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How To Invest In Real Estate If You Have Bad Credit

It seems like every time you turn on the television, there's a new home improvement show dedicated to flipping houses and making bank—a popular way to invest in real estate. 

Investing in real estate and turning it for a profit might be tempting. But if your credit score is below 601—the number the credit bureaus mark as the dividing line between “fair” and “bad” credit—you might have a tough time finding funding.

So, is investing in real estate out of the question for someone in that bunch? Not necessarily.

Buying an investment property vs. buying your own home

No matter what you've seen on TV, purchasing real estate as an investor is a lot more complicated than doing so as a homeowner if you are turning to a lender to help finance the deal.

"Those looking to finance the purchase of real estate as an investment—as opposed to a primary residence—can expect a higher interest rate and more stringent lending criteria from lenders before getting a mortgage," explains Bruce Elliott, president of the Orlando Regional REALTOR® Association and a broker associate with Regal R.E. Professionals in Orlando, FL.

Lenders typically require more money down and a better credit score for a real estate investment loan than for an owner-occupied home loan.

"They also look very carefully to ensure that investment home buyers are financially capable of sustaining the mortgage over an extended period of time in the event that the property doesn’t resell, and they even have formulas to calculate for shortages in expected rental income," Elliott explains.

Can you invest in real estate with bad credit?

Unless you have spare cash or a loan from a friend or relative to finance your investment, obtaining a loan will likely be difficult.

That said, there are other options to help you one day become a real estate investor, Elliott says.

• Improve your credit score. Resolve any collection-related issues uncovered by a credit check, and pay down existing balances. And be smart about other investments: Now is not the time to finance additional purchases such as a car or to open additional credit accounts of any type.
• Find a hard money lender.
No, this isn't a back alley deal-maker. Hard money lenders are private individuals or groups who will put up cash for real estate ventures, and they are often more amenable to making a deal with someone who has poor credit. Of course, there will be some drawbacks: "Generally, these lenders will require anywhere from 40% to 60% down to purchase or close outright," Elliott notes.
• Skip putting money down.
It might sound like a pipe dream, but Elliott says this is often the story behind those roadside “home for sale” signs that specify "cash only.” "The investor simply has purchased an option or received permission from a homeowner to try to sell the home," he explains. "The investor makes money either from a back-to-back closing or from payment directly from the ultimate buyer."

If you want to invest in real estate, bad credit can be a stumbling block, but it doesn’t have to derail the whole train.

What Boomers Want

Fixer Upper House

Trying to decide whether to buy a fixer-upper house?

 Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.

1. Decide what you can do yourself. 
TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house. 

• Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.
• Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

2. Price the cost of repairs and remodeling before you make an offer.

• Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do. If you’re doing the work yourself, price the supplies.
• Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

3. Check permit costs.

• Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it’ll cause problems when you resell your home.
• Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.
• Factor the time and aggravation of permits into your plans.

4. Doublecheck pricing on structural work.
If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems. 

Get written estimates for repairs before you commit to buying a home with structural issues. 

Don’t purchase a home that needs major structural work unless:

• You’re getting it at a steep discount
• You’re sure you’ve uncovered the extent of the problem
• You know the problem can be fixed
• You have a binding written estimate for the repairs

5. Check the cost of financing.
Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings. 

If you’re planning to fund the repairs with a home equity or home improvement loan:

• Get yourself pre-approved for both loans before you make an offer.
• Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you’re not forced to close the sale when you have no loan to fix the house.
• Consider the Federal Housing Administration’s Section 203(k) program, which is designed to help home owners who are purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans. A streamlined 203(k) program provides an additional amount for rehabilitation, up to $35,000, on top of an existing mortgage. It’s a simpler process than obtaining the standard 203(k).

6. Calculate your fair purchase offer.
Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.

For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.

Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.

The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.

Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair. 


7. Include inspection contingencies in your offer.
Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:

• Home inspection. This is key in a fixer-upper assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1970s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.
• Radon, mold, lead-based paint
• Septic and well
• Pest

Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.

If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.

CONDO for sale in Henderson, Nevada:

Five real estate tasks best done early

While I'm a big proponent of avoiding premature real estate moves, there are a number of tasks that are best done before you think they need to be. These are things that tend to take longer or often turn out to be more complex than people plan for. 

1. Check your credit. 

Everyone knows that you should check your credit, or have your mortgage broker do it, some time before you get ready to start house hunting. What people fail to factor in are the real-life turnaround times on rehabbing your credit in the event there are errors, fraudulent entries, balances you need to bring down, or trade lines (credit accounts) you need to build up in order to qualify for a home loan. 

