Whether the strategy is fix & flip or buy & hold, investors in single-family detached homes, multi-unit residences, condominiums and townhomes have access to a wide variety of loan arrangements from Loanatik. Your strategy to make money from real estate investments will help you determine the type of loan that makes the most sense for you. You might need funds to purchase a home, rehab a property, or both. In this article, we are dealing strictly with investment real estate, not property that you or family members occupy. To better understand your borrowing options, let’s first explore a few fundamental concepts.
If you take out a mortgage on a property to be used either a source of rental income or to flip for a profit, you should always take steps to handle the worst-case scenario – having the property foreclosed because you could not make timely mortgage payments. Two classic safeguards are:
Often, real estate investors use liability insurance in combination with external entities to limit liability.
Mortgages are collateralized by the property to which the mortgage loan applies. If you fail to make timely mortgage payments, the lender can foreclose and take the title away from you to sell the property and recoup its loan. However, what if the property is deficient – i.e. it does not fetch sufficient proceeds to pay off the mortgage? In a recourse loan, the lender can come after some or all of your wealth and property to satisfy its debt. Conversely, in a nonrecourse loan, the lender will need to be satisfied with the money recouped from the collateral property alone. Obviously, borrowers favor nonrecourse loans; lenders prefer recourse ones. Bear in mind that nonrecourse loans charge higher interest rates than do recourse ones, due to their riskier nature.
Many recourse loans are secured by one or more identified assets, such as a set amount of cash or other specified properties. If the borrower defaults on a limited recourse loan, the lender can pursue the identified assets, but no other. In an unlimited recourse loan, the lender can attach any asset of the borrower. This is an unusual event (Loanatik has never taken recourse on a loan), but borrowers should understand the implications of the contracts they sign.
State laws dictate the ability of a lender to take recourse on a defaulted mortgage and statutes. Jason Cheung, a columnist for LegalMatch, wrote a great article about Anti-Deficiency Statutes in each of the states and figured out that the following states have anti-deficiency laws that limit a lender’s ability to receive any assets other than the collateralized property in cases of foreclosure: Alaska, Arizona, California, Connecticut, Hawaii, Iowa, Minnesota, Montana, Nevada, New Mexico, North Carolina, North Dakota, Oregon, Washington, and Wisconsin.
However, in some of these states, anti-deficiency statutes apply only when the borrower is also the primary resident of the mortgaged property, and therefore would not apply to rental units or to houses you are preparing to flip (and not living in). Also, the statutes usually pertain only to first mortgages. Your real estate agent, lawyer or lender can explain the relevant state laws to you.
Mortgage loans might be buttressed against default through guarantees and/or insurance. Similar to the limited recourse arrangement we mentioned earlier, a partially or fully guaranteed mortgage is secured by additional assets pledged by the borrower, the lender or by a co-signer. In some deals, co-signers are secondary investors who collect fees for guaranteeing loans.
The government has several programs that insure mortgages for the purchase and/or rehabilitation of eligible properties, primarily single-family homes. One of the most popular among real estate investors is Section 203(k) Rehabilitation Mortgage Insurance, provided by the Federal Housing Administration to insure mortgages for the costs of purchasing or refinancing/rehabilitating homes that are at least one-year-old. If you are buying a home, the mortgage insured by 203(k) is allocated partially to the purchase price and the remainder to rehabilitation costs (which must exceed $5,000). Rehabs can range from cosmetic updates to complete gut jobs, as long as the original foundation is maintained. They also include conversions of single-family homes to multi-unit structures. The total size of the mortgage cannot exceed the FHA limits for your geographic area. The 203(k) program is relatively low cost and is geared toward low-income borrowers. They are a favorite here at Loanatik, and we make a lot of 203(k) insured loans. Some lenders, unlike Loanatik (?), attach extra fees to these loans.
The Limited 203(k) Mortgage Program insures up to $35,000 of the mortgages of homebuyers and homeowners to upgrade, improve or repair their homes. This is especially useful when you are preparing the home for sale. The money can also be used to make properties move-in ready for renters.
A Title 1 Home and Property Improvement Loan program from the Department of Housing and Urban development can be used to insure loans up to $25,000 for the repairs, alterations and site repairs to single- and multi-family structures. Title 1 loans can be used in conjunction with 203(k) loans.
Loanatik makes both insured and private mortgage loans. A private money loan is not insured by a government agency. We offer three main types of private loans to investors:
The chances are that if you want to invest in or refinance a rental property, or fix and flip a home, Loanatik has the perfect product for you. We offer speedy, no obligation quotes on single- and multi-family homes, condos, townhomes, even mobile homes. You can obtain fixed or adjustable rate loans, as well as refi’s (with or without cash out), and interest-only loans. We observe strict privacy rules and encrypt all of your information. We have been accredited by the Better Business Bureau since 7/31/2015 and have achieved an A- rating. The BBB has not received a single complaint about Loanatik, ever.
Don’t wait! Strike while interest rates are still low. If you want to start or grow your real estate investment business, contact us today.