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Investing in Real Estate Profitably: Eliminating the Need for Mortgage Insurance
In an earlier article, we presented various options for ensuring that you have positive cash flow when holding rental houses, by minimizing loan payments. One problem which we now can address is to how to eliminate the need for paying mortgage insurance. If you want to pay less than 20% down, the best way to get around mortgage insurance is to finance your purchases with two loans, a first and a second mortgage. For example, the first mortgage is commonly 70%, 75% or 80% of the purchase price and the second mortgage makes up the difference to 90% or 95% of the purchase price. You can get both mortgages from the same lender, but usually you can find better rates on the second mortgage from a lender that specializes in second mortgages. An independent loan broker can put this together for you nicely. Both mortgages typically close escrow at the same time and both lenders are fully aware of each other. For simplicity, put both loans in the same escrow and sign them both at the same time. If you want to be tricky and try to use two mortgages to get to 100% financing (i.e. no down payment), there are ways to do this, but we do not recommend it and it is not within the scope of this article. The second mortgage is typically at a higher interest rate than the first, but not always. For example, there are some very competitive home equity lines of credit (HELOCs) with rates only a fraction above the prime interest rate. You have to have good credit scores to qualify, but if you do, they are very attractive. The problem with a HELOC based on the prime rate is that it assumes the prime rate does not get too high before you pay it off. As you may recall from the early 1980s, the prime occasionally does go sky high and it could happen again. There is a particularly wide variation in the interest rates for second mortgages from various lenders. Moreover, if your credit, income, and assets are not ideal, you may not be qualified for certain second mortgage programs, so it may be more difficult to find a second mortgage at a good rate that you do qualify for. It is very important therefore to ask your independent loan broker to check out various options and to shop the rates. He/she should be comparing at least half a dozen different second mortgage programs. When you use two loans as described above, it is usually advisable to have an interest-only or minimum payment loan for the first mortgage. This allows you to focus on paying down the principle on second mortgage over a period of say 5 years, if you can afford it. If you cannot do that, than obtain a second mortgage that also has a 5-year fixed period and an interest only option. You are then covered with predictable and low payments for at least 5 years. This article has reviewed a strategy for improving your cash flow when purchasing investment rental homes -- namely, using two loans to eliminate mortgage insurance. There is much more to say on this topic. So keep an eye out for additional articles by the same authors on this and related topics. (c) Copyright 2004, Jeanette J. Fisher and Robert S. Kramarz. All rights reserved. Jeanette Fisher, Design Psychology Professor, is the author of "Doghouse to Dollhouse for Dollars: Using Design Psychology to Increase Real Estate Profits," the only book to reveal interior design secrets on how to make top dollar investing in real estate. For real estate and interior design psychology books, articles, tips, and newsletters: http://www.doghousetodollhousefordollars.com. Robert S. Kramarz is a loan officer for a major loan brokerage. He has over 20 years experience in finance and business management and comes from a family a long background in real estate investing and banking. He specializes in providing financing for purchase of investment real estate. He can be reached by email at MrFunding@22cv.com. Further information is available at the website http://www.sweetloan.info.