For the most part, erroneous entries should be removed/removable in relatively short order, but on occasion, something like an account that was truly, but fraudulently, opened by a relative in the borrower's name can take weeks or months to resolve and remove. Many wannabe buyers who consider themselves very responsible, financially, also may be surprised to find that lenders require that they have some demonstrable history of responsibly using credit. In some cases, they will actually need to open and maintain one or more credit accounts in good standing for a short while to qualify.

2. Change your spending habits. 

The most-overlooked benefit of the tight lending guidelines in place during the past few years is that they motivated mortgage applicants to buckle down, get out of debt and be meticulous about their credit. In the process, people actually rehabbed their spending habits and financial behaviors way in advance of buying a home, creating a level of financial discipline that is freeing, enjoyable and stands them in good stead as homeowners over the long term. 

As loan guidelines loosen up a bit, it's still advisable for buyers-to-be to get serious about the whole picture of their finances as soon as they make the decision that they want to buy a home down the road, and clean up their spending, saving, debting, and other money matters.

3. Saving. 

Some buyers save up precisely what they need to put down on a home and pay their closing costs, not realizing that they might actually need to demonstrate several months' worth of payments that will still be in "reserve" in their savings or investment accounts after they close escrow and deplete their cash-to-close savings. 

Also, buyers who start saving late often fail to calculate for the very common tendency buyers have to increase their search price range over time, and for the costs of the fixes and furnishings they'll want when they move in. 

These miscalculations tend to result in buyers trying to get unrealistic deals on the first few homes they like, losing a few before they get real about what can truly be had for their dollar in their market.

4. Apply for tax reassessment. 

Don't forget you can still apply to have your taxes reassessed even though the deadline has already passed for the year. Many who hold off because they missed the deadline actually end up losing track of this to-do list item and forget to come back around to it. If you've missed the deadline to apply to have your home's assessed value reduced for property tax purposes, just apply anyway -- early for next year.

5. Talk to a real estate or mortgage broker. 

Don't delay. Real estate and mortgage brokers are a wealth of information that have the power to take your mental estimations of what will be involved and required to buy or refi or sell into the realm of a reality-based action plan. And they are ecstatic to get calls from prospective clients (that's you) months, even years, in advance, as it makes their job, once it's time to do it, much smoother and simpler. 
Talking to a pro before you think you need to can be an eye-opening course-corrector in terms of understanding things like how much you need to put down, any work you need to do to your credit, what you can expect your home to go for or cost you, and many other expectation-managing, plan-of-action-driving essentials.

Selecting the Right Mortgage

Selecting the type of mortgage that will best suit your needs is not a simple undertaking. The right mortgage will depend on many different factors, including your financial situation and how you expect it to change in the future, how long you'd like to keep your house, and how comfortable you are with the possibility of your mortgage payment changing.

For example, a 15-year fixed-rate mortgage can save you thousands of dollars in interest payments over the entire term of the loan, but your monthly payments will be greater. With an adjustable-rate mortgage, you may start with a lower monthly payment than a fixed-rate mortgage -- but your payments could increase when the interest rate changes.

The best way to find the right mortgage for you is to discuss your finances, plans and preferences with a mortgage professional, whom your REALTOR® can recommend.

Fixed-Rate Mortgages

Fixed-rate mortgages, the most common type of mortgage, offer consistently stable monthly payments. Your property taxes and homeowner's insurance may increase, but your monthly payments typically won't fluctuate.

With fixed-rate mortgages, you have the option of choosing a 30-year, 20-year, 15-year or 10-year repayment plan. You also may shorten the loan through a biweekly mortgage, thereby allowing you to make the equivalent of an extra month's payment per year. In selecting the length of your repayment, remember that a shorter loan carries higher payments but accrues less interest and allows you to build equity quicker.

Adjustable-Rate Mortgages

The interest rate on an adjustable-rate mortgage (ARM) is dictated by changing market rates. When interest rates rise, your monthly payments will go up, and when interest rates decrease, your monthly payments will go down accordingly.

ARMs often provide a lower initial interest rate than fixed-rate mortgages, attracting people who need lower payments early in the loan in order to qualify for a mortgage. ARMs also can benefit people who plan to move or refinance in the near future or those who expect their incomes to increase in the coming years.

Before applying for an ARM, find out how high your monthly payments can go throughout the life of the loan. An ARM includes two caps or limits on interest rate increases; one cap states the boundary for how high your interest rate can go up during each adjustment period, and the other cap sets the maximum total amount of all interest adjustments over the entire term of the mortgage.

