What is DSCR or Debt Service Coverage Loans?

People often ask if real estate investments are still the best way to grow wealth, especially with various other investment options like stocks, bonds, and cryptocurrencies. The short answer is YES.

Real estate investments offer steady income cash flow, especially when you have one or two rental properties under your name. Unfortunately, although this might sound very enticing, getting into the real estate rental business can be pretty challenging, especially if you’re a self-employed individual with no fixed/ steady income or even employer tax returns.

Fortunately, several loan programs are available to help self-employed individuals and real estate investors. One such loan program is a DSCR loan. This loan program provides real estate investors with the necessary capital to secure their dream rental properties without going through the stress of conventional loans.

What is a DSCR Loan?

When lenders provide investment capital to borrowers, they often need certain assurances or metrics to convince them that the borrower in question can pay off the loan. For family members borrowing from other family members or relatives, word of mouth is often enough to convince them.

Sadly, this is not enough for commercial lenders, irrespective of how trustworthy the borrower may be. DSCR, short for debt service coverage ratio, is a metric that commercial lenders use to assess the ability of a borrower to pay off a loan on a real estate rental property without verifying the borrower’s income.

This metric is obtained by dividing net operating income by the total debt service of the property.

Your net operating income = Total revenue from the rental property – operating expenses.

Total debt service = Debt obligation on the property, including principal and interest.

DSCR = Net operating income / Total debt service

 

Requirements to Qualify for a DSCR Loan Program

Unlike traditional bank loans, the requirements for a DSCR loan program are pretty flexible. Rather than demanding tax returns, proof of income, or other documents that commercial banks require, most DSCR lenders ask the borrower to provide a minimum of the following documents.

  • DSCR for the rental property
  • Credit score from 620 upwards
  • 20 to 25% down payment of the purchase price.

Nonetheless, it is essential to know that this requirement might vary across lenders, as different lenders might require one or more additional documents before processing the loan request.

How Does DSCR Affect My Ability to Qualify for a DSCR Loan?

To qualify for a DSCR loan, borrowers must have a good DSCR score. DSCR scores can be less than, equal to, or greater than 1. A good DSCR score is a score that is above 1, preferably equal to or greater than 1.25, though various lenders may require higher scores.

When evaluating loan eligibility for DSCR loans, lenders prefer individuals with higher scores of 1.5 or more as this gives the lender greater reassurance that the loan can be paid back comfortably.

Consequently, individuals with high DSCR scores enjoy lower interest rates than high-interest rates on scores of 1.25 or below. While scores equal to or less than one may not qualify for a loan with some lenders.

That is not to say that DSCR scores are the only factor lenders look at when determining interest rates. While the DSCR score might evaluate the borrower’s eligibility, factors like the amount of equity available, credit score, and coverage length of the loan might also play a significant part in determining the interest rates and the total amount of interest paid throughout the loan period.

Benefits of DCSR Loans

DSCR loans boast various benefits above traditional loans from commercial banks. Some of them include:

No tax returns hassles: Traditional lenders often require the borrower to provide proof of income, tax returns, bank statements, and other documents before they deem them eligible for a loan.

Unfortunately, most self-employed investors might not be able to provide these documents. Therefore, they turn to DSCR loans as a better alternative to provide them with the capital they need to secure their real estate investments.

No lengthy approval process: Even after providing these numerous and tedious documents, most traditional lenders still have to run various background checks and approvals before they finally approve a loan for an investor.

Sadly, time is money, and the real estate market waits for no one. DSCR lenders, on the other hand, provide loan approvals in as little as 24 hrs, giving investors the competitive advantage they need to thrive in the real estate market.

Higher loan limit: It’s no secret that most lenders have a somewhat limited cap on the amount of capital they provide to investors. They determine this cap by examining the borrower’s credit score and proof of income, which might not accurately represent their ability to repay the loan.

However, DSCR loans use the DSCR metric of the rental property and can provide loans of up to $5 million to real estate investors.

Lower down payment: Most traditional mortgage lenders require at least 20% equity on the investment before they provide investment capital to individuals. Unfortunately, most borrowers might not have that money and may be deemed ineligible for the loan.

DSCR loans have a lower down payment requirement that can be as low as 3%, depending on the lender. This makes it easier for investors to get the lifeline they need to grow their income.

Who Should Apply for a DSCR Loan?

DSCR loans are suitable for real estate investors and self-employed individuals without a steady income or employer’s tax return document. These individuals mostly fall under the following categories.

  • Doctors
  • Real Estate Investors
  • Business Owners
  • Self Employed Individuals
  • Lawyers
  • Freelancers
  • Consultants

Nevertheless, other individuals with steady incomes who want to avoid the hassles of traditional loans can apply for a DSCR loan as long as they have the minimum requirement stipulated by the lender.

Get a DSCR Loan Today!

As we’ve explained, getting a DSCR loan is much easier and more convenient than traditional loans. Therefore, it is most beneficial for self-employed individuals that want quick access to investment capital without having to provide income documentation.

So why settle for the tedious loans of traditional lenders when you can work with the best DSCR loan lender in the country. Check out our DSCR loan program and see why real estate investors turn to us for investment capital.

