of calls from yahoos and newbies that want to borrow money on shaky deals, and having to do a lot of homework and sorting though a lot of deals in order to find the ones worth funding. Most of the private individuals that I know that have gone this route, have either backed away from this to become private money lenders or given their money over to established hard money lending institutions, like Funding Partners, among many others. Jules Caplan is an example of a local investor that also does hard money lending. Jules has lots of stories about the frustration of running down deals from people that exaggerate values, underestimate repairs, and simply don’t know what they are doing.

Private money lenders work more through relationships with a smaller number of experienced investors. Private money lenders can do recourse loans (where the borrower in personally liable for the money), can choose to work only with borrowers with good credit, and sometimes even choose to invest at lower LTVs for lower risk.

For example, I’ve got perfect credit and a personal net worth of more than a couple million dollars. That said, I can’t personally afford to finance all of the projects that I manage. I prefer to buy at 70-80% (minus repairs) and then fund about 20% of the project myself, so that my own money goes 5x as far. This means I need to borrow 80% of the project costs, but the lender is only loaning money at 50% or so loan-to-value to someone with experience, perfect credit, and personal liability (and their one $$) in the deal. This is about as easy and low-risk as a loan can get. For this sort of loan, I might pay 10% interest, but no points. Obviously, that’s not as good of a deal to a lender as a hard money loan, but it’s also virtually risk free and work free.

So, are you looking to be more of a hard money lender or private money lender?
Phill

I’m looking for someone who can assist me in obtaining financing on
a property that I paid cash for. We typically buy houses for cash,
fix them up and flip them. I have one house however that I’ve
purchased and fixed up but have now decided to keep as a rental.
The house should appraise for about 90 to 100k. I’d like to pull
out about $60,000 in cash since it doesn’t make sense for me to keep
the cash tied up in a rental – I’d rather put it back to work buying
more houses.

The challenge for me is that I’ve only been investing full time for
about 9 months. I have good credit, and access to a decent amount
of cash for buying houses, but I assume most banks will look at me
as being self-employed for less than one year. That’s not a
problem for a regular refinance, but since this house doesn’t have
any mortgage on it at all I assume I’m looking at a home equity loan.

If any of you are mortgage brokers who have a solution for me at a
good interest rate please respond to this post or feel free to
contact me directly.

Thanks,
Chris

ANSWER

Chris,
I too run into that problem ALL THE TIME, and currently have a property that I need to get a mortgage on. It’s not easy.

I can tell you that Wells Fargo has a great program for exactly this scenario. They will give you a virtually no-fee mortgage based on the appraised value of a home you own without a lien. They even do stated income. The only catch is that you can only get 4-5 mortgages with them before you max out – which is my problem… Give me a call and I’ll hook you up with my private banker.

If someone has a solution for doing a cash-out mortgage on a recently bought for cash rental property – let us know!!

Phill