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CHAPTER 2
CREATIVE METHODS OF RAISING CASH
FOR REAL ESTATE
INVESTMENT
If you were
to call a lender today and say,
"I just found this great home
for $100,000 dollars and I want
you to lend me $90,000 and I'm
going to borrow the other
$10,000 from my credit union.",
that lender would say, "no".
The general rule is that a
lender will not allow you to
borrow the down payment for the
purchase of a property and if
they find that you do, no matter
how well off you are financially
or credit-wise, your loan will
be turned down. Their reasoning
is that: "If you are not good
enough at handling money to save
the down payment, then you're
not a good enough credit risk
for us to lend you $90,000."
The
exception to this rule is that
if you are borrowing the money
against an asset that you
already own, then the lender
will allow it.
This
exception opens up many
possibilities for the person
with assets but little cash.
Are you a car buff with a
valuable classic? Do you have a
house full of beautiful
furniture? Or a great stereo
system? Whatever the case, you
can go down to your local
finance company and take out a
loan using that asset as
collateral and use the money as
a down payment on that property
you're after; and contrary to
popular belief, you probably
don't need to raise as much as
you think.
If you,
were buying the above mentioned
property with an FHA loan, the
lender would require a total
investment on your part of only
about 1% to 2% of the sales
price (in many cases, even
less), so you can buy for less
than is required to get into a
rental and that includes down
payment and closing costs. So,
on a property that costs
$150,000, you would only need to
raise about $3,000.
Here is an
actual example of this method in
use...
I had a
couple walk into my office who
wanted to buy a big luxury home
with about an acre of land and
they felt they could afford
payments of about $900 dollars
per month. They had two
problems no cash and a combined
income of only about $1,700 per
month. Although, they felt they
could afford $900 per month,
with $1,700 per month income,
there was no way a lender could
be convinced, especially with no
down payment. So, at first
glance their case was hopeless.
However, they had one asset...
Four years prior, they had
bought a home.
I decided
there was probably a way to work
it out; so we went house
hunting. In no time we had
found the perfect home for them;
4 bedrooms three baths and about
three quarters of an acre. The
price was $113,000 dollars. But
there was still a problem. Not
enough income to qualify and no
down payment.
Here's what
we did...
Some lenders, usually savings
and loans, have what is called a
no qualifier loan. What this
means is that if
you have good credit and put,
at least, 25% down, they will
not require the usual, time
consuming verifying
of
income. They will take at face
value whatever you tell them you
earn. I knew that if
we could raise the 25% down,
about $30,000, we could get my
clients qualified by simply
stating a higher income for
them. But where to get $30,000?
As I said
earlier, they had bought a
home. They now owed $40,000
against it but it was worth
about $80,000.
Some
banks will lend up to 90% loan
to value on owner occupied
properties. In other words, if
you live in
the
property they will lend up to
90% of its value minus any
existing encumbrances (loans).
So, if the property is
valued at $80,000 with $40,000
owed against it they will lend
$72,000 minus the $40,000
encumbrance or $32,000.
I had my
clients do exactly that.
They got a second mortgage of
$30,000 dollars and used it all
as a down payment on the home
they were buying. Since they
were now, putting over 25% down
on this new home, we were able
to use the "no qualifier" loan.
The end result was that they got
the home they wanted, and
because of the large down
payment, they got monthly
payments that were actually a
little lower than they were
expecting. The lender was happy
because they made a loan, and my
clients were able to budget
their money so as to be able to
make their payments. And to top
it all off, their other house is
now a rental that brings in $100
dollars per month more than they
owe on the loan payments.
Pretty good for someone with no
cash and little income...
See
Chapter 3.
Borrow
against money.
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