What is a Cash Out Refinance?

Paying for your dream home with a mortgage frees up your money for other things and builds your credit score and equity. You don’t have to wait years while repaying your current mortgage to convert your home equity into cash. You can pay off your existing mortgage through a cash out refinance and still have more money in your pocket.

What is a Cash Out Refinance?

A cash out refinance lets you take a larger loan and use it to clear your existing mortgage. After settling your old mortgage, the balance is refunded to you in cash.

You can use the cash for virtually any purpose, which includes consolidating high-interest debts, home remodeling, and even starting new construction.

Mortgage refinancing poses a lot of benefits to property owners. It enables you to reduce your monthly mortgage repayments while negotiating for a lower interest rate.

Besides, you can access the cash using your home equity, renegotiate your periodic loan terms, and include or remove borrowers from your loan obligation.

The amount of cash out refinancing you can obtain from your lender depends on your credit profile and the property’s loan-to-value ratio.

In most cases, you may incur more points, or a higher interest rate on a cash out refinance mortgage than on a rate-and-term refinance. Thus, if you want to benefit more from your cash out refinancing, find a way to lower the interest rate on the primary mortgage and maximize the funds you get.

How a Cash Out Refinance Works

With a cash out refinance mortgage, your home equity and some cash can serve as collateral for the new loan. The process involved is quite similar to rate-and-term mortgage refinancing. Although with rate-and-term refinancing, you only get the same amount to help you settle your existing loan at a lower interest rate.

You must find a lender willing to walk the journey with you when looking for a cash out refinance. The lender will then evaluate your credit profile, the existing mortgage’s terms, and the amount needed to settle the loan.

Depending on the underwriting analysis, the lender may decide to make an offer or decline your request. If you qualify for the new loan, you are awarded an amount that pays off the old mortgage, and the balance is issued to you in cash.

After a refinance, most lenders require you to keep about 10% to 20% equity. It depends on the lender and if you are paying for your new loan’s private mortgage insurance (PMI).

PMI is the additional cost you may incur if you fail to place at least 20% down when buying a house or the 20% equity required after a cash out refinance. The money covers the lender if you fail to pay your mortgage.

Like other loans, you are expected to pay closing costs after completing your cash out refinance. The charges range from 2% to 6% and cater to the appraisal, lender fees, and other expenses incurred. Thus, you must inquire about all the costs you will incur before borrowing.

How Much You Can Get from a Cash Out Refinance

To determine the amount you can receive from a cash out refinance, you should know these three things:

  • The worth of your home or home value.
  • Your current mortgage balances.
  • The percentage of retained equity required by the lender after refinancing.

Most lenders use an automated valuation model or physical home appraisal to determine the worth of your home. Depending on your credit score and the lender’s rules, you may be allowed to borrow up to 80% or 90% of your home’s value.

Now, the remaining 10% or 20% is your retained equity. The only exception is for the US Department of Veterans Affairs, which allows you to take all 100 percent equity.

For instance, if your home value is $600,000, the retained equity (20% of home value) will be $120,000. The cash out refinance loan amount you will be awarded will be $480,000. Let’s say your current mortgage balance is $200,000. The cash you will receive after repaying the balance will be $280,000.

Cash Out Refinancing Pros and Cons

Before you choose the cash out to refinance route, consider its pros and cons.

Pros

Lower Interest Rates – If your mortgage rates were higher when you initially bought the property, you might have lower interest rates in your cash out refinancing.

Access to More Funds – Cash out refinance can help you settle significant expenses, such as college tuition, home renovation, or any other financial goal.

Higher Credit Score – When you pay your credit cards through cash out refinance, you may improve your credit score by lowering your credit utilization ratio.

Debt Consolidation – Cash out Refinancing enables you to pay off all high-interest credit cards, saving you a lot of money.

Benefit from Tax Deductions – You may benefit from interest deduction during tax time. That’s if you will use these funds for a home improvement project that complies with the IRS eligibility requirements.

Lower Borrowing Cost – Cash out Refinancing options are usually cost-effective as their mortgage refinance rates are lower than personal loan rates.

Cons

Foreclosure Risk – Since you use your home as collateral, you may lose it if you fail to make the necessary payments. Things might be worse if you use the secured loan to pay unsecured debts, like college tuition and credit card debt.

Time-consuming – The entire process of getting a new loan takes time. If you need quick funds, cash refinancing may not work for you.

New Mortgage Terms – You will have to deal with different rules from your existing loan, such as interest rates and other fees.

Prolonged Debt Repayment – You may pay out cash to refinance your mortgage for decades. Most lenders spread the cash over 30 years. This could be costly and tiring, especially if you use the money to settle a higher credit card debt.

Private Mortgage Insurance (PMI) – Paying for private mortgage insurance (PMI) adds to your overall borrowing costs. Some lenders require you to keep between 10% to 20% equity, which covers them if you don’t pay the mortgage.

Closing Costs – Like any other refinance option, your cash out refinance lender will expect you to pay closing costs. This reduces the cash you get at closing.

If you are looking for a way to repay your current mortgage and still have some funds for other things, a cash out refinance would be the way to go. Look for a reputable lender and start your mortgage process. Remember to inquire about their interest rates and other fees involved before borrowing.

