Credit Repair

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Credit Repair Magic Overview

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Highly Recommended

I started using this ebook straight away after buying it. This is a guide like no other; it is friendly, direct and full of proven practical tips to develop your skills.

As a whole, this manual contains everything you need to know about this subject. I would recommend it as a guide for beginners as well as experts and everyone in between.

Credit History Credibility

Do you need good credit to buy rental homes and apartments No, but good credit expands your possibilities. Without good credit, you'll be limited to buying properties with seller financing, subject to mortgages, or B, C, or D loans that carry high origination fees and high interest rates. If you do have an excellent credit score, lenders will roll out the red carpet for you. You're a desirable customer. Do all that you can to strengthen your credit score and build your reputation for meeting all credit obligations on or before their due dates. However, good credit today doesn't necessarily mean what it used to mean. In today's highly competitive mortgage market, some mortgage lenders will accept borrowers who have experienced foreclosure, repossession, and bankruptcy. To qualify with these lenders, you need (1) clean (preferably spotless) credit for the past 18 to 24 months (2) to attribute adverse credit to divorce, unemployment, accident, illness, or other calamity and (3) to...

Have bad credit I could never get a loan

The better your credit rating, the easier it will be to get a loan. Having said that, very few people have perfect credit. If you have less than perfect credit, you will have to work a little bit harder to get the loan. And any steps taken to improve your credit will make it easier next time. If you have bad credit now and it is absolutely impossible for you to get a loan in your own name, use the credit of someone else Perhaps the easiest way to do that is to use the seller's credit by getting them to stay on the mortgage. If you have bad credit now, do you want to retire with bad credit You can get a copy of your credit report and check what is causing your credit score to be bad. If you have too much bad debt such as revolving credit cards, what can you do to fix that If you have too much open credit (revolving credit cards with zero balances), contact the issuing company to cancel some. That action alone can dramatically improve your credit rating. If you have past-due bills, work...

Where a Good FICO Score Will Get You Your Loan

Once you have a good credit score a FICO of 650 or better start looking for your personal loan. Look for your personal loan at Credit unions are member organizations that make millions of personal loans every year for billions of dollars. You can join a credit union free of charge in the area where you live, at the firm you work for, or at the religious group you attend. Again, credit unions are more compassionate than both banks and finance companies and may make a personal loan to you with a lower credit score than a bank or finance company will. And it doesn't cost you a dime to join a credit union Further, credit unions often charge a lower interest rate on loans than other lenders and pay a higher interest on savings So you win both ways when you deal with a credit union.

Enhance Your Credit with a Guarantor

Another way to get a secured loan is to offer a guarantor who has collateral that can be pledged. Thus, when your credit is not the strongest with a 500 or lower credit score you'll need help to get your secured down payment loan. You can make your credit stronger called credit enhancement by getting a person to guarantee the repayment of your loan, while pledging some type of asset to make your

Thoroughly Screen All Tenant Applicants

You must thoroughly screen all tenant applicants uniformly in order to avoid renting to immature, uncivilized, financially irresponsible, and managementintensive people, better known as tenants from hell The best way to weed out potentially undesirable tenants is to check, verify, and evaluate their 1. Credit history. The best way to avoid unwittingly renting to professional deadbeats and career criminals is to obtain consumer and business credit and criminal background reports on all tenant applicants to check, verify, and evaluate their credit and criminal histories. Contact the following credit reporting agencies to obtain credit and criminal background reports on tenant applicants Equifax Credit Information Services www.equifax.com Trans Union, LLC www.transunion.com Experian Consumer Credit Services www.experian.com Dunn & Bradstreet Business Information Reports www.dnb.com Experian Business Profile Reports www.experian.com To help defray the cost of screening tenant...

Credit Check

Most people have had their credit checked at one time or another. When you apply for a credit card, finance your home, or buy or lease a car, a credit check is performed. To be sure, if you ever leased an apartment yourself, a credit check was performed on you. Some banks are now running credit checks on prospective clients prior to allowing them to open an account with the bank. If they do it for their business, so should you as a landlord. There are basically several major credit bureaus whose business it is to maintain credit histories on individuals. These bureaus are also known as consumer reporting agencies. Equifax, Experian (which was formerly TRW), and Trans Union are the three big agencies. I have provided contact information for these agencies in the Action of Lease Application response letter, which you will find in Appendix C. When you send in the consent form and the party's name and Social Security number (and the required fee), the reporting bureau will issue a report...

New Way of Investing in Real Estate

Welcome to a new way of investing in real estate. This book will teach you how to create multiple streams of income buying homes in nice areas with nothing down. You won't need thousands of dollars and perfect credit to do it either. You can start where you are and with what you have and in 90 days or less you can be on the road to wealth.

Speedy Results Are Possible in Real Estate

I started out to become a millionaire 19 months ago with the idea of making it in five years. So far I've acquired about 200,000 in income properties and lakeshore raw land. I had no cash when I started this venture, but acting on the advice in one of your books I borrowed 10,000 in the form of a mortgage on my home. Since I had an excellent credit rating, I was able to buy two income buildings for 1 down on each. I just sold one of them for a net profit of 2,000 after owning it a year. I bought another building with 8 apartments for 63,000 with 1 down I could sell it now for a 10,000 net profit. There is no possible way I could put a price on the value your books have been to me in the past year and a half. California

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CREDIT REFERENCES This can include store credit cards, rental stores, car loans, small loans, etc. Type of Account < SHAf2C g Credit Limit ZSOO How Long VgS Are all payments current YES 0 NO Type of Account lN)STAl-t- V gNlT Credit Limit S 3 OOP How Long 3 ViSS Are all payments current YES 0 NO

Amount and Source of Down Payment and Reserves

Regardless of LTV, lenders like to see their borrowers put at least some of their own cash into their properties at the time they buy them. Moreover, the lender will probably ask you where you're getting the cash. The best source is ready money from a savings account (or other liquid assets). In contrast, most lenders would not want to hear that you're taking a 10,000 cash advance against your credit card.

