Chapter 22 THE SIX MOST-ASKED QUESTIONS ABOUT REAL ESTATE FINANCING

Question 1

What is the goal of the chapter on real estate financing?

Answer 1

To provide answers to six of the most-asked questions about real estate financing

Question 2

What is one method to acquire real estate if you have poor credit?

Answer 2

Find property where your credit is not in question

Question 3

What should you do first if you have poor credit?

Answer 3

Check your credit report

Question 4

What are the three major national agencies that issue credit reports?

Answer 4

• TRW
• Merchants
• Equifax

Question 5

True or False: You can challenge any item in your credit report directly with the report company.

Answer 5

True

Question 6

What is a creative financing method mentioned for acquiring property?

Answer 6

Lease with an option to buy

Question 7

What can you do if you have someone with good credit willing to help?

Answer 7

Get a cosigner

Question 8

What should you do if you are overwhelmed by debt?

Answer 8

Talk to a good bankruptcy lawyer

Question 9

What is the first repayment schedule type mentioned for mortgages?

Answer 9

Equal constant payments of interest and principal combined

Question 10

What does a self-amortizing loan mean?

Answer 10

The entire amount of the debt will be fully paid off at a future date

Question 11

What is the main benefit of a fixed payment self-amortizing loan?

Answer 11

Each month the payment remains the same

Question 12

What is included in the monthly payment of a fixed payment self-amortizing loan?

Answer 12

• Interest
• Principal

Question 13

How do you calculate the monthly mortgage payment for a fixed payment self-amortizing loan?

Answer 13

Multiply the beginning mortgage amount by the constant rate and divide by 12

Question 14

What is a balloon payment in the context of mortgages?

Answer 14

A final payment that is larger than the preceding regular payments

Question 15

Fill in the blank: Many people have better credit than they might think, and just because you were turned down for a credit card, or have had a problem in the past over a _______ bill, does not automatically mean your credit has gone down the tubes.

Answer 15

delinquent

Question 16

What should you do if you find errors in your credit report?

Answer 16

Contact the source of the obligation to resolve the issue

Question 17

What can you do if you cannot resolve issues with the credit agency?

Answer 17

Resort to an agency that specializes in fixing credit

Question 18

What is the best approach when acquiring property without dealing with your credit?

Answer 18

Assume existing debt

Question 19

What can be a benefit of showing ‘leasehold equity’ after improving a property?

Answer 19

It can be converted into real value to a prospective lender

Question 20

What is one reason sellers may not check your credit when selling property?

Answer 20

They are anxious to sell the property

Question 21

What term describes the financial obligation to repay a mortgage?

Answer 21

Repayment schedule

Question 22

What is one reason why understanding different mortgage payment schedules is important?

Answer 22

It helps to know what each payment will require you to do

Question 23

What is the monthly payment for a mortgage of $100,000 over 20 years at a constant annual payment of $10,797?

Answer 23

$899.75

Question 24

What is a balloon payment in the context of a mortgage?

Answer 24

A balloon payment is a full or partial payment of principal due at a date in the future, requiring payoff earlier than the amortization schedule.

Question 25

In a fixed equal payment mortgage with a balloon, what happens after the initial fixed payments?

Answer 25

A lump sum (balloon payment) of principal must be paid off.

Question 26

How is the principal payment calculated in a mortgage with equal fixed payments of principal plus interest?

Answer 26

Divide the loan amount by the number of payments.

Question 27

How does the monthly payment change in a mortgage with equal fixed payments of principal?

Answer 27

The total payment changes each month due to declining interest on the outstanding balance.

Question 28

What is an interest-only payment mortgage?

Answer 28

Payments consist only of interest with no principal payments until specified future dates.

Question 29

What is a deficit payment mortgage?

Answer 29

Payments cover only part of the interest due, with unpaid interest added to the principal.

Question 30

What happens to the principal balance in a zero coupon mortgage?

Answer 30

No payments are made, and both principal and interest grow due to compounding.

Question 31

How is interest calculated in a zero coupon mortgage with a principal of $100,000 at 9%?

Answer 31

Multiply the principal by 0.09 to find the annual interest due.

Question 32

What is an adjustable rate mortgage (ARM)?

Answer 32

A mortgage where the interest rate changes periodically, impacting the principal/interest schedule.

Question 33

What factors influence the interest rate change in an adjustable rate mortgage?

Answer 33

Negotiated factors can include market rates such as U.S. Treasury rates or other identifiable rates.

Question 34

What is a graduated rate mortgage (GRM)?

Answer 34

A mortgage with an interest rate that starts low and increases over time.

Question 35

What is a reverse mortgage?

Answer 35

A loan where the lender makes payments to the borrower until repayment is needed.

Question 36

What are four proactive steps to take when dealing with a lender?

Answer 36

* Establish rapport with the lender * Introduce yourself and your investment plans * Allow the lender to present their services * Make a memorable impression on the lender's staff

Question 37

True or False: In an adjustable rate mortgage, the borrower should be cautious about the interest rate adjustments.

Answer 37

True

Question 38

Fill in the blank: In a mortgage with equal principal payments, the monthly principal payment is calculated by dividing the loan amount by the _______.

Answer 38

number of payments

Question 39

What is the outcome of making only part of the interest payments in a deficit payment mortgage?

Answer 39

The unpaid interest accumulates and increases the principal owed.

Question 40

True or False: A zero coupon mortgage allows for regular payments of principal and interest during the loan term.

Answer 40

False

Question 41

What is the typical structure of payments in a reverse mortgage?

Answer 41

Initial equal monthly payments, with options for lump payments for emergencies.

Question 42

What should you explain when meeting a bank president?

