Remortgaging Buy

Getting into the buy-to-let property club can be difficult for novices particularly if they don’t have much money to fund the enormous costs traditionally required to gain entry. These costs include substantial deposits, stamp duty, legal fees, mortgage fees, and potentially furniture and fixture costs depending on how the property is going to be set up for renting out to tenants.

A lot has changed in the property investment market during the past decade and one of the biggest changes is the reduced requirement to fund all the entry costs with hard cash. Crafty investors have discovered ways to forgo the need for a substantial deposit and have even found back door entrances to the buy-to-let club that do not require punters to pay for the other costs as well. This may seem a ludicrous or even illegal idea to traditionalists but there are ways to gain entry to the property investment club without burning a hole in your wallet. These methods rely on securing a hefty discount on the property you wish to buy and some clever financing during its purchase.

In order to buy an investment property most individuals will require a buy-to-let mortgage to fund the majority of the purchase price. A typical product will fund about seventy to eighty percent of the value of the property. Traditionally the remainder of the purchase price will be funded by a cash deposit from the purchaser. However in today’s market the deposit can often be forgone in situations in which the purchaser secures a genuine discount off the true market value of the property.

The mortgage that will be secured against the property long term will not allow the buyer to simply forget about funding a deposit if they have secured a discount in its place. Buy-to-let mortgages will normally lend money based on the lower of the market value or the purchase price. This means it will fund around eighty percent of the discounted price meaning the buyer will still be required to fund a deposit. However if the property is funded via a different source at purchase a buy-to-let mortgage can be secured against the higher true market value of the property at a later date.

Bridging loans are typically used in this situation as they can be issued to borrowers based on the undiscounted value of the property, or its true market value. If a buyer managed to negotiate a twenty percent discount the bridging loan would provide the entire eighty percent required to secure the sale without the need for a cash deposit. A buy-to-let remortgage product can be organised at the same time and can effectively by used to redeem the bridging loan as soon as one day after the purchase of the property is completed.

The buy-to-let remortgage product will probably only be issued to around eighty percent of the market value of the property but as the property is already owned by the investor, and it is funded by a bridging loan to eighty percent of the market value of the property, the final result is that a normal buy-to-let mortgage will be secured against the property and no cash deposit was required in the purchasing process.

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Aussie Self

One of Australia’s largest non-bank lenders has been offered up for sale by its owner GE Money – the giant American corporation with an international financial services arm. The mortgage lender has apparently been put on the market to stave off a takeover bid by its previous owner however it is likely that the sale has been triggered in part by the credit crunch.

Wizard Home Loans was founded in 1996 to offer Australian home owners and first time buyers the opportunity to obtain a mortgage without having to apply to one of the four major banks which had a monopoly on the market for many years. One of the main products offered by Wizard was a low-doc home loan which is the Australian version of a self-certification mortgage. This product was targeted at the self-employed, in the same manner as self-certification mortgage products, allowing non-employees to obtain a home loan with little documentation to verify their incomes.

Wizard had gained an impressive 2.5% of the total home loan market down under as one of many non-bank lenders which now operate in the nation’s big mortgage market. Home ownership in Australia is considered to be one of the main goals of families and is often referred to as the “Australian dream.” However the credit crunch has affected Wizard’s performance of late as the availability of funds has dried up and interest rates have risen considerably in the Lucky Country.

The lender was sold to GE Money several years ago for about half a billion dollars. GE Money has therefore owned the company during a period of decline in the non-bank lending industry and is ripe for the picking. Enter one of the previous owners with a brash offer – for GE to pay him millions of dollars upfront as remuneration for him taking the reins of the business again and for an equity stake so he could profit from selling it off in the future when he turns its fortunes around. In reaction the giant American company has offered Wizard up for sale on the open market in an apparent bid to circumvent the bold prior owner of the mortgage lender and therefore not have to strike a deal with him.

The lender’s fortunes have waned in recent times and it has been forced to close or sell off some of its 250 plus branches. Some branches are owned by individual Mum-and-Dad investors in a similar fashion to the popular franchise model for mortgage brokers down under. The reduction in funds available on the inter-bank market which can subsequently be loaned to home owners on a self-certification basis has also hit the lender hard as it is one of their more popular products.

Regardless of whom takes control of Wizard the lender will require someone with financial services expertise to put it back on track. The mortgage market is experiencing difficult times in Australia as it is in the UK and the USA in the wake of the sub-prime lending crisis. Unlike the US and the UK interest rates have risen considerably in Australia dealing a double blow to the self-certification mortgage market.

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What To Watch Out For In Pre Foreclosure Houses

There are a lot of pre foreclosure houses available on the market, many that have excellent investment potential. However, like with any investment, there are some risks associated with purchasing pre foreclosure houses. By knowing what to look out for and what to avoid, investors can reduce the risk of having what looks like a great investment turn into a liability.

The key concepts to keep in mind when buying pre foreclosure houses and properties include:

• Location – no matter how good of a deal you may get on pre foreclosure houses or properties, if they are in remote areas or in neighborhoods that are traditionally hard to sell, they are not really a bargain. If you can afford to hold on to the property for a longer period of time and have reason to expect the area will transition into a desirable neighborhood due to new expansions, subdivisions, shopping centers or other attractions location is not as critical. In some cases the pre foreclosure properties are located in other high pre foreclosure areas, which means the area will be saturated with investors trying to sell homes they have purchased. This will make resale options less and will also decrease the profit you will make on the property.

• Condition – some pre foreclosure houses will be maintained in excellent condition, but generally expect some type of repairs. Since the homeowners have been financially strapped, they are less likely to have painted, upgraded or added to the value of the property, especially if they knew they were heading for a foreclosure. In some cases the owners may have actually contributed to the poor condition of the house, although this is relatively rare.

• Back taxes – in some cases pre foreclosed houses and properties will also have large amounts of back taxes that need to be cleared up in conjunction with the transfer of the title. This can add thousands of dollars to the cost of the property, so make sure you are aware of any taxes owing or other liens against the property.

• Upgrades – if you are considering pre foreclosure properties that are older homes, they will need to be upgraded before they can be put on the market as rentals or properties for sale. Often rental properties are only upgraded with new paint and carpet, but a house for sale may need the fixtures changed, flooring upgraded, windows and roof replaced and even the kitchen or bathrooms remodeled. If you can do some or all of the work yourself this can save costs, however it will still take time and money.

If you are new to buying pre foreclosed houses, consider taking a weekend course or completing an online program to help you become aware of both the benefits and the risk to this type of investment.

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