You Do Not Need a Big Checkbook to Become an Option Investor

One of the main reasons real estate options appeal to so many people is that you do not need a six-figure income, a hefty bank account, an 850 FICO score. The term FICO refers to the name of the company, Fair Isaac Corporation, that developed the popular credit scoring model named FICO, and a lifetime employment contract in order to become an option investor. The fact of the matter is that buyers of options usually face very little financial scrutiny. For example, when buying an option, you almost always avoid having to pass any of the financial tests income, debt, and credit scoring that are such an integral part of the buying process. This is mainly because many property owners involved in an option transaction seem to focus only on the amount of the option fee they will receive from the deal and pay scant attention to the party buying the option. The only financial test that most people must pass when buying a real estate option is having the cash necessary to pay the option...

Use Fixed Rate Low Interest Lines of Unsecured Credit to Buy Options

Currently use two 40,000 lines of unsecured credit, which have fixed-interest rates of between 3.4 percent and 4.5 percent. I am able to obtain these low-rate lines of unsecured credit because I have zero consumer debt and a credit score in the top 5 percent. The real beauty in using unsecured lines of credit, instead of secured credit lines such as a home equity line of credit (HELOC), is that you do not have to put your home on the line and pay those exorbitant closing costs that lenders generally charge borrowers for the privilege of doing business with them. In fact, the most that I have ever had to pay when using an unsecured line of credit was a 50 transfer fee.

Resident Agrees Not To Apply Any Previously Paid Performance Fees To

EVICTION If rent has not been paid when due, then Management shall automatically and immediately have the right to assert all legal and contractual remedies to enforce this Agreement and, without limitation to any other remedy, may take out a Dispossessory Warrant and have Resident and any other occupants and all possessions evicted and removed from Property. Should Resident answer said Dispossessory Warrant, Resident hereby agrees to pay into the registry of the trial court all monies contained on said Dispossessory Warrant plus all rents due through the court date. Whenever, under the terms hereof, Management is entitled to possession of the Property, Resident will surrender same to Management in as good condition as at present, ordinary use and wear excepted, and Resident will remove all of Resident's effects therefrom, and Management may forthwith re-enter Property and repossess thereof and remove all persons and effects therefrom using such force as necessary without being...

Parties and Agreement

In most cases, the seller would prefer to have the contract signed by someone with substantial assets or good credit. If the seller will be holding the financing, this will be especially important. If the buyer will be paying all cash it would not matter who signed, but if the buyer has no assets and ties the property up for months, the seller will have no recourse.

Financial difficulties

I went out to meet with Tom, a motivated seller, who was faced with bankruptcy in less than two months. As I sat down and talked with Tom, it became clear that he wanted to figure out a way to keep from having a foreclosure on his credit record as well. We came up with a win-win solution. I signed up a six year lease option deal on the home that would not only save him from having a foreclosure, but would also mean a healthy profit for me. When I left him that day, Tom shook my hand and said thank you for helping him make the best of a tough situation.

Have credit card debt

If your solution is to deal with the credit card debt, then read on. Some people advocate cutting up your credit cards. We strongly disagree Debt is your friend the key is to learn how to manage it. In fact, credit cards can actually give you benefits in the form of airline mileage awards. Diane and her husband Richard personally charge everything to their credit cards and then pay them off each month. The average return, based on the value of airline tickets, is 4.9 percent. So, the problem isn't the credit cards, it's what you do with them.

Start with a Personal Loan

Personal loans you can use for income real estate down payment are made by banks, credit unions, finance companies, insurance companies, and other lenders. With a personal loan you do not offer any hard collateral. Instead, your signature on a promissory note, along with your credit history and expected earnings, becomes your collateral. Credit rating often called your FICO score named for the developers of the credit rating system used to figure your score (Fair, Issac & Company, of California).

Seven Steps to Better Credit

Establish a steady job, or business, history. A long history on a job, or in business for yourself, is good for your credit score because lenders feel comfortable with long service. 3. Do not change your street address too often. Again, the longer you live at the same address, the better it is for your credit score. Stability and solidity are loved by lenders 5. Try to keep the amount you owe your balance to less than half your credit line on each credit card. Thus, if you have a 5,000 line of credit on a credit card, try to keep your balance to less than 2,500 ( 5,000 2). Why Because lower balances look good for your score. 6. Use your credit cards regularly. Make on-time payments on each. Pay ahead of time to avoid mail delays and holidays. 7. Concentrate on building your credit score every day of the week. Good credit is one of the most important assets you'll ever have in building your real estate wealth. So guard your credit rating the same way you guard your good reputation.

Sublease Options Appeal Mostly to Credit Challenged WouldBe Homebuyers

Another very good reason I am not a proponent of the sublease-option strategy is that, for the most part, the only people that sublease-options appeal to are credit-challenged, would-be homebuyers with a track record of being financially irresponsible. These are people who lack the income and creditworthiness required to obtain a mortgage or deed of trust loan in order to finance the purchase of a home. They are also the same type of people who require constant prodding in order to get them to take care of the property and pay their rent on time. The real problem with this class of tenant-buyers is that 9 out of 10 of them will never be able to exercise their option and actually buy the property. What generally happens in cases

Intermediation and Disintermediation

According to the circular flow of the economy, income that is not taxed away or consumed in the marketplace represents savings. Where these savings go depends largely on the kinds of returns desired by the saver. Many dollars flow into savings or commercial bank accounts, CDs, credit unions, life insurance premiums, and so on.