Global Events And Their Impact On Commercial Loans

According to the National Center for the Middle Market, a medium-sized business generates annual revenues between $10 million and $1 billion. These companies account for almost a third of the nation’s economy and employ 44.5 million people nationwide.

Because of regulatory restrictions, associated expenses, and the time needed to arrange cash, small and midsized enterprises cannot access financial and capital markets for funding. As a result, they acquire financial assistance such as commercial loans.

Commercial loans are considered a form of conditional funding for businesses. The cash allocated can help a company increase working capital, buy new equipment, build new infrastructure, and pay operational expenditures.

These are lending arrangements between financial entities and financial institutions, e.g., banks, to help with business growth. The loans can be short-term 3-month bank statement loans or long-term according to the requirements.

How Have Global Events Impacted Commercial Loans?

The world economy has undergone a rapid transformation in the past few years. Many factors such as political agreements, liberalization, and deregulation of the financial market have brought up more internationally integrated markets where companies, investors, and businesses have become more interconnected with each other at a global level.

Because of this, the correlated risks faced by banks, governments, corporations, and households might trigger a long-unseen financial chain reaction. Due to these associated global challenges and factors, the real estate industry has changed a lot.

Here is the impact of these global events and factors on the commercial real estate industry!

How Do Fuel Prices Affect Commercial Loans?

Inflation is frequently caused by rising gasoline prices, which impacts most industries. However, small enterprises suffer the most from the inflationary climate and price hikes.

Due to Billboard signs warning that gas now costs $4, $5, or even more than $6 a gallon in some locations, the increase in gasoline prices is both evident and affects consumer behavior.

Rising oil prices increase expenses and transportation costs for small businesses. Moreover, their ability to negotiate pricing with manufacturers or on to pass these inflationary expenses to their customers is also impacted.

High fuel prices affect businesses as they reduce consumers’ purchasing power. In addition, higher gas prices result in rising business costs, affecting customers and the global market.

Impact Of Interest Rates On Bank Statement Mortgage Loan

Bank statement mortgage loans do not require any other document for approval. Thus, these prove suitable for self-employed persons.

However, the interest rate may increase or decrease in accordance with substantive global events, such as the Russia-Ukraine war and the Pandemic.

Furthermore, higher interest rates make it difficult for home-based business owners and other smaller and medium-sized businesses to borrow. Bank statement mortgage loan lenders adopt interest rates as a precautionary measure due to the high-risk rate.

If the lender is satisfied with the provided information and feels low risk, they may keep the interest rate lower. On the contrary, they will also increase the interest rate if the chances of risk seem to be high. The risk rates are generally higher with bank statement loans, meaning the interest rates are also higher.

To pay low-interest rates on loans, you should better understand essential factors in determining interest rates. This way, you can figure out how to borrow efficiently.

Covid-19 And Its Effect On Commercial Landing

As we all know, a greater focus has been placed on the extent to which the country’s banks may offer financial assistance to impacted individuals and businesses due to the economic shocks that struck the global economy in the spring of 2020.

The changes in bank lending during the first few months of the outbreak have been vastly seen. During these months, significant domestic and foreign-affiliated banks dramatically boosted lending to firms.

Small local banks actively provide paycheck protection loans. These loans do not make the quantity of bank credit available to consumers, so the stock of residential mortgage loans held by banks did not change significantly.

Based on this experience, banks may need to plan and respond head-on to prevent such terrible situations in the future that may lead to foreclosures of affected enterprises.

Supply Chain Issues And Commercial Loans

Due to the situation in Ukraine, the already-existing supply chain problems are growing worse. Certain products are in higher demand, which makes it harder to produce, ship, and deliver them to consumers.

To put it simply, war makes it much more difficult for firms to make money and expand. Lenders may hesitate to offer financing due to declining revenues because they can’t make much profit when supply chain issues impact enterprises and consumers that avail services from them.

Key Takeaways

With everything happening worldwide,  we have encountered unprecedented shifts. The past two to three years have been riddled with uncertainties.

Therefore, it is crucial to understand how global events may affect the present and future of commercial loans. This knowledge will arm us to look for properties that are easily accessible and invest money where it will yield the best returns.

That said, Black Mortgage is providing the best bank statement mortgage loans with the lowest interest rates to help struggling businesses get back on their feet. For further information or mortgage quotes, contact us today.

The Proper Way of Refinancing your Rental Properties

Investing in real estate is one of the many ways to build up wealth. Homeowners buy a house, rent them out, and earn income from the rent. 

These houses for rent are purchased through home loans. If you have an investment property or more, you might want to revisit the interest rate as it might be high. Today’s rates are competitive, and you can take advantage of them by mortgage refinancing. 

Mortgage refinancing a rental property

You can get several advantages when you refinance your investment property. Below are some of the benefits that you can get. 

Lower interest rates
There is quite a difference in the interest of an investment property and a primary property. The interest rate of a rental property is higher than that of a primary house by 0.5% – 0.75%. The reason is that investment properties are riskier for lenders because banks and lending companies know that if you run into trouble with payments, a borrower will always choose to save their house than a rental property. For this reason, lenders implement higher rates on investment properties. 

