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Funding your Flip

Real estate investments are quite expensive. Not only do you need the money to purchase the property you will be flipping but you will also need money for the improvements, repairs, and renovations that need to be made along the way. Unfortunately, the real estate business is a tricky business and there aren’t very many traditional lenders that are willing to go full out in support of your real estate investment business venture.

This means you are going to have to either fund a good portion of the expenses yourself or you are going to have to find some other means of financing your house flip. First things first, the less you pay in interest the more money you bring home. You do not want to max out your credit cards in search of profits from a house flip if it can be avoided. Merchant accounts aren’t much better but they can help you keep better track of exactly how much money you are spending on the flip and some will even give you 90 days same as cash (this is great if you can complete the process within 90 days).

It should be said that these aren’t methods that are endorsed by the writer but they are definitely possibilities when it comes to funding your house flip. The best-case scenario is that you would have the money to play with and assume no real risk in the house flipping process but very few people trying to get started in real estate investing have that luxury.

That being said, one way that is extremely risky (especially if you are nearing retirement age) is to cash out your retirement funds. This is not attractive for many reasons not the least of which are the facts that there are hefty penalties for doing this and you are risking your retirement security. It is an option however if you are in a bind for your flip. If your flip is successful it’s water under the bridge, the money can be returned or reinvested and the profit from your flip can then help fund subsequent flips or other types of real estate investments.

If you discuss things carefully with your family and decide that you are all willing to take the risk you can also risk your home by taking out a second mortgage for the funds. Again this is not the preferred method because the assumed risk is great for the security of your family. It is very important that everyone involved be aware that flipping houses is a risky investment. Not only is it risky because you aren’t experienced but the real estate market is fickle. Your house could sit for several months requiring costly carrying costs before it sells.

Forming a partnership is another way to share the risks and help lighten the burden when it comes to flipping houses. Keep in mind that this is a stressful business venture and should be treated as a business venture. For this reason a volatile or fledgling friendship may not be the best risk for a venture such as this. If you do choose a partnership you need to carefully discuss the type of financial and labor investment that is expected of each partner and the share of profit that each partner expects to receive as well. You should also consider carefully whether you are willing to risk the friendship for the sake of profits or would you rather go with a partnership that isn’t a close friend (most real estate investment groups have people willing to help with the financial side and assume the risk for the lion’s share of the profits).

Banks will typically fund a portion of the property costs if you can come up with an adequate down payment and show them a well thought out business plan. Do not rely on banks however if you have poor credit, lack a business plan, or do not have a sizable chunk of your own money to invest in the venture.

Having a mortgage broker that will answer your calls and consistently give you the right advice and a relationship goes far, there are private investors that work with mortgage brokers and individuals that like to do home remodels and flips and are aware of the rewards a the end if done right.

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Best Way To Avoid Bankruptcy

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If you are now in financial difficulty, and you have made the right choice in avoiding bankruptcy, then your next step is to manage your debt in a way that you are not Forced to file bankruptcy. And how exactly do you do that? The answer is, get professional help. Consult a debt consolidation company and let them help you sort out your financial issues.

Why Debt Consolidation program is the ideal choice. You can avoid bankruptcy by choosing debt consolidation, as it makes you debt free with a lot of extra benefits:

1. Permanent Solution: While Bankruptcy offers only a temporary relief, Debt Consolidation provides a permanent solution to your debt problems. They are the expert in their field and they are definitely on better grounds to advising you what the best path is.

2. Minimized Debt: Unlike Bankruptcy, Debt Consolidation can reduce your debt amount to as good as 40–60%! This ensures that you get to carry on with you life with as little hassle as possible. In time, you WILL clear off your debt!

3. Easy payment: Debt Consolidation allows paying off debts in easy monthly installment without making drastic changes to your living standards. This alone is great help, you get both the benefits of clearing your debt, as well as being able to live life normally.

4. Clean Credit Report: Debtors opting for Debt Consolidation Program can have renewed accounts and clean Credit Report once the debt is paid off.

5. Freedom from Creditors: In a Debt Consolidation Program, you are not dominated by the Creditor, as the Consolidation Company takes care of dealing with the Creditors. Imagine the hassle of not needing to deal with your creditors!