The Process of Money Creation Defining Money

Until recently, commercial banks were unique in being able to offer deposits on which checks could be written. As late as 1980, these traditional checking accounts, called demand deposits, accounted for more than 90 of all checkable deposits. Since the late 1970's, however, regulatory and Institutional changes have both expanded the range of checkable deposits that banks can offer and made it possible for thrift institutions-savings and loan associations, mutual savings banks and credit unions-also to issue some types of checkable deposits. Thus, the deposit component of M1 now includes not only demand deposits issued by banks, but also ATS (Automatic Transfer to Savings), NOW (Negotiable Orders of Withdrawal) and Super-NOW accounts offered by banks and thrifts, and share draft accounts issued by credit unions. These new types of checkable deposits pay interest, while demand deposits do not. By the end of 1983, demand deposits' share of total checkable deposits had fallen to 65...

Buy Preforeclosures From Distressed Owners

At that point, you may be able to help them salvage their credit record and part of their home equity and at the same time secure a bargain for yourself. Faced with pressures of time and money, distressed property owners may be willing to accept a quick, credit-rescuing sale at a price less than market value.

Six Steps You Must Follow to Avoid Renting to the Proverbial Tenant from Hell

Face it America is overpopulated with board-certified, repeat-offender tenants from hell, who specialize in bilking ignorant, unsuspecting landlords out of millions of dollars in unpaid rent and property damage annually. Here are six steps that you must follow when selecting tenant applicants to avoid being victimized by the numerous tenants from hell Step 2 Provide all tenant applicants with a copy of your tenant qualification standards. Step 3 Apply your tenant qualification standards uniformly to all tenant applicants. Step 4 Require consumer credit and criminal background reports on all tenant applicants. Step 5 Check, verify, and evaluate the rental history and income of all tenant applicants. Step 6 Deny rent to all tenant applicants who do not meet your tenant qualification standards.

Tenant Selection Is the Most Important Aspect of the Rental Property Business

The number one reason for landlord failure in America is lax or non-existent tenant screening procedures. And that is exactly why tenant selection is the single most important aspect of the entire rental property business. Tenants who are mature, conscientious, civilized, and financially responsible adults are the lifeblood of any profitable rental property business. The only practical way for a landlord to ensure that he or she selects only mature, conscientious, civilized, financially responsible adults as tenants is to screen out immature, uncivilized, financially irresponsible, management-intensive people. When landlords fail to properly screen all of their tenant applicants, they lose control of not only their tenants but also their rental property, which often results in foreclosure and bankruptcy. The first step in the tenant screening process is to establish tenant qualification standards, which are based on legitimate business reasons and not personal prejudices. Once...

Stopping a Foreclosure

The first way through which to buy foreclosure properties is known as preforeclosure that refers to the time when the lender has begun the process but you buy the property before the actual foreclosure takes place. It's truly a win-win situation, because you'll make a major profit at the same time you save the sellers from showing a foreclosure on their credit history and you provide them with the cash they need to move and get on with their life.

Why Wouldnt a Tenant Buyer Just Buy a Home

The reasons that a tenant-buyer needs you are almost as varied as the number of tenant-buyers out there. some of the reasons we see are glitches on a tenant-buyer's credit report. For example, if a tenant-buyer had a bankruptcy five years ago, he probably couldn't qualify for a mortgage for another two years because, in most cases, a bankruptcy stays on a credit report for seven years.

Semifiduciary and nonfiduciay lenders

Unlike banks, savings institutions, life insurance companies, pension funds and credit unions, which are directly responsible to their depositors and premium payers, the semifiduciaries are removed from a first-person relationship. Although the quality of a fiduciary relationship is somewhat implicit in their actions, the semifiduciaries' responsibilities are directed either internally, to their owner-partners, or externally, to the primary fiduciaries that they represent, but never directly to any depositors or premium payers. Although a semifiduciary is expected to invest entrusted funds with sound

What Are You Looking

Period of time or was relatively stable. The work history should also be a clue to his or her stability. Did the prospective tenant hold many jobs over a short period of time or just one or two Does the person work for a corporation, or is he or she self-employed Self-employed people are a bit harder to check because there is literally no supervisor to call. However, as you have no doubt guessed, the most important factor in the background check is the prospect's credit. That is still the most telling factor about how people conduct their financial lives and is the best indication of how much of a risk that person is to do business with. For those who don't know exactly how a credit check works, I'll discuss it now.

Property Criteria and Analysis

A key to building my real estate fortune over the years has been cash flow. We call cash flow king because having cash is always our primary objective. Positive cash flow creates and maintains your investment's momentum. It also has significant financing and lending implications. For example, when purchasing an apartment building containing more than five units, the bank will base the amount it will lend you on the building's cash flow abilities. (Your credit score is secondary.) Cash flow also is a significant factor in the building's overall value. A building with poor cash flow will appraise much lower than another comparable building in the same area that has a stronger cash flow. Never forget that.

Hud Homes And Other Hud Properties

Each year the FHA (Federal Housing Administration), a division of HUD, insures hundreds of thousands of new mortgage loans. (Nationwide, the total number of outstanding FHA mortgages runs into the millions.) FHA loans are originated by banks, savings institutions, mortgage bankers, mortgage brokers, credit unions, and other types of mortgage lenders.

The Old Smitten Story

Suspicious than I am, took the client's part. You lawyers are all alike, you don't trust anyone. If everyone were like this woman, the world would be a much better place. It sounded like she was about to erupt into a chorus of some song from the 1970s. I remained unconvinced, especially as I learned the sainted lady had bounced a check for the 100 application fee that the condominium charged for a credit check. This was not a good sign. But she calmly explained that she was switching accounts and the bank must have made a mistake. Also, it was her sister's account, and her sister was always overdrawn. Of course, both my wife and my client agreed that this was logical.

