Would such a corporation be appropriate for me to enter into with my son for purchasing jointly owned out of town (for me) real estate for investment purposes? Is an LLC essentially a S-corp for partners???

Are there better partnership arrangements?

Thanks,

Answer: I want to buy a house with two other persons. One of the buyers will not be a resident in the new home. Because of this, we have problems qualifying for a 30 year fixed mortgage with a 10% downpayment. Our mortgage broker says that most lenders will not take the loan because they will not be able to resell to Fannie Mae or Freddie Mae. In addition, PMI mortgage insurance does not allow non- resident buyers. Our broker suggest that we go with a 5/1 with 7.5% fixed rate. Is this the best solution or are there other alternatives? I don’t know real estate law in CA, and I’m not a Fannie Mae underwriter, but I was in banking for ten years and now own a real estate investment company. I have never heard of your problem before. Your third party is a co-borrower, but you – the primary borrower – will occupy the property. This loan will be an owner-occupied loan. The broker may be right, but I would call around if I were you. Good Luck!

I paid 5% down to purchase the house. Then 80% of the loan is a 5-year ARM. The remainder 30% (amounts to about $33K) is in line of credit in which I pay market+2 % interest.

I was wondering if I could benefit by paying off the small loan ($33K at market+2 interest).

Would the interest I pay be deductible in this year’s taxes?

Please advice! Thanks

Answer: Yes, you would benefit by paying off the smaller loan. It is kind of expensive given that H/E loans are available for 4.5% in this area, often with some kind of teaser rate for the first 90 days. Paying off this loan will free up cash flow for other purposes, hopefully, paying off more debt or saving for retirment. The interest that you pay on this loan is tax deductiable as long as the total of your two loans is less than the market value of your house. the rate is low though, so I’d probably not worry about paying it off, but instead pay off anything that is charging higher rates, whether it be car loans, retail, or whatever.

We don’t know how long we’ll be in this house. We like the house and the area, but have some concerns about the school system. Our daughter is 2, so we have a few years to worry about it. The only reason I can see right now for moving within the next 5 years is if the public system turns out to be bad and the private schools aren’t a possibility for one reason or another. So we’re more likely to stay than move, but it’s not definite.

The only way I’d refinance now to get a fixed rate is if I can do it with *NO* cost to me. I won’t pay points, origination fees, processing fees, etc. I *can* get attorney services for free through work, so that’s not going to cost me anything. Luckily, I just got a flier from a mortgage broker I used several years ago offering 30 year 8% fixed loans with “no closing costs!” I did a similar deal with them back in ‘92 and it really didn’t cost me anything, so I know it’s not just a come-on.

Now, a question about ARMs: I know my rate is linked to an “index” and a “margin.” I also know that if these figures rise, my lender will raise my rate as much as he’s allowed. But what happens if my rate gets up to 10.25 and then overall interest rates (and thus the index) decrease? Will/can my rate float *downward* or am I stuck up at the top for the remainder of the loan period? (I’d guess I’m stuck; that’s the game: the lender gives me a nice rate in the beginning with the hopes that I’ll pay much more a few years later if rates rise.)

It seems easy to compare a 7.5 or 8% fixed rate loan against the “worst case scenario” of my ARM (4.25% now -> 6.25 next year -> 8.25 year after that -> then 26 years at 10.25). It’s a no-brainer: 30 years at 8% fixed beats 26 years at 10.25%.

But what if rates *don’t* go up in the next few years and I get to sit at 4.25 or even 6.25%? If I go with the fixed rate, and rates don’t rise, I’ll end up paying more than I had to.

I realize everything is a gamble; mortgage lenders do it every day and homebuyers have to do it, too. Looking at the past 10 years or so, an 8% fixed rate seems pretty good, and I’m inclined to just get it and not worry about indices, margins, and Mr. Greenspan. What do you think? If you have an opinion on this, please

Answer: No one can predict where rates will go, but one thing is for sure: you’ll be paying 6.25% when your rate adjusts in four months. That’s the nature of ARMs. After that, the market will determine your rate. Yes, “no-cost” refi loans exist; you will pay the costs, of course, but with a higher rate instead of out of pocket. No, your rate will rise _or_ fall based upon the movement of the index, and will be subject to the loan’s caps — which limit rate decreases as well as increases. It’s all spelled out in the loan documentation; I suggest you read it.

