A Detailed Checklist for Raising Capital
1. Understand Mortgage Options
- Identify if a fixed-rate or adjustable-rate mortgage suits your needs.
- Consider hybrid options that combine both fixed and adjustable rates.
2. Evaluate Fixed-rate Mortgages
- Determine if the certainty of a fixed-rate mortgage aligns with your investment strategy.
- Assess if you’re comfortable with potentially higher rates for long-term certainty.
- Analyze cash flow challenges in early property ownership stages.
3. Consider Adjustable-rate Mortgages (ARMs)
- Evaluate if starting with a lower rate (compared to fixed-rate) is beneficial.
- Understand the implications of rate changes over time.
4. Investigate Mortgage Features
- Examine the start rate and future interest rates for ARMs.
- Look into indexes and margins that influence ARM rates.
- Understand the adjustment caps and lifetime caps for ARMs.
5. Avoid Negative Amortization ARMs
- Ensure your mortgage doesn’t lead to an increasing loan balance over time.
6. Review Other Common Fees
- Check for application fees, credit report charges, and appraisal fees.
- Inquire about environmental assessments and third-party inspection fees.
- Request a detailed summary of all fees and charges in writing.
7. Choosing the Right Mortgage Rate Type
- Assess your financial risk tolerance.
- Determine your ability to handle payment fluctuations.
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8. Analyze the Loan Term
- Choose between short-term and long-term mortgages based on your investment horizon.
- Consider a 15-year vs. a 30-year mortgage and its impact on cash flow and investment goals.
9. Consider Borrowing Against Home Equity
- Evaluate if home equity loans or HELOCs are a viable option for raising capital.
10. Explore Seller-Financed Loans
- Investigate if the property seller offers financing options.
- Analyze terms and risks associated with seller financing.
11. Be Cautious with Special Loan Types
- Avoid balloon loans and interest-only loans unless absolutely necessary.
- Understand the implications of recourse and nonrecourse loans.
- Assess the need for loan guarantees and their impact on your liability.
12. Finalize Your Mortgage Decision
- Choose the mortgage type that aligns with your investment strategy, cash flow, and risk tolerance.
- Ensure all terms are clearly understood and beneficial for your long-term investment goals.
13. Legal and Tax Considerations
- Consult with a real estate attorney or financial advisor for legal and tax implications.
14. Securing the Best Mortgage Terms
- Shop around for mortgages to find the best deal.
- Utilize referrals to find reputable lenders.
- Consider using a mortgage broker for challenging loans or less than stellar credit.
- Understand the role and fees of a mortgage broker.
- Research online mortgage options.
- Be prepared to solve potential loan predicaments, such as credit issues or low appraisals.
15. Prepare for Mortgage Application
- Ensure your credit report is accurate and reflects your creditworthiness.
- Have your financial documentation organized and ready.
- Be upfront about any potential issues that might affect loan approval.
16. Negotiate Mortgage Terms
- Don’t hesitate to negotiate rates, points, and broker commissions.
- Compare offers from different lenders for the best deal.
17. Closing the Deal
- Ensure all deadlines are met for loan application and property purchase.
- Work with brokers or agents to streamline the closing process.
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