The rates of an ARM typically change once or twice a year, and there is usually a lifetime cap on both the individual rate adjustments and the total amount the rate can change over the life of the loan. By applying the terms of the caps to your mortgage payments, you can anticipate the worst-case scenario prior to applying and determine if this figure is in line with your finances.

Reverse Mortgages

A reverse mortgage is a special type of loan made to senior homeowners that allows them to convert the equity in their homes to cash for living expenses, home improvements, in-home health care, or other needs.

A reverse mortgage takes its name from its reversed payment system. Instead of monthly payments by the borrower to the lender, the lender makes monthly payments to the borrower. With a reverse mortgage, older homeowners can stay in their homes and maintain or improve their standard of living without taking on a monthly mortgage payment.

To obtain a reverse mortgage, you must meet certain criteria that differ greatly from the qualification requirements for other mortgages. Reverse mortgages are generally limited to borrowers 62 years or older who own their own homes either outright or nearly so. Homes also must be clear of tax liens. And, unlike other mortgages, seniors don't have to meet income or credit requirements to qualify for a reverse mortgage.

Borrowers typically have the option of receiving the reverse mortgage's proceeds in the form of a lump-sum payment, fixed monthly payments for life, or a line of credit. A reverse mortgage's interest rate is usually an adjustable rate that fluctuates monthly or yearly. However, the size of monthly payments that borrowers receive doesn't change.

Balloon Mortgages

Balloon loans are short-term mortgages with some of the features of a fixed-rate mortgage, like low interest rates, but without the benefit of full amortization. As opposed to a 30-year fixed-rate mortgage, balloon loan payments only cover part of what you've borrowed during the term of the loan. At the end of the term, you're required to pay off the loan's balance by refinancing or making a lump-sum payment.

Balloon mortgages are typically five-, seven- or 10-year loans, so they can be beneficial to borrowers who anticipate selling or refinancing their homes in a short period of time.

Many companies offer a conversion feature at the end of the loan's term. For example, the loan may convert to a 30-year fixed loan at the 30-year market rate plus a certain percentage point. To qualify for a conversion, you usually need to be in good standing with the payments on your balloon loan. Balloon mortgage programs with conversion options are also called a 7/23 convertibles or 5/25 convertibles.

Buy-down Mortgages

Today's mortgage lenders have developed variations on the old buy-down method of offering an interest rate that is 2 percent below the fixed rate for the first year and 1 percent below the fixed rate for the second year, followed by 28 years of paying the regular fixed rate. Buy-downs now charge higher interest in the beginning of the loan to cover the future yields.

For example, if the current market rate for a fixed-rate loan is 8.5 percent at a cost of 1.5 points, the buy-down gives the borrower a first-year rate of 6.5 percent, a second-year rate of 7.5 percent and a third- through 30thyear rate of 8.5 percent. The cost would be 4.5 points.

Location Efficient Mortgages

Location Effecient Mortgages are available through a partnership between Fannie Mae and private lenders for homebuyers in select communities nationwide. In California, LEMs are available in the San Francisco Bay and Los Angeles areas. The are targeted to consumers who live in areas where public transportation is available, reducing the need to rely on cars, as well as the costs associated with doing so. The LEM is a fixed interest rate, 15- to 30-year mortgage that requires a downpayment of at least 3 percent of the appraised value of the property and has a 97 percent loan-to-value (LTV) ratio.

Government Loans

The Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the Rural Housing Services (RHS) are agencies that offer government-insured loans. To obtain these loans, you must apply through a lender that is approved to provide them. All of these agencies require certain minimum standards for the properties being purchased.

Through the FHA, you can purchase a home with a very low downpayment, typically 3 percent to 5 percent of the FHA-appraisal value or the purchase price, whichever is lower. In addition, the FHA's applicant standards are more lenient than conventional loans; you don't necessarily have to have a spotless credit record or a high-paying job to qualify. FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a particular region.

The VA program allows qualified veterans to buy a house costing up to $203,000, in most cases with no downpayment and at below-market interest rates. Moreover, the qualification guidelines for VA loans are more flexible than criteria for either FHA or conventional loans. The VA application process is similar to any other type of mortgage loan, and many VA loans can be processed and closed without waiting for credit application approval. To determine whether you are eligible, check with your nearest VA regional office.

The Rural Housing Service, a branch of the U.S. Department of Agriculture, offers low-interest-rate mortgage loans with no downpayment requirements to low- and moderate-income borrowers who live in rural areas or small towns. The RHS also offers programs for home renovations and repairs. Check with your local RHS office or lender for eligibility requirements.