To see how this affects your payment, find a good (shareware) software program. But now you know that your rate can go _down_ as well as up, so it’s not so simple. FWIW, even under a worse-case scenario in which the ARM shoots up to the rate ceiling before falling, you’ll find that the _total_ outlay of P&I will be less over a five-year period than if you took a FRM which was 2% higher. That’s not to say the rising ARM payments won’t be a pain, though… Since no one can predict rates, you got it: you pays your money and you takes your chances. If you’d like to play “what-if” scenarios with various assumptions as to what rates will do, there’s a variety of mortgage-related shareware which will let you do that. We have a good collection on our BBS, or on any of the other real-estate BBSs on Ted Kraus’s list (posted regularly in m.i.r-e), or on America Online.

If you want my advice as to what to do, there’s only one answer I can give you: How well do you want to sleep at night? :-} Since you can’t know which decision will be better, rely on your comfort factor.

Answer: My name is Gordon P. Allen, A REALTOR in the San Francisco Bay Area. Some real estate brokers can do their own loans through “Processing Centers,” which allow the r/e broker to offer as much service as a typical mortgage broker. This means that your REALTOR can also be your “loan officer.” If the loan requires special handling (i.e bad credit and other circumstances), then the loan giants like Citibank & Home Savings may be your best bet. I’ve done several this way, but sometimes I refer a loan out to tho se that specialize in loans, like FINET etc.

Otherwise, a relationship should exist between a REALTOR and several loan agents, and the REALTOR can recommend which loan agents to talk with for the best rate and terms for your needs. A real estate agent can help in many ways:

An agent can calculate exactly what size of mortgage you can qualify for based on your current income and debt load. Based on this calculation, an agent can of course match your financial means with homes that would be feasible for you to buy. Perhaps more importantly however, this calculation can be performed without reference to any financial institution. This could prove very useful if a mortgage application might prove to be ‘iffy’ due to past bankruptcy or slow payment of prior loans. If this were the situation and the individual applied to a bank and was turned down, this could be traceable by a second bank and could taint the individual’s record. Good real estate agents are dealing with numerous mortgage applications throughout the year and in this type of situation could direct the borrower to a mortgage broker they frequently work with, or even a private lender.

Some agents often work regularly with mortgage brokers and may be able to secure better rates or relaxed qualification rules.

Some large real estate companies have alliances with major financial institutions and can obtain mortgages at preferential rates for clients referred by them. For instance, in Ontario, Re/Max has such a relationship with a major Canadian bank. This relationship can yield mortgages for Re/Max referred clients that are 1/2% to 1.0% lower than posted rates!

While these comments are based on my experiences working in the Canadian real estate market, I’m confident the situation in the US. will be very similar.

I am in the process of refinancing my 1st and 2nd mortgages. The loan broker I am dealing with was referred by my credit union. I have always had good experience with the C.U.; that good feeling spilled over to this loan broker when I started dealing with them. At first the good faith estimate was at about $5100 for total closing cost. In the process, I paid $325 for credit check and appraisal. Now, we are very closed to the end; this broker sends me a final estimate for closing. Lo and behold, so many new charges appears and so many previous estimates are raised with some item up to 100%. The total estimated closing cost is now at $6500 excluding the fees I already paid. I am really confused now and don’t know what to do.

My question is that is it usual for a broker to raise closing cost between the “good faith” and the final up to 33%? The credit union is American Electronic Association and the broker is Pacific Shoreline.

Any inputs about my question and any feedback about this loan broker? I’m almost certain that there are many AEACU member out there and some might have dealt with this broker before. Many thanks for your inputs.

Answer: Perhaps you should offer hime a tip?

The thing to do is go to several other companies with the estimates. Ask them if the charges are reasonable and tell them that you’ll do business with them if they beat them. Remember – these people are in business selling a product. Often they’ll negotiate with you (especially if they know they’ve got competition) because once you close they’ve got you for life.

Keep in mind that you may have to pay a bit more with a company that offers professional loan servicing. This money you want to pay. Another approach in future cases is to get a firm price quote in writing before committing to refinancing. The standard boilerplate contracts contain many clauses in the fine print favorable to the lender. If the lender can jack up costs, there is a fair chance they will. Because it is a lender’s market, you might have trouble finding a lender than will give you a custom contract.