The Moral of the Story

The moral of the story is that it really doesn't matter what kind of car a person drives, how sweet the person looks, or any other concocted story he or she comes up with. What is important is what the credit history shows. Sometimes, a tenant will admit to having bad credit and ask you to make an exception. Case in point. Several years ago, my wife and I were going to rent one of our condominium units that we had purchased for investment purposes. It hadn't been empty very long, but we were still anxious to lease the unit as quickly as possible. Our advertising yielded a well-dressed couple who drove up in a new BMW. They looked at the unit, liked what they saw, and offered us the price we were asking without much negotiation. When we told them we would have to run a credit check, they admitted that they had bad credit due to several investments that hadn't turned out well. However, they indicated that they were back on their feet, as evidenced by their new automobile, and were...

Renting Is a Business

As I've argued consistently in this book, when you become a landlord, be it for one property or a dozen, you are in business, and you need to conduct your affairs in a businesslike manner. In fact, you have done nothing more than any other business does in conducting its affairs. If you shop at a department store and it offers you a discount on goods purchased if you obtain a store credit card, the store will run a credit check on you prior to issuing the card. You consent to this when you agree to accept the card. You probably don't even think about it. Actually, you should, because as a consumer, each time you allow your credit to be checked, it lowers your overall credit score, but that is another story. We are here to discuss being a landlord. What are you doing that is so different You are inviting someone to live in your home, and you need to protect yourself. The only difference is that now it is you who are doing the investigating, and that may be somewhat unsettling. But rest...

Other Background Checks

Another variation on a background check could arise where the prospective tenant literally has no credit. This is not all that unusual in many parts of the United States, where new immigrants arriving in this country tend to settle. In other cases, a person may have had his or her credit cleaned up and now is in the process of establishing new credit. Others, weary of the problems associated with credit cards and debt status, simply pay cash (or use a debit card) and thus have no credit history. A lack of credit is not per se an indication that you should not lease your property to the prospective tenant. It just means that

Step Ten Screen the applicants and select your tenantbuyer

There are four areas you will review when evaluating tenant-buyer applications monthly income, credit history, past rental history, and option payment. If one or more of these four areas is weak, then the remaining areas need to be strong enough to offset the weak one. Ideally, your tenant- buyer should have take-home income equal to at least three times the rent. Many tenant-buyers have credit problems, and this by itself should not stop you from choosing someone. Investigate if their credit report shows a history of not paying bills over a long period of time. See if one major event in the person's past caused major problems localized to one definite period of time. In most cases, a series of credit problems with small debtors is a big warning sign. without question, the single biggest factor in your review of a tenant-buyer's application is the size of the up-front option payment. The larger this option payment, the more security you have in the deal. I can remember a three-bedroom...

The Elements of Defamation

So what do you do when Bob asks the question You could argue that there is some sort of legitimate business need to discuss someone's credit, but I don't think such a discussion would include calling an applicant a deadbeat. Use of such language may remove any potential defense to a defamation action that you might have. In any event, you don't want to spend your time and money on an attorney to defend such an action. If Bob calls, tell him that you really can't discuss it and that he has to run his own credit check and draw his own conclusions and let it stand at that. You'll be much better off. Confidentiality is the key, along with a brief letter explaining why you are turning the applicant down. If bad credit is the reason, you need to advise the prospect which reporting agency generated the report that you relied on, along with a contact address and phone number where the prospect could receive further information or contest the report. In the form section in Appendix C, Action...

The Zen of Landlording

I have argued that the landlord-tenant relationship is inherently adversarial. Whatever it is or is not, it's real life, and you can't choreograph it. Running credit checks and garnering background information are attempts to choreograph a perfect situation with regard to renting your property. You have to try to do this. But you must also recognize that there will come a time in your career when things will go wrong or you will make a mistake. There is an exception to the above discussion on credit and background checks. If you purchased an income property of a nature, or in a geographical area, where running background checks on your tenants is clearly not apropos, that is the nature of your investment and you assume the risk of such a venture. My father owned a low-income building in Manhattan where his tenants would not have passed a credit check, and there was no point in running them. Oddly enough, I also recall that he had very few problems with his tenants or in collecting the...

Seven Reasons Why You May Need Financial Help

No credit history that is, the person never financed a car, a home, a washing machine, or other large purchases. With no credit history, the borrower can't be checked out. 2. The borrower has a low credit rating on the usual letter credit score of A, B, C, or D. In this rating system A credit is the highest or best, while D credit is the lowest or worst. 7. Any other negative credit history that's on file about you. If any of the credit problems above apply to you, take hope You can still get started and earn big money in income real estate. I have hundreds of letters from people with almost all the above problems who still got started and are earning a big income today in income real estate

Find Zero Percent Down and 100 Percent Lenders

Look in your local telephone-book Yellow Pages under Mortgages for 0 percent down financing. Also look for 100 percent loans in the same place. You'll also find lenders offering Bankruptcy OK loans, No Credit Check Loans, and No Income Check loans among others. Such loans can give you the creative financing you seek. Also, the IWS publications listed at the back of this book can give you these types of lenders. Many such loans can be yours, even with earlier credit problems. One reader writes

Use a Lease Option Contract to Control Property

A lease option contract, also called a lease purchase contract or a land contract, allows you to take possession of a property without a credit check or in many cases a down payment. With a lease option contract, you have You can use the lease option to get lots of income property to build a monthly positive cash flow without ever having your credit checked out. Why Because the seller offering a lease option

Benefits to Tenant Buyers An Eager Market

Qualifying for a lease option may be no more difficult than qualifying for a lease (sometimes easier). Generally, your credit and employment record need meet only minimum standards. Most property owners sell the home, pay the sellers 170,000, and use your profit from the sale to invest in another home. 6. Reestablish credit. A lease option can help renters buy who need time to build or reestablish a solid credit record. Judy and Paul Davis wanted to buy a home before prices or interest rates in their area once again rose above their reach. But the Davises needed time to clear up credit problems created by too much borrowing and Judy's layoff. The lease option could be the possibility that helps the Davises achieve their goal of home ownership.