However, if your rental property is doing well and your track record shows that you are doing well and can manage the payments, you can apply for refinancing and access lower interest rates. 

Changing loan terms
You can adjust your loan terms accordingly in a mortgage refinance. You can opt to pay more every month and shorten the loan length, or you can extend your loan terms as needed. 

Mortgage refinance rates can be changed from an adjustable rate to a fixed rate so that your monthly amortization is fixed. 

Increase rental income
To get the most out of your rental properties, you can do repairs and upgrades that will price your property higher. Some enhancements may include reroofing, adding a basement and renting it out separately, adding more space to the house, and adding appliances. A construction loan can finance these things, or if you are upgrading appliances, a mortgage refinance is the answer. 

What you need to do before a refinance

Before going into refinancing, here are some things to prepare and evaluate. 

Credit score
Knowing your credit score will help you understand your refinancing options if there are some loose ends that you need to take care of to improve your score. 

It is also helpful to know your current financial situation to take a mortgage to refinance. 

Secure documents 
Before refinancing your rental property, you need to gather financial documents similar to when you got the previous loan. These are some of the documents you will need to prepare:

  • Full-time investors do not have W-2, so the tax returns can be used instead to comply with the documentary requirements.
  • Copies of rent receipts to show your income helps lenders determine your debt-to-income ratio.
  • Bank statements so that the lenders can see how much cash you have saved and have something for emergency expenses.
  • Homeowners’ insurance is a requirement by all mortgage lenders.
  • Provide a copy of rental leases on your rental property because these can give the lenders an idea of how profitable your property is.

Monthly payments
Computing for the monthly amortization will help you set a budget and decide whether to lower your monthly payment or increase it to end the loan term faster. 

Property value 
Before refinancing, research the value of your rental property to give you an idea of how much you can expect. 

Types of refinancing options 

There are three types of mortgage refinancing: rate–and–term, cash–out, and cash–in. Checking your finances will help you decide which is best for you. 

Rate-and-term
Rate-and-term refinancing is where homeowners can change their current loan’s mortgage rates or loan term, or in some cases, both. The goal of this type is to save money.

Cashout refinance
In cashout refinance, you make use of the rental property equity, where equity is the portion that you own, depending on how much you have already paid on the mortgage. Cashout refinance is simply taking a loan against the value of your rental property.

Streamline refinances
Typically, lenders check your income, credit history, and assets. Low-doc refinance programs let you bypass the whole verification process called “streamlined refinance.” The term is such because the requirements are more straightforward and faster. 

In a streamlined refinance, lenders waive the home appraisal, income verification, and credit score. Homeowners can avail the streamlined refinance loan if they are backed up by the federal government, such as VA loans, USDA loans, and FHA loans. 

Searching for Reliable Mortgage Lenders

You can choose to work with the same mortgage lender unless you find someone who can give a better deal. There are several lenders to choose from so take your time to compare different offers.

You will want to shop around and compare quotes from various mortgage lenders. Shopping around and comparing rates can help you save money.  

Once you have narrowed down the offers, select the one that gives you the best advantage.

The internet is still the best place to find the best one for your taste. While looking, you can also read the reviews by other clients because this says a lot about the lender.

Blake Mortgage is a mortgage broker based in Arizona. Highly professional and work closely with clients. If you are looking to finance the rental properties or refinance your mortgage, you will get the support you need and help you through the entire process. 

Being in the industry for quite a long time, Blake Mortgage has developed an extensive network that can handle any transaction, no matter how tricky it can be. A company that has a personalized approach when handling clients.

With the low-interest rates today, more people are looking to buy investment properties and refinance their mortgages. Whether it is your first time or your nth purchase of real property, you want a mortgage broker whom you can trust.

5 Reasons Why Bank Statement Mortgage Loans are Beneficial for Self-Employed Individuals

Buying a home is among the most significant purchases you’re likely to make, and before you take this step, you should ensure that your finances are in order. The first step to buying your dream house starts by checking your bank accounts and billing statements; it will give you an idea of how much you make and spend each month.

Some of the critical questions you may need to ask yourself include:

  • Do I have a stable job or income?
  • Can I save some money every month?
  • Do I have existing debts like a student loan or car payment?

After answering these key questions, you might want to consider applying for a bank statement mortgage loan.

What are Bank Statement Mortgage Loans?

Also known as bank statement loans, bank statement mortgage loans are a category of home loans that allow borrowers to get a mortgage without the regular documents required by most lenders to approve a loan. Sometimes, these loans bear other names like “self-employed mortgages” or “alternative documentation loans.”

Self-employed mortgages mainly work for independent contractors or business owners. They can also work for those who don’t have a steady income or have multiple employers to approve their salaries. The main point about these loans is that they are issued based on personal information and bank statements instead of tax returns or employer verification.