So what I am looking for help on, is why do I have to pay this cost? Isn’t this something that he should of checked beforehand?

Answer: Actually, it WAS your responsibility to disclose that you had a prepayment penalty rider on your loan….and in the best case scenario, he should have looked over your existing loan before the appraisal was ordered. (I actually thought it was a question on the refi loan application. (Depends also what state you are in). Tell him to give you the original appraisal…and pay for it. You are both at fault…but you do have something of value out of it… your appraisal.

The question is, am I missing something? I guess that the worst case is that interest rates shoot up and I if I don’t build I could get stuck with a 11% mortgage potentially when it goes variable rate in 5 years….

Thanks,

Answer: My question is if it makes sense to buy if you are only looking at 3 years. The closing costs, mortgage origination fee, and the mortgage insurance are likely going to cost more than what the property could possibly earn in 3 years, and then you take the big hit on sales commission when you sell it. I think you are far better off to rent until you are ready to build. It just doesn’t make sense to buy a house for this short of term, unless you are planning to keep it afterwards as a rental unit. Even then, a single family home is not my favorite type of rental, you could likely buy something that is much better suited to be that future rental property.

If you do buy, and you plan to sell right away, look for a loan that gets you the money in the cheapest possible manner, and don’t worry about paying back any principal. I have seen interest only balloon loans advertised locally for around 4% that might work for you.

Answer: It never ceases to amaze me the level of incompetence with people that come to me for a loan, sometimes. They say “I have no money, my credit sucks, I don’t have a job, and I have $2,000,000 in judgments against me. Plus theres a warrant out for my arrest. I need a mortgage”

Buddy, friend, not picking on you, and I apologize.

What you signed when you got the mortgage IS A LIEN against the property. It is already there, and only goes away when you pay off the mortgage. They in 100% probability subordinated the land loan. Don’t pay, they get the land and improvements (house) I don’t know that I would jump to that conclusion. It sounds to me like the house loan is secured by the house, while the property is a seperate loan that is either secured by the property or is an unsecured loan (5 years is kind of short for a mortgage). The best thing to do is go back and re-read the paperwork from the loans. You might have to have a lawyer sort it all out. But I think that it is a legitimate question to ask how best to save your assets after you lose a job. Losing the property puts this guy in a world of hurt since he would then have no place to put the house, or at least be forced to undertake a costly house moving.

Answer: If you go “owner-occupied”, and at any time you move out, the lender is within their rights to call the loan due, payable in full.

The concern that they have is not where you live, but how much you pay for housing. If you lose your job, you have to live somewhere. That somewhere is going to cost money, perhaps $500 to $1000 per month in a conventional apartment. They are concerned that if you suddenly lose a job, then add $500 to $1000 per month in living expenses, that you will not be able to pay the duplex loan. The lender apparently is not willing to take that risk.

I would start the lending process at a different lender. Perhaps someone else will take the loan. Your other option is to go back to your current lender, and ask what it would take for them to write the loan as non-owner occupied. Perhaps if you put down more downpayment that would help.

Answer: It probably depends on how the contract reads concerning the loan. If you are responsible if the other borrower defaults, then it will certainly count against you. It counts in full against BOTH of you, since either one of you can be legally liable to the lender for the entire payment. What your agreement is between the two of you is of no concern to the lender.

Co-signing loans is a lot more serious than a lot of people treat it. I get asked all the time, and then people GET MAD when I won’t. I’ve tried that here in Atlanta. They pointed out I could spend all my money and default on the other houses I own. Why don’t you talk to a loan officer in your town; they may be different there. Go to see the company that holds on the mortgage on the property in which you have equity. A friend asked me to co-sign a car loan for her adult daughter. I had met the daughter maybe 3 times. The daughter was nice enough but I had no idea where she lived, did not see her regularly, knew next to nothing about her finances except that she had bad credit. Well, her Mom got indignant wanting to know why wouldn’t I sign, like it was a personal insult. Never saw the “friend” after that.

The only loan I ever co-signed was to get our oldest son started, and that loan wasn’t for any more than we could just write a check for if we had to. He lived with us and we knew exactly what he was doing, working, banking & where the (used) car was. He paid it off and had good credit of his own after that. He now has a new truck that cost more than my car, he put $10k down, 3 year loan, I had nothing to do with it.