Earnest Money Deposit

Just keep in mind that a seemingly low deposit diminishes your credibility. A relatively high deposit bolsters your credibility. Perhaps the best of both worlds is to employ a low deposit strategy and rely on other factors to support your credibility as a buyer, such as current ownership of multiple properties, strong FICO credit score (see www.myfico.com), high net worth, and personal integrity. But this tactic is not easy to pull off. As a rule, few things speak louder than ready cash.

Number one The primary mortgage market

These institutions primarily are oriented toward lending money to the average homebuyer consumers. Credit unions can be very popular for these types of loans, depending on the amount of assets upon which they can rely and the interest rates they charge. Mortgage banking companies. These companies are set up by investors specifically to make mortgage loans. Unlike banks or credit unions, they don't generally offer other banking services. They lend money for large projects and for home purchases.

Dont Meet Tenants Do Open Houses

DO CREDIT REPORTS ON EVERYONE Ask the prospective tenant about his credit, then do a credit check (try National Tenant Network 800-330-2930 or www.MrLandlord.com). It b not necessary that the tenant has perfect credit, but a credit report will tell a lot about a person. For example, if the applicant told you that his credit was fine and it turns out to be a nightmare, you may wonder what else he is lying about. If there are some old late You may also want to review the applicant's credit report with a local mortgage broker to see if he has a reasonable chance of qualifying for a loan before the end of the lease option term. You do not want to take non-refundable option consideration from someone who has no chance of qualifying, since this would be misleading and dishonest. Thus, if the applicant filed bankruptcy last month and has a 70,000 IRS lien, he would not be a candidate for a lease option, since his chances of qualifying for a loan within a year are slim to none. 5, KNOW THE...

Appraisal Cap Rates and Risk

Two of the comps in your analysis are single-tenant buildings, but the third has several tenants. The one with several tenants is probably deemed less risky because of the investor's eggs not all being in one basket, so to speak. If that building is less risky to an investor, should its cap rate be the same as those derived from single-tenant buildings by the appraiser It should probably be lower than the other two because of the reduction of risk resulting from multiple tenants. Not only would the number of tenants be relevant, but the quality of those tenants is also important. Those tenants with a higher credit rating should certainly be

Assisting the Tenant in Finding a Mortgage

Credit was, until recently, a very important factor in the loan process. It used to be that, unless you had good credit, your chances of obtaining a loan were slim to none. As of the date of this text, lenders have changed their guidelines. Rather than disqualify people with bad credit, they simply charge higher fees and interest rates. A few late payments are not usually a big deal. Charge-offs, bankruptcy and collections can be dealt with, especially if they are more than a few years old. Lenders are less weary of people with credit problems than they are with people who have no credit at all. If your prospective tenant buyer has never had a credit card, this could mean trouble. Of course, you can help him apply for credit cards over a twelve-month period to generate a credit rating. The debt ratio looks at how much debt a person has compared to his income. A credit report that shows high credit card balances, car payments and other obligations will seriously affect the tenant's...

Five Fundamental Wealthbuilding Concepts Of Real Estate

Do you want to know more about how to take advantage of these concepts You'll need to explore Chapter 4 One warning, though if you've read this and are sure that leverage of money means more debt (and that is sort of the right answer), we'll give you some financial planning for real estate investor tidbits first. In fact, if you've ever used your credit card because of an emergency such as your car breaking down or an unforeseen medical expense or even a sudden urge for a new purse or car, you'll learn how you can still have those things, but never have to use your credit card. That's all in Chapter 4 as well.

Want To Be Rich I Dont Have Money And My Credit Stinks

Of course, we answer all of those questions in The Insider's Guide to Making Money in Real Estate. But, there is another important question to consider here first for the person who has bad credit and no money. Why What is it about this person's past actions that has created this problem and what action steps should be done first to stop a former financial pattern from repeating The most important chapter to read in this case might very well be Chapter 3, What It Really Takes to Succeed in Real Estate. It's not a case of simply tapping into all the people anxious to give you money, although they really do exist. It's a case of first understanding what has caused the current situation.

Joint and Several Liability

If the tenant finds a new roommate, he or she must be subject to a complete credit check and be added to the lease at your discretion. If the new roommate checks out, there is probably no reason not to continue with the lease. Do you remove the offending tenant's name Theoretically, you don't actually have to, but if a new tenant replaces the party who left, most states would not allow you to stack your damages if you ever tried to collect from the former tenant. Legal theory aside, in the real world, the roommate who breaches the contract is generally gone and out of the picture. Let us suppose that a married couple wishes to rent your house. Both have good jobs, and there is every indication that they can pay the rent. The husband says, There are issues with my wife's credit (or vice versa) just put the lease in my name. That is a red flag. I would still insist on placing both parties on the lease (if you decide to lease to them) because both parties are going to live in the unit....

Statement Of Rental Account Letter

Most tenants don't realize that rental payment performance can be made available to others, whether it is good or bad. In this letter we remind the tenant how important a good credit rating is to their ability to rent another property, buy a car, furniture, or anything else they may want in their life. And now you can make good on that promise by reporting through a web site at www.mrlandloird.com, for free

Band Of Investment Cap Rates

Let's look at a situation in which a lender has mortgage applications on two different four-unit apartment buildings, property A' and property B', that are right next to each other. They were built in the same year by the same builder. The units within the buildings are the same size, and they generate the same amount of rent per month. The lender finds the credit score and hence the creditworthiness of borrower A to be better than that of borrower B. The lender decides that the risk of default is greater for borrower B than it is for borrower and A, and as a result will charge a 1 2 greater interest rate on the mortgage to compensate for the additional risk. The mortgage to be obtained is an 80 L V mortgage amortized over 30 years. Borrower A will get the mortgage at a 7.5 rate of interest, and borrower B will pay 8 interest. Both buildings will generate 26,000 of NOI next year, and investors in this type of building are expecting a 12 ROE. What is the impact of the additional...

