There are many risks when it comes to property investment as a business. I think sometimes people, especially investors forget the steps involved when obtaining a loan and how this process may open them up for risk. There are many concepts to understand mostly because the bottom-line is determined by capitalization (CAP) rates, return on investments (ROIs), and other net operating incomes.

It makes sense that people overlook the smallest detail when financing a property. It doesn't really matter "why" the loan is needed, if you are seeking a conventional loan from your neighborhood bank or turning to private lenders or hard money; it is still very important that you pay careful attention to the loan you are being offered. I understand you are concerned with flipping the property as quickly as possible; but in doing so you are not as attentive to the type of loan. And thus you find yourself in high-risk situation. Often times brokers may steer you into high-risk deals since they may have pegged you to be a risk-taker.

This opens you up to a different class of loan and areas of predatory lending practices which may incur high fees and other terms or conditions that are not always explained up front. Sometimes loans that allow you to flip properties are called rehab loans as they use hard money via private lenders. This not only means steeper interest rates but an area of lending that is not strictly regulated by the federal or local governments. These hard money loans only work to your benefit when they can get you out of a deal quickly. In other words, these loans only serve the lender because of the amount of leverage that increases the return.

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 This current talk of financial bailout suggests that as a result mortgage rates will fall allowing a surge in home buying especially for first time buyers.  Still one must wonder how long this will last but also what are the long-term impacts for the housing market?  Right now it feels like the lending industry is distressed but this may not be true for very long.  The banks at risk of failing just need to time to recover and it will actually be consumer confidence that drive the economy back to being fruitful again.

There just seems to be a lot flux in the market, organizations don't know if they are coming or going.  This is a period of acquisition and consolidation.  Lehman Brother's is on the auction block, AIG's failure has brought the issue of bailout into the limelight and Bank of America, of course, will remain standing, buying up new pieces for their vast umbrella like Merrill Lynch.  This week has been historic and shocking for the experts even to say, they don't know what should happen.  That's tough.  While so many people grasp this concept, many are putting their ducks in row and wonder if this is a right time to even think about buying a home or new car.  I believe people are hesitant this week but this will change once there is direction and leadership toward resolution.  This is what some experts have to say about the future of home buying:

How does the latest fallout from Wall Street influence mortgage lending rates?  Well, let's take a look.  We can only hope.  In the interim rates will more than likely go down because there is a lot shuffling going as the dust settles and investors look for safety nets in this uncertain market.  Upon many experts advise, this is a time to put our money in real estate investment or income property.  As of last week the 10-year notes went down which means that the yield also decrease but this makes for new opportunities.  Experts expect mortgage rates to follow this trend because historically they usually follow suit.  Expect rates to drop further as more news brakes.  Just within the last week Bankrate.com commented that the 30-year fixed rate was 5.78% down from 6.08% of the previous week.  Just to compare, this rate was 6.5% in August.

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There are different ways to structure real estate transactions that involve seller financing to benefit all parties.  Of course the seller has concerns of protecting their property and the need for regular repayment.  The following scenario explores this option in detail.

You know that your local market has many rental properties in the inventory and you have found one that meets your needs.  You will be purchasing from a seller who is greatly motivated because the property has been on the market longer than a year.  The property has an existing long-term fixed rate first mortgage with a balance of just $100,000.  Your plan is to buy the property, rent it out and hold onto it as a long-term return on investment property.  You know that the home is worth about $150,000 and the seller has it priced at a discount of $120,000.

The offer is as follows.  You want to put $5,000 in cash as a down payment but also allow the seller to keep the title in their name with their first mortgage with only a balance of $100,000.  The seller must also consent to taking a second lien loan for the remaining $15,000.  This transaction may seem like it only benefits the buyer and the seller is left with all the risk.  However due to the current lack of home sales in your area, the seller is motivated to continue the arrangement of the sales price, your down payment amount, and also is okay with you taking over the monthly payment for the first lien mortgage because they want to see the property sold in the long run.  What bothers most sellers about this type of transaction and what makes it risky for them is that you are not assuming the existing loan.  It still remains in their name but the title work protects them for your default.  Still there is the concern of the loan remaining in their name and the $15,000 second lien is also risky for them should you fall into hard times but the goal of the sold property remains a common interest for all parties.