Graduated Payment Mortgage

The Graduated Payment Mortgage (GPM) is another alternative to adjustable-rate mortgages. Contrary to an ARM, GPMs have a fixed-note rate and payment schedule. However, GPM payments typically are set for only one year at a time. Each year for five years, the payments graduate at 7.5 percent to 12.5 percent of the previous year's payment. You may obtain a GPM in 30-year and 15-year repayment schedules.

Borrowers can maximize their purchasing power through the GPM's lower qualifying rate. GPMs also can be attractive in a market with rapid appreciation. In markets with moderate appreciation, a borrower who needs to move during the scheduled negative amortization period could face financial problems.

Do I really need an agent?

 

 

Gen Y Is Ready To Buy

 

 

4 Types Of Home Renovation: Which Ones Boost Value?

"Fix it and flip it" is a phrase often associated with real estate investing. The idea behind the concept is that the completion of a few choice remodeling projects will add significant value to the price of a home. 

With this in mind, many homeowners undertake major renovation projects before putting their homes up for sale with the idea that sprucing up the place will result in big bucks. More often than not, these upgrades fail to pay for themselves. Read on to find out how to renovate strategically and which renovations really add value to your property.

The Difference between Investors and OwnersUpdating an investment property is generally a sound strategy because successful advocates of the fix-it-and-flip-it philosophy buy run-down homes at bargain prices and save money on the repairs by doing most of the work themselves. A little sweat equity goes a long way toward making a real estate investment profitable.Investors carefully choose their remodeling projects, focusing on those that will result in the most value for the least amount of effort and cost. Part of the process includes paying attention to the other homes in the neighborhood to avoid over-improving the property. If none of the other houses in the area have crown moldings and Corian counter tops, adding these amenities is unlikely to result in a significantly higher selling price.

Owners, on the other hand, often take a less strategic approach to remodeling when sprucing up their homes prior to putting them on the market. As a result, they can end up putting significantly more money into the project than they will get back out of it when they sell.

To make the most of your remodeling projects, it pays to keep four types of projects in mind : basics, curb appeal, value added and personal preference.

The BasicsThe basic are the things that buyers expect when they purchase a home. This includes a roof that doesn't leak, functioning gutters and downspouts, a dry basement, a good furnace, solid floors, walls that are in good repair, retaining walls that work and all of the other common-sense items that you expect to find in a home.

In upscale properties, this includes air conditioning, a certain number of bedrooms, bathrooms and garages, and any other amenities that are common to the neighborhood, such as a swimming pool.

Adding these items to a home that lacks them doesn't add value, it merely brings the property up to the standard level of the rest of the homes in the area. Money spent on these items is unlikely to be fully recovered, but should at least result in ensuring that the home sells for a price that is comparable to other homes in the area.

Curb AppealItems that add curb appeal help the property to look good when prospective buyers arrive. While these projects may not add a considerable amount of monetary value, they will help the place sell faster. Curb appeal items include a nice green lawn, attractive landscaping, fresh paint inside and out, new carpet and new appliances. If you know that a prospective buyer is due to arrive at a certain time, baking an apple pie just before the arrival is an easy way to set the stage, make your house smell good and create a warm, inviting atmosphere. 

Adds ValueThe projects that add considerable value are big favorites of fix-it-and-flip it advocates. While most of these efforts will not recoup their costs, some will come close. Projects that offer the most bang for the buck include new siding, kitchen remodeling, bathroom remodeling, new windows, decks and the addition of living space. The National Association of Realtors cites siding, kitchens and windows as some of the most beneficial projects, often recouping 80% or more of their costs during resale.

Personal PreferencePersonal preference projects are nifty items that you want but that other people may not like or be willing to pay to get. In most areas of the country, these include amenities such as swimming pools, tennis courts, hot tubs, wine cellars, basement game rooms and ponds. There's certainly no harm in adding these items to your house, but don't expect potential buyers to be willing to pay a premium to get them when you are ready to sell.

House and HomeRegardless of the project that you are considering, remember that your primary residence is not just a house, it's your home. If you plan to live there for many years to come, add amenities that you want to have regardless of their impact on resale. When it's time to sell, do the basics to get the property up to par for the neighborhood and add some curb appeal, but don't bother undertaking an extensive array of projects strictly in an effort to increase the value of the property. Even with the projects that are known to add value, the chances are good that you will spend far more money than you will get back in return.