When the Loan Goes Bad From the Lenders Perspective

Lenders don't want to foreclose on houses, which is why they do thorough credit checks before they make a loan. They're in the finance business, not the real estate business. At the same time, lenders understand that things happen in life that cause someone to get behind on payments. Borrowers with a cooperative attitude who contact their lenders before the loan is seriously delinquent typically find that the lenders are willing to work with them to find a way to get the account current. However, borrowers who simply don't make their payments and don't communicate with their lenders probably find that the lenders will move through the collection process and into foreclosure according to the terms of the loan.

Automated Underwriting AUS

If your credit profile matches the acceptable profile in the software, that's great. It means a faster, less costly path to closing and a shorter stack of paperwork. On the other hand, if your personal situation needs outside-the-box attention, be sure to work with a savvy loan rep who can apply the skill and knowledge necessary to get your loan approved or at least tell you the reasons why your application falls short and how you can work to overcome deficiencies. To see how you might fare with automated underwriting, go to myf-ico.com. From this site, you can learn your credit scores and obtain pointers on how to improve them. Yet remember, automated underwriting (AUS) looks at more than your credit score. These programs incorporate calculations that evaluate your qualifying ratios, earning power, cash reserves, debts, and assets. When your trimerged credit scores exceed, say, 740 (or so), the AUS will loosen up on other standards. Conversely, a lower score of, say, 640 (or so) will...

Powerful Wealth Building Weapon

Regardless of the current status of your credit, you can still build a successful real estate business. However, you have to understand how credit works and how to establish and maintain a strong credit rating. If you have good credit and are careful to preserve it, things will be much easier for you. And if you've damaged your credit rating along the way, you must start working on repairing and rebuilding it right now. The technical definition of credit is the privilege of delayed payment extended to a buyer or borrower by a seller or lender who believes that the debt will be repaid. When we use the term credit in conversation, we usually mean someone's credit rating which, of course, has a significant bearing on one's ability to get credit. But there's more to the issue of credit and wealth building than that. If for any reason you are unable to pay your bills on time, communicate with your creditors. Let them know what's going on (whether it's a job loss, illness, divorce, tough...

The Birth Of Nothing Down

1 The term creative finance does not lend itself (no pun intended) to precise definition. In general, it refers to the use of multiple sources of credit (e.g., sellers, real estate agents, contractors, partners) and out-of-the-norm financing techniques such as mortgage assumptions, subject-to purchases, land contracts, lease options, second or third mortgages, credit card cash advances, master leases, and so forth. In some circumstances, investors can use creative financing to buy real estate even though they lack cash or good credit. Each of these topics is discussed in this chapter.

Creative Finance Revisited

If you're a homeowner with good credit, you can raise seed money for investment real estate by taking out a home equity loan (i.e., second mortgage) on your home. With many lenders pushing 125 percent LTV loans for homeowners, you may be able to raise a fair amount of cash even if you haven't yet accumulated substantial equity. Alternatively, consider a high-LTV refinance of your first mortgage. Personal Loans. In the days before credit card cash advances (which are now the most popular type of personal loan), personal loans were called signature loans. As you build your wealth through growing real estate equity, you'll find that many lenders will gladly grant you signature loans for 10,000, 25,000, or even 100,000, if your credit record and net worth can support repayment. You can use the money from these signature loans to buy more real estate. (Signature loans charge substantially lower fees and interest rates than credit card cash advances.) In the...

Automated Marketing for Foreclosure and Pre Foreclosure Investing

TIP Foreclosure is the legal process in which a lender sells or seizes a person's property to recover and repay the debt attached to that property. Foreclosure can be prevented by bringing payments current. But most often, homeowners can't catch up, and they lose everything. My strategy is to come in prior to foreclosure, buy the property, allow the homeowner to pay off the loan, and save their credit rating. Now this may sound like a horrible position for me to be in as the buyer approaching a person who is losing his home, and I'm looking to buy it and make a profit. But look at it realistically. The person is going to lose that property because he can't make or catch up on his payments. A sale of the property means the owner can pay off the loan and avoid having a foreclosure on his credit history. Then he can go out and find another, more affordable home, without the black mark of a foreclosure on his record.

What You Need to Know about Hard Money Lenders

There will be many times in your real estate career when you'll need the services of hard money lenders. These are investors who provide short-term loans (generally for six months to three years) of 60 to 70 percent of the property's value at above-market rates. Because the loans are based on the value of the property and not the creditworthiness of the borrower, they are generally easier and faster to get than traditional financing.

Buy Properties Having Assumable Mortgages

An assumable mortgage is a loan on a property you take responsibility for when you buy the property and gain title to its income stream. There normally is no credit check when you assume a mortgage. Why Because the sale is between you and the seller with no financial checking of you by a bank, a credit union, or a mortgage lender. And most sellers will accept you as you are. They won't pull a credit report on you if they feel you're a good guy or gal. So you're into an income property without a credit check of any kind. Steps to take are The Purchase Money Mortgage becomes your assumable mortgage because there are no credit checks associated with the takeover loan. Properties financed by the Veterans Administration (VA) can have assumable first mortgages. So check foreclosures offered by the VA because you can often get into a single-family home with no credit check and no qualifying requirements. You'll find VA foreclosures at www.va.gov. When you combine an assumable first mortgage...

Maximize Your Leverage With Owneroccupancy Financing

In addition to lower down payments, lenders qualify owner-occupants with less exacting standards. Plus, owner-occupants pay lower interest rates than investors. If lenders charge 6.0 to 6.5 percent for good credit, owner-occupied loans, the interest rate for investor properties will probably range between 6.5 and 7.5 percent. As a beginning real estate investor, definitely explore owner-occupied mortgage loans to finance homes that will become your future rental properties.