Requirements for Bank Statement Mortgage Loans

Since bank statement loans are non-qualified mortgages, each lender comes up with its own rules. These rules may vary from one borrower to another. For instance, some lenders may require 12 months of bank statements, but if you have a low credit score or other issues that may impact your creditworthiness, a lender may ask for up to 24 months of bank statements. Overall, the guideline for obtaining a bank statement mortgage loan includes:

  • Bank statements for the past 12 or 24 months
  • A reasonable down payment of usually 10% of the purchase price or more
  • Documented proof of cash reserves, which may include cash savings or assets
  • A decent credit score and clean credit report between 580 and 620 or higher
  • A business license if needed in your line of work
  • A profit and loss statement for the last 12 months of trading

Besides, a borrower may need a letter from a professional accountant or tax expert confirming tax filing in an appropriate self-employed category. In this regard, a borrower also needs to confirm that their expense deductibles are in order. Overall, some lenders are flexible and may not deny you a loan even if you lack one or two of these requirements.

5 Reasons Why Bank Statement Mortgage Loans are Beneficial for Self-employed Individuals

Bank statement loans offer the following benefits to self-employed individuals:

No Tax Returns or Pay Stubs Required

Regular lenders would ask for the average tax returns, form W-2, or pay stubs. Eligible non-self-employed individuals often obtain their W-2 form from their employers every year to verify proof of income. For self-employed individuals, this is not possible because they don’t have a standard employer.

The debt-to-income ratio doesn’t affect the loan

The debt-to-income ratio (DTI) is the term used to determine the amount of income a person or an organization generates to enable it to service debt. Lenders use this term to assess the borrowing risk of a person or an entity. A low DTI ratio may indicate sufficient income to service debt. However, it doesn’t matter whether the borrower has a high DTI ratio in applying for bank statement mortgage loans.

Borrowers can enjoy high loan limits

Usually, mortgage loan limits depend on various factors, including credit score and location. However, each lender can only give what it’s comfortable with. In the case of bank statement loans, borrowers can get high limits based on the prevailing FHFA rates.

Loans can be used for a primary residence, second home

Notably, there’s no restriction regarding what a borrower can do with a bank statement loan. The loan can be applied to a primary residence, a second home, or an investment property.

Manageable down payment

According to a report by the National Association of Realtors, down payment is the most challenging part of the home-buying process. Some homebuyers look for assistance to fund their down payments. However, most lenders offer manageable down payments, sometimes as low as 3% of the total mortgage cost for bank statement mortgage loans; this makes it beneficial to self-employed individuals.

Who Should Apply for Bank Statement Mortgage Loans?

Bank statement loans are often suitable for people without a steady cash flow. They are also ideal for those who can’t get proof of income from their employers. Generally, the following categories of people can benefit from bank statement loans:

  • Freelancers
  • Consultants
  • Doctors
  • Lawyers
  • Real estate investors and agents

People in these professions might find getting a standard or FHA loan demanding because the income on their tax returns is often adjusted for business write-offs and other necessary deductions. Consequently, it might not give a true reflection of the amount of income one earns.

Choosing a Reliable Lender

For anyone looking for a mortgage loan, it’s always important to shop from different lenders; this can give an open field for comparing offers. Consequently, borrowers can save a substantial amount of money on their loans based on quotes from different lenders.

Well, Bank Statement Mortgage Loans may attract higher interest rates. Besides, not all lenders can offer them. All the same, they remain a convenient option for a self-employed individual.  

Getting a Refinance Loan is Better Due to Lower Rates

The start of November has shown plenty of homeowners refinancing their homes. It’s a good sign for other homeowners who are still planning about whether they should get their houses refinanced. Mortgage refinancing has seen a considerable increase in applications since late July. The main reason refinance loans are rebounding this month is the lower rates.

Are you wondering if today is the right time to refinance your home?

What Is Refinancing?

Before we start showing you the numbers, some homeowners may not know what refinancing means. So, let’s start first with the definition of refinancing.

Today is the right time to refinance is getting a new mortgage contract that takes the place of the original mortgage. Getting a refinancing means a homeowner is trying to make advantageous changes to their interest rate, schedule of payments, and other terms in their contract.

Homeowners often opt for a refinance when there is a considerable change in interest rates in the market. That way, borrowers get to save money from their debt payments due to the new contract.

Reasons Why Homeowners Get Refinancing

Often, homeowners get refinancing to change their mortgage terms and make them more favorable for them in their situation. Long-term mortgages span for several years, and within those years, some shifts in the economic condition may occur. Also, plenty of changes may happen within those years in the borrower’s circumstances.

Some of the most common reasons homeowners apply for refinancing are to lower their fixed interest rates, change the length of the mortgage, or change their loans from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.

Borrowers may also experience a change in their financial situation during their loan duration. For instance, you may apply for refinancing if your credit score has improved. Also, if your finances have significantly improved, you can pay off your loans and merge them all into one loan with low interest.

The usual motivator for homeowners to refinance is the lower interest rates in the market. However, many factors influence the interest rates of mortgages and loans. Some of the notable factors include market competition, the economic cycle, and the national monetary policy.

Why You Should Refinance Now

You may be restarting the repayment clock with this new loan. Consider you’ve made five years of payments on your current 30-year mortgage. That means you have 25 years left to pay it off. If you refinance to a new 30-year loan, you’ll start over and have 25 more years to repay it. You’ll pay off There are several reasons to refinance your mortgage, even when interest rates rise. First, the average American homeowner could save over $260 per month by refinancing their current mortgage. If you have an adjustable-rate mortgage (ARM), now is the time to lock in a low fixed rate before it starts adjusting higher.