Answer 42

You are a real estate investor planning to make several investments in the area and would like to know about their lending policy.

Question 43

What is a good way to engage with a bank president's secretary?

Answer 43

Talk about something of interest to ensure they remember you.

Question 44

What should you do after visiting the bank president?

Answer 44

Call the secretary a few days later and ask a question, expressing gratitude for the visit.

Question 45

What is important to include in a loan request presentation?

Answer 45

Follow the Outline for a Loan Request closely, ensuring all supporting materials are neat and accurate.

Question 46

How should you dress when meeting with a loan officer?

Answer 46

Dress as a successful businessperson to instill confidence in the loan officer.

Question 47

What is the recommended punctuality for meetings?

Answer 47

Always be a few minutes early to every meeting.

Question 48

What is the first step before entering into an agreement for secondary financing?

Answer 48

Ascertain if the first mortgages allow for secondary financing.

Question 49

What should you evaluate regarding your goals before selling a property?

Answer 49

Determine if the sale takes you closer to your goals and check the bottom line math of the deal.

Question 50

What should you do to assess the buyer before agreeing to secondary financing?

Answer 50

Run a credit check and collect detailed information about the buyer.

Question 51

What is one way to improve the security of the debt when holding secondary financing?

Answer 51

Lower the amount of the mortgage.

Question 52

What should you include in the mortgage to protect against additional debt?

Answer 52

Do not allow subordination without compensation.

Question 53

What is crucial to understand before signing the note and mortgage?

Answer 53

Make sure you understand all the terms of the note and mortgage.

Question 54

What should you do if a payment is late?

Answer 54

Send a registered letter notifying the borrower of the past due payment.

Question 55

What is the best category of real estate to buy for first-time owners?

Answer 55

A small apartment complex of at least four units.

Question 56

What should first-time owners look for in an area when purchasing real estate?

Answer 56

An established area that can attract good tenants.

Question 57

What is a strategy to find properties that may not be listed for sale?

Answer 57

Look for properties with vacancies that are not actively offered for sale.

Question 58

What can you negotiate when approaching a property owner about a vacant building?

Answer 58

Discuss the rent and ask if the owner would consider selling.

Question 59

What is the significance of a personal guarantee in a secondary financing agreement?

Answer 59

It ensures that the buyer's personal assets are at stake in case of default.

Question 60

What is a recommended action if you want to collect past due payments?

Answer 60

Ensure the mortgage allows for the collection of lawyers' fees.

Question 61

What should you ensure regarding the buyer's obligations in a secondary financing agreement?

Answer 61

The mortgagor must live up to obligations 100 percent.

Question 62

What does it indicate if the owner is dealing directly with you?

Answer 62

The owner is also dealing directly with all the problems of the building.

Question 63

What does a vacancy imply for the owner?

Answer 63

The owner may not be making money from this investment.

Question 64

What initial approach should you take when negotiating with the owner?

Answer 64

Start as though you want to rent the building.

Question 65

What should you discuss with the owner during negotiations?

Answer 65

The rent and what the owner will do to fix the apartment to meet your standards.

Question 66

What option can you ask the owner about during negotiations?

Answer 66

Whether the owner would consider renting to you with an option to buy the property.

Question 67

What is the likely best choice for a rental agreement?

Answer 67

Lease with an option to buy.

Question 68

What should you establish before signing a lease option deal?

Answer 68

A purchase price.

Question 69

What should you include in the transaction regarding improvements?

Answer 69

The right to begin to make improvements to the building.

Question 70

What is the goal of making improvements to the building?

Answer 70

To purchase a more valuable building than when you started out.

Question 71

What should you ask in the purchase agreement regarding rent?

Answer 71

That all or a portion of your rent be applied to the purchase price.

Question 72

What should you do if you cannot afford rent?

Answer 72

Consider living with a family member or friend to invest extra cash into real estate.

Question 73

What type of properties should you look for when investing?

Answer 73

Properties that can be rented out and will ultimately have multiple tenants.

Question 74

What type of zoning should you look for in properties?

Answer 74

Multifamily use zoning.

Question 75

What is a common conversion of older homes?

Answer 75

Converting them into apartments.

Question 76

What is the number-one problem to solve when owning rental property?

Answer 76

Dealing with tenants.

Question 77

What is a critical first impression to assess in tenants?

Answer 77

How they dress, speak, and behave.

Question 78

What should you require from a tenant during the application phase?

Answer 78

A $50.00 deposit for the credit report and at least three references.

Question 79

What should you check in a tenant's application?

Answer 79

Their name, addresses, contact information, employment details, and past landlord.

Question 80

What should you do after receiving a tenant's application?

Answer 80

Run a credit report.

Question 81

How often should you inspect the property after renting to tenants?

Answer 81

Once every several months.

Question 82

What should you check at your local library regarding tenants?

Answer 82

Publications that cover tenant/landlord rights.

Question 83

What steps should you learn regarding eviction?

Answer 83

The specific steps required by your local courthouse.

Question 84

What is the first step in the eviction process?

Answer 84

Send a notice of default to the tenant.

Question 85

What should the notice of default specify?

Answer 85

The cause of default.

Question 86

What happens if the tenant does not rectify the default?

Answer 86

You will have to follow the procedure to have a police officer serve a notice of eviction.

Question 87

What occurs if a tenant fights the eviction in court?

Answer 87

They must post the funds owed to you first.

Question 88

What should you do if a tenant leaves owing you money?

Answer 88

Seek to collect from them.

Question 89

What is a good practice before renting to tenants?

Answer 89

Spend time checking out those tenants.

Question 90

Why is it important to check tenant references?

Answer 90

To avoid issues with potential bad tenants.