MORE RESOURCES: How Jordon Hudson, 24, amassed $8 million real estate portfolio within months of meeting Bill Belichick New York Post Hyderabad blues: Real estate sales in city see biggest drop The Financial Express Real estate transfers in Adams County from April 21-25, 2025 Muddy River News Real estate report: Three key factors are behind Louisiana’s surge in investment Baton Rouge Business Report Exclusive: Trump's first real estate project in Qatar to be announced by Qatari Diar, Dar Global Reuters Graham Norton’s Manhattan Carriage House Is Listed for $5.595 Million The New York Times ArchCrest opens new real estate division Northern Nevada Business Weekly Advocacy Scoop: New NAR Poll Unveiled—Tax Reform, Real Estate Policy and Voter Opinion National Association of REALTORS® Two key real estate bills take aim at industry regulations Real Estate News by RealEstateNews.com Cattaraugus County: Ellicottville home, Machias property lead March real estate sales Olean Times Herald Licking County real estate transfers for April 14-18 reach $1.4 million in Newark The Newark Advocate Richland County property transfers recorded April 21-25 Mansfield News Journal Fond du Lac County property sold for $530K in latest real estate transfers for April 21-25 fdlreporter.com Ranking Arizona: Top real estate law firms for 2025 AZ Big Media Mid-America Real Estate closes sale of 34,431-square-foot shopping center in Midtown Detroit REJournals People on the Move: New execs at HomeServices, RE/MAX Real Estate News by RealEstateNews.com Property transfers: Nursing facility, rental complex sell for more than $1 million Canton Repository Alexandria Real Estate Equities Looks Juicy But Uncertainty Keeps Me Sidelined (NYSE:ARE) Seeking Alpha The Pipeline: Commercial real estate roundup for 5.2.25 Richmond BizSense Raith seeks to raise $700m for non-core US real estate fund IPE Real Assets Blackstream opens luxury office near Lake Keowee GSA Business Report April real estate transactions CraigDailyPress.com Franklin Real Estate Development finds inspiration in Greenville’s history upstate business journal 'Slow and steady': How a couple retired early by buying one rental property a year with 5% down payments Business Insider Solano Real Estate Scene: Slow down, buy a house Daily Republic Secluded estate near Ann Arbor is Washtenaw County's most expensive home. Price: $8.99M Detroit Free Press Job Market Defies Tariff Fears to Remain Strong in April, Offering Jolt of Confidence to Homebuyers Realtor.com Solano Real Estate Transactions: May 2, 2025 Daily Republic How the Dallas Commercial Real Estate Industry Could Fare in the New Tariff Environment - D Magazine Berkshire region real estate sales – May 2, 2025 The Berkshire Edge Here's what local experts say the Baton Rouge real estate market will look like in 2025 The Advocate Real estate performance in Quarter 1, and some perspective Garden City News CENTURY 21 Real Estate and Institute for Luxury Home Marketing Launch Collaboration With New Q1 2025 Luxury Market Report Franchising.com SDSU: SDSU Imperial Valley alumnus finds new meaning in real estate career Imperial Valley Press Online Abundant listings and stable prices not enough to drive April sales in the Fraser Valley GlobeNewswire What's the most expensive property sold in Rhode Island? May 2 real estate transactions The Providence Journal Tarek El Moussa Calls for 'Real Reform' in Real Estate Industry: 'I Saw Families Lose Everything' House Beautiful Report: Health care real estate gains greater favor in Twin Cities Finance & Commerce Real Estate Magnolia Reporter Costar Group (CSGP): “Bloomberg Of Commercial Real Estate” Insider Monkey Real estate transactions: Week of May 2, 2025 Inside Tucson Business US Commercial Real Estate Leader Peachtree Group Launches 114-Room Residence Inn in Ocean Township, Tapping into Jersey Shore’s Expanding Hospitality Market Travel And Tour World Status update: 7 Upstate commercial real estate projects upstate business journal When Donald Trump mocked a real estate icon for having a 'Trophy Wife' The Economic Times Real Estate: Market Pulse (April 2025) Seyfarth Shaw LLP Compass goes retro with launch of ‘Private Exclusives Book’ - Real Estate News by RealEstateNews.com Compass goes retro with launch of ‘Private Exclusives Book’ Real Estate News by RealEstateNews.com How to Choose the Right Real Estate Broker Investopedia Real estate report: Industrial market remains ‘chronically underbuilt’ - Baton Rouge Business Report Real estate report: Industrial market remains ‘chronically underbuilt’ Baton Rouge Business Report Allied Properties Real Estate Investment Trust (APYRF) Q1 2025 Earnings Call Highlights: ... - Yahoo Inside the Family Office Advantage in Private Real Estate WealthManagement.com NexPoint Real Estate Finance, Inc. 2025 Q1 - Results - Earnings Call Presentation (NYSE:NREF) Seeking Alpha Windermere ‘confused’ about Compass’ claims of collusion Real Estate News by RealEstateNews.com 'We Are Going Into Winter': Boston Universities Brace For Real Estate Impacts Of Federal Cuts Bisnow This Week’s Premier Real Estate Listings TysonsToday Woman Arrested Again on Real Estate Forgery Charges Rural Radio Network House for Sale by Owner RiverBender.com |
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