Whether you can avoid bankruptcy and take up any other debt solution depends on your debt situation. But bankruptcy should be chosen only when other options fail to work. The option best suited to your debt needs can only be judged by a Debt Counselor. Remember that it is always better to rely on professionals in such cases as one wrong step taken can result into a thousand troubles. Getting professional help from a debt consolidation company is really the best step during times of financial difficulty and if you have equity in your home contact your mortgage broker.

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How to roll closing costs into your mortgage

If you don’t have the cash to pay the closing costs upfront, you might be able to include them in your loan balance.

This is often allowed on refinance loans, though unfortunately, it’s not an option for home buyers.

This strategy will cost more in the long run since you end up paying interest on your closing costs. It will also raise your interest rate. But it might be a good option if you don’t have the upfront cash needed to refinance.

At today’s low rates, many homeowners can include their closing costs in the loan and still walk away with a good deal.

Rolling closing costs when you refinance

If you’re refinancing an existing home loan, it’s often possible to include closing costs in the loan amount.

As long as rolling the costs into your mortgage doesn’t impact your loan-to-value (LTV) too much, you should be able to do it.

  • As an example, let’s say your new loan amount is $200,000, excluding closing costs
  • If your home is valued at $250,000, your LTV is 80%. (200,000 / 250,000 = 0.80)
  • If your maximum approval is 80% LTV, or you’re just wanting to stay at or below the 80% mark, you may not be able to roll the closing costs back into your loan

But if your loan-to-value ratio is low enough, taking on a small extra loan amount might not make too much of a difference.

What does it mean to roll closing costs into your loan?

Including closing costs in your loan or “rolling them in” means you are adding the costs to your new mortgage balance.

This is also known as financing your closing costs.

Financing your closing costs does not mean you avoid paying them. It simply means you don’t have to pay them on closing day.

If you don’t want to empty your savings account at the closing table — and if your rate is low enough that you’ll still save — financing your closing costs over the term of your mortgage might be a good strategy.

But the big downside is that you end up paying interest on your closing costs, which makes them more expensive in the long run.

So if you’re able to pay closing costs in cash, that’s typically the best move.

Which closing costs can be financed?

Not all closing costs can be included in the mortgage loan when you refinance.

Some costs you’re typically allowed to finance include:

  • Lender fee
  • Broker fee
  • Appraisal fee
  • Title fees/title insurance
  • Lawyer fee

Other costs cannot be rolled into the loan. These include items like prepaid property taxes and homeowners insurance.

What are the pros and cons of rolling closing costs into your mortgage?

When you roll closing costs into your mortgage, you have less out-of-pocket funds and more cash on hand.

However, you are also paying interest on those costs over the life of the loan.

For example, let’s assume:

  • The closing costs on your new mortgage total $5,000
  • You have an interest rate of 4.5% on a 30-year term

If you roll the closing costs into your loan balance:

  • Your monthly mortgage payment would increase by $25 per month
  • And you would pay an extra $9,000 over the 30-year term

In addition, by adding the closing costs to your new mortgage balance you are increasing the loan-to-value. By increasing the LTV, you are reducing the amount of equity in your home.

Less equity means less profit when you go to sell your home. You would also have less equity if you wanted to take out any type of home equity loan.

What lenders will let you roll closing costs into the mortgage?

Most lenders will allow you to roll closing costs into your mortgage when refinancing.

Generally, it isn’t a question of which lender that may allow you to roll closing costs into the mortgage. It’s more so about the type of loan you’re getting — purchase or refinance.

When you buy a home, you typically don’t have an option to finance the closing costs. Closing costs must be paid by the buyer or the seller (as a seller concession).

But with a refinance, many lenders will allow you to roll the closing costs into the loan provided you still meet lending criteria after doing so.

Is rolling closing costs into your loan the same thing as a “no-closing-cost” mortgage?

Rolling closing costs into your mortgage is usually not the same thing as a “no-closing-cost”

Generally, when lenders advertise “no closing cost” or “zero closing cost” mortgages they are referring to the process of trading a slightly higher interest rate in return for a “lender credit.”

A lender credit means the mortgage company will cover part or all of your closing costs.

With these mortgages, the lender will front many of the initial closing costs and fees, while charging a slightly higher interest rate over the duration of the loan.

The downside is you’ll pay a larger monthly payment over the long haul. And, you’re likely to pay significantly more in interest overall.

However, the idea is that you don’t have to come up with as much cash upfront. This can be helpful when you are also having to come up with a large down payment.