Perhaps you’re in a better financial position today than you were when you took out your prior mortgage. Refinancing may enable you to obtain a lower interest rate. 

The Numbers That Show How Well Refinance Is Doing Now

According to the Mortgage Banking Association (MBA), refinancing’s Market Composite Index gained 5.5%, 5.0% unadjusted, and on a seasonally adjusted basis. The reason behind it is the considerable number of applications for refinancing, and November has seen the most increase so far.

Since September 17, the Refinance Index has gone higher for the first time. It rose 7.0% as compared to the previous week. However, it was 28% lower than the same week a year ago.

The mortgage activity of refinancing based on total applications rose to 63.5%, compared to 61.9% during the week of October 29. It’s also notable that the average loan balance was the highest in a month in refinance applications.

The interest-rate environment changes right now are perfect for homeowners wanting to refinance their homes. Refinancing is your chance to improve your loan terms and potentially save money. So please  Book an appointment with us now or call us at 480-699-1055.

 

 

Top Loan Setbacks that VA’s Encounter

Are you an active service member, veteran, or surviving spouse? Do you know that you can obtain a zero-down payment VA home loan? This can be the best financing option to purchase a home or even refinance your home. Your dream to become a homeowner can be realized sooner than later. However, there are some setbacks you need to know before making a decision.

What is a VA loan?

A VA loan is a mortgage offered through the U.S Department of Veteran Affairs; VA loans are designed to help active-duty military personnel, veterans, and service members become homeowners at an affordable cost. VA loans have generous terms such as no down payment, require no mortgage insurance, have lenient rules for qualifying, to name a few benefits.

How do VA Loans Work?

Although the Department of Veteran Affairs offers VA loans, the government does not necessarily design the loans. The government, through the department, determines who qualifies for the VA loans and which lenders issue the loans. The department can either back you up in the loan or have the loan given to you directly. These loans come in a different form from which you can choose.

VA Loan Eligibility requirements

To meet the eligibility requirements, you must have done your service time. If you are on active duty, this translates to 90 consecutive days. If you are a National Guard or Reserve member, this means 90 consecutive days if you are activated or six consecutive years if you aren’t. If you are a veteran, the required service time varies. Find more at va.gov.

However, there are some setbacks you need to be aware of. Let’s discuss below; read on to find out more.

Funding Fee

Although VA loans have very generous terms, you have to pay funding at closing. This fee is charged to reduce the weight of U.S. taxpayers. However, the following are exempt;

  • A service member with service-connected disabilities
  • A surviving spouse of a Veteran who died in service
  • A service member who has received a purple heart

When you take your first VA loan and make zero down payment, the funding fee is 2.3 percent of the amount you are borrowing. With subsequent borrowing, the VA funding fee increases.

Here are some setbacks that VA’s tend to encounter along the way:

Primary Residences Only

Another setback of VA loans is that they are limited to primary residences as opposed to conventional loans. You cannot purchase a second home, an investment, rental property, or a vacation home; this is a significant disadvantage because you cannot purchase any property that brings you money. You are buying a liability instead of an asset in an absolute sense. Therefore, a VA loan is not the solution if you want to buy an investment property. In this regard, a VA loan encounters a loan setback.

VA Appraisals and Inspection

A VA appraisal comes with red tape around it. Because VA appraisals require additional information not needed by other loan-type appraisals. The VA is more extensive than any other appraisal. Some VA Loan Minimum Property Requirements(MPRs) include:

  • Adequate roofing
  • No lead-based paint
  • Mechanical systems that are safe to operate
  • Adequate heating systems
  • No signs of termites, dry rot, or fungus growth
  • No crawl spaces and signs of leaks in basements

Although the intensity of the VA appraisal can keep potential borrowers from owning defective properties, the closing will take ages. Due to the bureaucracy of the government, the appraisers are slow and end up undervaluing homes.

Seller Resistance to VA loans

Many sellers find VA loans unattractive; this makes them uncomfortable, and they end up resisting VA home loan deals. Some of the reasons are; VA appraisals- as discussed above, which impose minimum property requirements that require a home to meet the agency guidelines for safety and livability. They have extensive appraisals such that they undervalue homes. Which makes sellers resist most of them. In some markets, sellers must pay closing costs if veterans buy a property with zero down payment. Most sellers frown at such offers. The closing process may be extended due to delayed paperwork in most instances. Sellers want fast business, and this is not pleasing to them at all.

You May Have Less Equity in Your Home

Ironic because buying a home with little or no money is one of the most significant advantages of a VA loan. However, this can also be a disadvantage. Once you move into the home, you’ll have a property that is 100% financed. When the VA funding fee is added to the loan amount, you’ll be in a negative equity position from the beginning. If the property’s value increases in the market, this becomes a temporary problem. But, if the market is either flat or declining, there’s a severe problem. If you need to sell your home and have no equity, you may be forced to write a check at the closing table to cover any closing costs associated with the sale; not a typical case but a potential disadvantage you need to be aware of.

