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Determining a Safe Amount to Lend
If you are investing in trust deeds or
mortgages, there are a few things that you should know about
how much you should lend for a mortgage. The standard rule
of thumb is 70 percent of the value of the property. This is
based upon owner occupied, residential property. In order to
ascertain how much the property is worth, you need to get an
appraisal on the property. This is something that is paid
for by the buyer. Once the property has been appraised, you
can determine just how much you can lend to the borrower.
While some buyers have the 30 percent down for the property
purchase, others do not. And those who do not are probably
the people with whom you are going to be dealing. Because no
one is going to want to go to a private investor and pay
more interest than a bank or lender. The entire allure of a
private investor is that the buyer does not have to follow
the standard rules set by banks and lending institutions. If
the buyer does not have the 30 percent down, you can have
the loan backed up by a governmental agency such as Fannie
Mae. They issue insurance against the loan. In case the
borrower defaults on the loan, this agency will make sure
that you do not lose your investment. You have to be
approved by the federal government in order to participate
in this program and get mortgage insurance. If you are
planning on lending money to a borrower who is purchasing
property that he is not going to live in, the rule of thumb
is not to lend more than 65 percent. This is because there
is more of a risk incurred when the owner is not occupying
the property as he does not have the same incentive to take
care of the property. An appraisal will give you an idea of
the property value. This is how you will base what you will
loan your borrower. Another factor to take into
consideration is the amount of money that your borrower is
able to pay back. The borrower should make one third in
salary than the sales price of the house. In most cases, an
investor will go through a mortgage broker. The mortgage
broker can do all of the footwork when it comes to the
borrower. There are many things that have to be considered
before loaning money to a borrower. Their work history as
well as tax information is usually also considered. The
mortgage broker will arrange for the appraisal and check up
on the borrower. You will only be asked to underwrite the
loan.
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