Do You Need Money To Buy Real Estate

Yes, you will need money to buy real estate. The question is whether it needs to be your money. That's where financing comes into play. In general, though, you'll need to either provide money for a down payment, have time to design a creative real estate financing deal, or have excellent credit scores that will make a lender feel secure.

The Five Main Reasons Many Rental Properties Become Mismanaged

Lack of knowledge and professional property management skills necessary to screen and select qualified tenant applicants as customers This results in tenants who will not or cannot pay their rent on time and creates a negative cash flow, which the owner must subsidize from personal funds in order to keep the mortgage or deed of trust loan current.

You Must Base Your Denial to Rent on Legitimate Business Reasons

After you have used credit and criminal background reports and other sources to check, verify, and evaluate a tenant applicant's personal and business information, you must decide to accept or deny the applicant based solely on whether he or she is a good business risk and not on personal prejudices. The following are four examples of legitimate business reasons to deny rent to tenant applicants 1. Credit history People who do not pay their bills are a bad business risk. Finally, deny rent to all tenant applicants who do not meet all of your tenant qualification standards, regardless of whether they are members of any government-protected class of tenants. If you do make any exceptions to your stated tenant qualification standards, you will be in direct violation of the Fair Housing Act for singling out certain groups of people for special treatment, which is the very definition of discrimination.

Form Ipm4113 1 page

The Rental Agreement Co-Signer Addendum form is to be used when you require a co-signer to guarantee your Rental Agreement with your tenant. This is useful in the case of a prospective tenant with no credit, bad credit and or no cash. A relative could act as co-signer only if he she owns property or has good credit and longevity on the job and is willing to stand surety for your tenant. This is also useful as an additional requirement with which to get your prospect to turn you down rather than you turning them down.

Networking

Choose an area of town that offers potential.3 Then develop strong networking relationships with some of the people who know the neighborhood such as mail carriers, delivery truck drivers, school personnel (teachers, principals), social service workers, busybody residents, real estate agents, local merchants, church leaders, and credit counseling personnel. Through this network of contacts, find out who's thinking about selling her home, who's been recently laid off, who's spending above his means, who's having trouble paying the bills.

Preview

In this chapter you will study noninstitutional lenders - real estate lenders whose activities are not as strictly regulated as Institutional lenders. Noninstitutional lenders, also called nonfiduciary financing include private parties, mortgage companies, syndicates, real estate investment trusts, pension and trust funds, and credit unions.

Questionnaire

What is the address and phone number of their employers, and who are their supervisors All of these are relevant questions if you are going to trust a total stranger to live in your property and pay you rent. To get this information, you are going to need their Social Security numbers. You will also need the Social Security numbers to run a credit check on the party or parties. Is this search legal Sure it is, if the prospective tenant agrees. That is why you have the prospect sign various consent forms that accompany the request for information.You really shouldn't have too much trouble in this regard, as most people who are used to renting are accustomed to these background and credit checks. However, if prospects do complain or otherwise balk at filling out the forms, calmly tell them that it is a condition that must precede their signing the lease, and it is not negotiable. If they refuse, then you are under no obligation to proceed with the transaction, and you should move on to...

Expenses

The types of expenses that may show up on the closing statement include sales commissions, title opinions, title insurance fees, appraisal fees, origination fees, recording fees, mortgage registration tax, state deed tax, real estate taxes, insurance premiums, discount points, credit report, document preparation, abstract extension, home warranty fee, and others. Some of these expenses typically fall under the buyer's responsibility to pay, and some typically fall under the seller's responsibility. There are by no means hard-and-fast rules and could vary depending upon the state in which the closing is taking place.

Credit union

A credit union is a mutual, voluntary, cooperative organization of people who agree to save their money together and to make loans to each other. It is organized by members of a particular group, most commonly by coworkers through occupational or professional affiliation. There are credit unions throughout the United States, representing many millions of members. Under the 1980 Depository Institutions Deregulation and Monetary Control Act, credit unions are empowered to make all types of loans and to accept all kinds of deposits. As a result, they have expanded their coverage of the financial market and offer a wide range of real estate loans to their depositors-members, often at below-market interest rates.

Getting References

I know you are wondering why the background check isn't enough. Sometimes a person can have excellent credit and still be a pain in the butt, and that may factor into your decision to lease to the applicant. I recall a case where the tenants had excellent credit. They paid every bill on time, all the time. They were never late on any payment, and their credit score was through the roof. They had enough credit to lease all of Florida, not just an apartment in Miami, but the whole state. The landlord was ecstatic, and I, as a fellow landlord, was just a little jealous. Unfortunately, the story didn't end there.

Confidentiality

The first thing we need to stress is that these reports are strictly confidential. Don't sit around the bar or the local restaurant and discuss these things with your friends. Gosh, Mary, you should have seen the credit report on this guy he actually charged a tummy tuck to his credit card. This is highly improper and can get you into serious legal problems if the prospect ever finds out. Similarly, don't show these reports to anyone or pass them around. Place them in a file where they should remain during the course of the lease. Be sure the file is secure. After the tenant moves out and the file is closed out, you are best advised to destroy them.

Libel and Slander

In situations where you, as the landlord, require a credit check, you have to take command. You need information about your prospective tenant, and by being professional and formal, you should get it if the prospect has nothing to hide. But now, let's return to our discussion of permitted uses of the information you receive on a prospect. We've already noted that the credit report is not a proper subject for gossip. But let's pose a question. What if you get an applicant's credit report and it turns out to be negative You make your notifications, and the case is closed. Then a problem arises. Your friend Bob calls. Bob is also renting his apartment, and the same prospect you rejected now wants to rent from Bob. Somehow, Bob knows he's been to see you and asks why you didn't rent to him. What do you say To answer this question, let's talk about the laws of libel and slander. First, let's define our terms. The essential difference between libel and slander is that libel is a written...