Finally, even though you’re eligible for a VA loan, it may not be your best financing option to purchase a home. Depending on your financial position, you might want to weigh your options and choose the best option for yourself. If your best choice is a VA loan, then be sure to do your due diligence and find a reputable VA lender. The lender you choose will determine how your loan application process will go. Finding a company that does a substantial amount of VA business is the safest way to take. Most lenders have no experience with VA loans and may end up giving you unnecessary headaches.

5 Things to Avoid During a Construction Loan

Building a home is an exciting and complicated process. It’s exciting because you get a chance to tailor your home according to your lifestyle, budget, and family. It gets tricky when the costs add up fast and you don’t have the cash on hand to pay; this is when a construction loan comes in handy. When applying for a construction loan, there are some things you need to avoid. Read on to find out more.

What is a Construction Loan?

A home construction loan is a short-term, higher interest rate loan that provides the money required to build a residential property. The loan duration is usually one year. The property is built, and a certificate of occupancy is issued during that period. The funds are allocated in stages as the work progresses.

How Do Construction Loans Work?

As mentioned above, construction loans have variable rates which move up and down with the prime rate. Construction loans have higher rates than traditional loans; this can be attributed to the fact that your home acts as the collateral with conventional loans, but construction loans have that privilege. You provide the lender with a detailed plan and a realistic budget. It helps them plan on how they are going to issue the funds.

Some of the things you need to avoid during a construction loan are explained below.

Avoid Early Starts

An early start may seem reasonable because you have a timeline – you want to get started with the project right ahead. However, this can be a risky undertaking. An early start can significantly delay the loan closing. The title agency will request an early start coverage if the construction has already started. There is no guarantee that this will be granted, resulting in no title insurance coverage. In this case, your loan may not be even be closed.

Avoid Additional Loans or Credit Lines

It would be wise to stick with your current loan during the construction period. Never add another loan or credit line, or you will get yourself in trouble; this can be detrimental to the project because it increases the total cost of borrowing and the level of debt on a project, leading to difficulties in repayment.

Do Not Do the Building Yourself

It gets more difficult when you are doing the building yourself. Lenders are hesitant to lend money to owner-builders. They are afraid that non-professionals have more chances of delays and problems. Unless you are a professional contractor, maybe they would.

Avoid Changing Jobs at The Time of Construction

Many people think that it is a good idea to be changing jobs during the construction process. Your construction loan is dependent on your employment. Any sudden changes are never a good idea.

Avoid Going Past Due on Other Existing Loans

When you have other existing loans during the construction period, it is best to pay on time. Any past due can lead you to late fees or penalties.

It is crucial to stay close to your lender during the construction period and inform them if anything does not go as planned. So before starting your construction loan, make sure you know what to avoid. The more you are knowledgeable, the lesser headaches you will encounter.

References

https://www.bankrate.com/mortgages/construction-loans-explained/

https://www.quickenloans.com/learn/construction-loan

https://www.thebalance.com/basics-of-construction-loans-315595

How To Get Cash Out of Your Investment Property With No Income Documentation

As investment values increase in many areas, savvy real estate investors recognize the opportunity to tap into their property’s equity. A cash-out refinance on investment property is one of the best opportunities to make the most out of this situation. There are countless uses for those funds — home improvement projects, adding new property, or managing other financial needs unrelated to the property itself. Depending on the amount of equity, you could see a significant amount of financial improvement, especially with a cash-out refinance with no income documentation.

How does a cash-out refinance on investment property work?

A cash-out refinance allows the property owner to secure a new mortgage on the property for more than they currently owe on it. They then receive the difference (new mortgage amount minus what is owed and closing costs). Using a real estate investment, it’s possible to capture funds during these high home value times to use to advance your portfolio or simply lock in low rates for other needs.

Why use a cash-out refi?

Many property owners, including investors, have equity in their real estate that they don’t tap into and use as readily as they should. Yet, they may be paying a much higher interest rate on unsecured debt or battling financial difficulties in managing their investment business. Interest rates on real estate are competitive — and the same goes for cash-out refinancing. Taking advantage of those funds now may help to make your financial future a bit stronger.

What are the details and specs of a cash-out refinance on an investment property?

If it is time to improve your cash reserves through a cash-out refinance loan, here’s what you can expect from us:

•      Get up to 75 percent loan-to-value on your home – no reserves required

•      You may not need any employment or income documentation to secure these funds.

•      Boost investor cash flow to use as you need.

•      Borrow up to $2 million

•      30-year fixed loan (no bothersome adjustable-rate mortgages to worry about)

You can use this type of loan on most types of real estate, making it more accessible to many real estate investors. That includes:

•      Single-family residences

•      2-to-4-unit condos, townhomes, and non-warrantable condos

•      Non-owner-occupied properties only (cannot be used on primary residences)

There are a few other things to know about a cash-out refinance on investment property. For example, to qualify on cash flow, you’ll need 12 months reserves for negative cash flow. The cash-out can be used to cover reserves.

What can you do with a cash-out refinance loan right now?

Expand your horizons when you consider all the potential options for using these loans to meet your needs. Many times, property owners use these funds to put value back into their investment properties. You can do this in many ways, including home improvements. Get the property in better shape so you can attract a higher-paying tenant. It may be possible to use these funds to expand the existing property’s footprint through an addition. That may allow investors to increase their rental opportunities.

Other investors use these funds to invest in another property. Buying another rental property with a low interest rate and low monthly payment using these funds simply makes sense for many people. It is one of the best ways to expand a real estate portfolio in current conditions.

Pay down personal debt with these loans. While mortgage payments may continue for a bit longer on the property, you may be able to comprehensively pay down your debt outside of that loan. Doing so may save you money since interest rates tend to be much lower on a cash-out refi than personal, unsecured debt.

Use the funds in any way that fits your needs right now. Tuck them away for the future. Know that a cash-out refinance loan is one of the most effective ways of utilizing the value of your property.

The Benefits of Using Unsecured Business Purpose Loans

For many small businesses, obtaining a business loan can be quite difficult as many small business owners don’t have the collateral to pledge for a traditional secured loan. Therefore, unsecured business purpose loans are often a better option. While unsecured business loans are often tougher to qualify for and can carry higher interest rates than secured loans, they ultimately hold less risk for borrowers. 

Below, you’ll learn more about the benefits of using unsecured business purpose loans, how unsecured business loans work, and the steps you can take to obtain an unsecured business loan today. 

Understanding Unsecured Business Loans 

Essentially, unsecured business loans work in a similar manner as traditional secured business loans. However, the main difference is that borrowers are not required to offer a form of collateral with an unsecured business loan. But, as with any loan, there are pros and cons to securing this type of funding for your small business financing needs.

Pros of Unsecured Business Loans 

  • They can be easy to obtain because they typically offer a faster application process compared to secured business loans. 
  • Unsecured business loans can offer a quick approval time, with some lenders approving unsecured business loan applications in as little as 24 hours. 
  • There are often fewer restrictions associated with unsecured business loans. 
  • There’s less fear surrounding property loss as lenders must have a court order to take business or personal property if an unsecured business loan isn’t paid. 
  • If your business files for bankruptcy, courts often discharge unsecured loans, whereas secured loans are typically not discharged. 

Cons of Unsecured Business Loans 

  • Lenders typically require personal guarantees. This means that the owner of the business signs an agreement in which they agree to personally repay the loan if the business is unable to do so. 
  • Unsecured business loans are often riskier for lenders since they do not have collateral such as real estate to secure the loan, which typically causes these types of loans to have a higher interest rate. 
  • With unsecured business loans, the repayment terms are often shorter, and they may require more frequent payments.
  • Qualification for an unsecured business loan often has much stricter qualification requirements and can be difficult to obtain, especially if you or your business have a low credit score. If you don’t qualify for an unsecured business loan, you might want to look into other financing such as lines of credit, a merchant cash advance, or other business credit cards..  

Now that you know what an unsecured business loan is and its pros and cons, let’s look at how unsecured business loans work.

How Do Unsecured Business Loans Work? 

Unsecured business finance options work like traditional types of secured debt financing. However, with unsecured business loans, borrowers are not required to provide lenders with any form of collateral. Overall, instead of looking at the borrower’s collateral, lenders look at the borrower’s creditworthiness. Generally, you must have a minimum credit score of 680 for a bank to consider you for an unsecured business loan.  Lenders also look at the loan amount and the business’s cash flow to determine whether the business is a good risk in terms of providing a loan. 

Steps to Obtain an Unsecured Business Loan 

To obtain an unsecured business loan, you will need to follow certain steps to make sure you are even eligible to apply. The following includes some of the criteria you will need to meet in order to qualify for an unsecured loan from a bank. 

  • You will need to have multiple years of documentation for your business. 
  • It is in your favor to have a strong personal credit score. 
  • You should have an excellent annual revenue as banks examine this element before granting a loan. 

Once you have determined if you meet the criteria of the three elements mentioned above, you can then start the process of obtaining an unsecured business loan from the financial institution of your choice. It is also beneficial to create a detailed business plan before seeking an unsecured business loan from a bank or other financial institution. 

In your business plan, be sure to include:

  • A company description
  • What products or services your business sells
  • The management structure of your business
  • An analysis of the industry your business is in
  • A SWOT analysis of your business
  • Any other vital information regarding your business

When applying for an unsecured business loan, keep in mind that the most likely place to obtain this type of loan is from an alternative lender rather than a traditional bank. Popular alternative lenders are financial technology firms that use automated technology to determine a small business’s credit history and overall creditworthiness. Frequently, alternative lenders end up charging borrowers more than traditional banks or credit unions. These are all elements to consider when looking to obtain an unsecured business loan from any type of financial institution, including the Small Business Administration’s (SBA) small business loans. 

How Blake Mortgage Can Help  

Hopefully, through this overview on unsecured business loans, you have been able to see some of the benefits this type of loan can provide to you and your small business operation. If you’re looking to start the process of obtaining an unsecured business loan, then Blake Mortgage is here to help. 

The dedicated team at Blake Mortgage works diligently to connect you with a wide variety of financial institutions that are willing to lend money to small business owners seeking loans. Whether you’re worried about qualifying for a loan or simply getting the best rate, we can help. 

Are you ready to discover how Blake Mortgage can help you obtain a business loan today? If so, give us a call or make an appointment to learn more.