Surprise Questions

We replied that we would have to think it over. After a brief discussion, we agreed that as long as the tenant made the payment in advance, he could put a few things in the unit. Sounds reasonable, right Usually, these requests have more to them than the requester lets on. In this case, the tenant wanted to put his belongings in the unit right away, as in prior to making any payments and prior to his credit report coming back. As it turned out, he was leaving for Europe on business the following week, and his current lease expired at the same time. Unfortunately, the answer to the tenant was changed to a qualified yes, subject to certain conditions. The first condition was that prior to any placement of belongings in the unit, a complete inventory of what was going in had to be performed. The second condition was that a waiver of liability for the belongings be added to the lease. A waiver of liability simply means that the tenant agrees that the landlord is not responsible for any...

Bouncing Checks

If the check bounces for any reason, the lease states that the tenant will pay the administrative fees that your bank charges you, and these can be significant. For example, my bank charges 50 for a bounced check. In addition, as I am a long-standing customer with good credit, my bank will give me provisional credit against checks deposited rather than hold the checks anywhere from twelve hours to two weeks before I can draw funds against them. If I write a check against these provisional funds and the deposited check ultimately bounces, my bank will pay on the checks I wrote against those funds but will charge me added fees over and above the bounced check charge for covering or paying on my checks. The bottom line is that the bank is lending me money to cover my expenses because someone bounced a check on me. At the end of the month, these bank charges can really add up. There is also the added time, effort, and expense of paying back the bank and collecting on the bounced checks.

The escrow closer

Underwriters check to make sure that a loan meets guidelines for debt ratio, loan-to-value ratio, credit score, employment history, and other qualifications. They also evaluate the loan based on whether they can be bundled with others in a big loan package that can be sold to Fannie Mae, Freddie Mac, or another entity that buys mortgages.

Credit Disclosure

Even though a loan may be based on asset value, the arranger of hard money loans has a duty to protect and fully inform lenders and borrowers. Credit of a borrower must be checked out. Assuming that a borrower has financial strength based on his or her possessions and lifestyle could result in loan broker liability. The normal procedure is to obtain a TRW-type credit report from a credit reporting agency. If the report is insufficient, such as no reported credit history, the loan arranger should request an investigative report.

Credit Card Interest

If you commingle personal and business credit card charges, fully document the business portion. For ease of record keeping and documentation, reserve one of your credit cards exclusively for business charges. In times of cash flow shortfalls, you may have to violate this practice and dip into the credit available on your personal cards. If (or when) you resort to your personal cards, though, don't get sloppy. Accurately segregate business from personal. Otherwise the IRS may try to invoke the general rule against deducting credit card interest.

Listen

Finally, Alec also gives great advice regarding your credit rating. If you are tapping equity in an existing property to purchase subsequent properties, this is a good time to examine your credit history. In a stated income transaction, good credit is crucial. Ask your loan officer what you can do to improve your credit rating. Paying down revolving debt is often very effective in improving a credit score. Remember that if you are getting a home equity line of credit on an existing property, that this is a revolving debt. When you max out this credit line, it may lower your credit rating.

Financial Analysis

Lastly, it was clear that construction financing would be needed during the project until a permanent mortgage could be placed on the property. A call to a local bank had produced quotations of 11.5 interest for such a loan, plus a one-point fee for processing it. Prudence thought that this was rather a high figure, but the banker had explained that the construction and rent-up phase of a development was always the riskiest part and required close supervision, and high rates were charged accordingly. He also noted that credit worthiness of the borrower was important to the bank because construction loans are normally guaranteed by the owner. No guarantees would be required once the project was fully rented.

Buyers Statement

Title insurance Origination fee Appraisal fee Credit report Recording The origination fee, the appraisal fee, and the credit report costs are all associated with the new mortgage and as a result will all appear as debits on the buyer's closing statement. Any other fees associated with the new mortgage would be the buyer's expense and thus show up as debits on the buyer's statement.

Get Started Today

The homeowner is trying to save himself the possibility of financial ruin. the loss of his home. social embarrassment. a bad credit rating. and at the very least. some dignity and self esteem. The lender has a bad loan on the books and wants to remove this sore spot as quickly as possible. Either way, the seller is motivated. This is key, because without this motivation, the profitable opportunities for investors would not exist. It is the seller's motivation, that creates different opportunities in the foreclosure process.

Tenant Selection

Laws against stereotyping people because of their race, religion, or occupation do not mean that you must accept individuals who do not meet your legitimate standards of conduct and creditworthiness. You may lawfully turn down any person regardless of protected status whose credit, employment, income, or rental record falls below your minimums. Also, you need not accept any individual who fulfills your minimum standards but nevertheless ranks below the superior qualifications of other applicants. Beware of Inconsistency. You are not free to arbitrarily change your standards, or to arbitrarily apply them. To a large degree, discrimination laws restrict a property owner's flexibility. Assume you meet with a nice young couple from your church who have bad credit. You believe they're good people and make an exception to your credit standards. Subsequently, a nice young couple of a different religion applies to rent a unit in the same building. You turn them...

Debt Capital

This mechanism has been greatly increased in recent years and has resulted in a new and highly liquid national mortgage market. Several agencies are involved - FNMA (Fannie Mae), GNMA (Ginnie Mae), and FHLMC (Freddie Mac), each of which provides differing products and services. Some states and local agencies have originated their own loan programs based on tax-exempt bond issues. By and large, the agencies themselves do not originate loans, but establish criteria for loans they will purchase. These underwriting criteria may include the creditworthiness of the borrower, valuation of the property, and the size, term and interest rate of the loan. Government agencies rarely get involved in commercial or construction lending.

Credit Card Management Philosophy

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