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The so-called days of the mortgage boom are over causing a certain amount if disbelief among industry professionals.  Like a bad hangover from Saturday night wild party, those who gained from historic low interest rates and flexible lending products that spawned the real estate boom at the turn of the millennium, are now slowly waking to reality.  The once profitable sub-prime market is now close to extinction as many institutions known as great powerhouses are no longer in the business to originate loans.  While Wall Street may have had a say in rating these companies poorly, the ones who catered to a specific clientele should have seen a shift coming especially when the funding is no longer available.

So what is the big deal anyway?  All this hoopla has many asking, what is a subprime loan anyway?  How does this influence the mortgage industry? So okay, a subprime mortgage is a real estate loan given to a consumer with less than perfect credit and little or no down payment available.  One must keep in mind the majority of loans in a financial institution's portfolio does not consist of these types of loans but during the mortgage boom, many consumers took out these types of loans as a means of affording the American Dream of homeownership.  These loans broke down the barriers to home ownership because of their flexible lending parameters.  What this has now lead to be a marketplace upside down in loans not considered "A" paper but B, C, D and F translating into a high-risk venture?  As home values have risen so has the risky nature of these loans still being unpaid or falling behind.

So how did the bubble burst so badly, one is also wondering?  As subprime became a more popular loan product, so did the practice of selling it to the consumer become more flexible.  More and more lenders approved borrowers with not only less than perfect credit (small blemishes) but also those with poor track records including larger debit issues like previous foreclosure and automobile repossessions.  What further compounded the issue is the lenders sales device of enticing the poor credit customer by offering homeownership programs with minimum documentation needed known as "stated-income" or "no doc" loans.

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Like holding your breath underwater, homeowners facing foreclosure are desperate for air. While the solution of coming up and taking a breath seems simple, the work needed to get out of water can be a challenging journey. Many struggling homeowners face the journey of avoiding foreclosure and seek help to prevent it, thus beginning the quest loan workouts and restructuring.

When the pressure of foreclosure begins to mount, the goal becomes as clear as a ray of light on a cloudy day. Fix the loan. It is at this point where the journey becomes a cat-string game, the excitement of lenders dangling the string (loan details, interest rates) over the cats (borrowers) heads and the cat making desperate attempts to grab hold of the string and gain composure once again. Essentially, avoiding foreclosure comes down to numbers and the fact that what is best for the borrowers is often not in the best interest of the lenders.

With that in mind if you are feeling the pressure of foreclosure mounting down on you, the first step you need to take is having a discussion with your lender, sit them down and talk numbers. While with your lender present your financial situation. Show the lender details about your income, where your money is being extended to, and what your family spends on food, clothing, car payments, credit card debt, and student loans. Homeowners also need to present copies of their pay stubs, bank statements, and utility bills to back up their claims. Homeowners will need to make some changes in order to stay in there homes, so say goodbye to premium cable packages and give up your expensive habits because it is time to buckle down.

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For those that negotiated an ARM, the mortgage knife cuts in two ways: home values are plummeting while mortgage payments are jumping up. This could result in default when payments exceed the owner's ability to pay, but then the resale price is not sufficient to cover the original mortgage to begin with. So, that's how we got to where we are now.

Is there a way out of this mess? The easy answer is, maybe.

The current credit market is by no means as favorable as it was just a few years ago. Lenders were much more prone to making high-risk loans, which endangered not only their business but the borrowers as well. In those boom times, teaser rates were the hook used to entice borrowers into mortgages that appeared to be good in the short term. This was all put in the positive light of home values, which were believed to keep rising. Borrowers were betting on an uncertain future that seemed to be bright. Now that future is here, and it is proving to be more difficult than the borrowers or lenders could have ever imagined. So now those same borrowers are seeking ways to alleviate the mortgage crunch, but are finding few options. What they need to understand is that through some patience, determination, and the ability to reach out to those that can help.

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Because of the many factors that play into mortgage rates, we first have to acknowledge that the consumer and his/her manipulation of these factors will ultimately determine the end result. One example that affects the credit availability is the flow of deposits into the bank. As bank customers make deposits and contribute to the various savings instruments, banks then have more capital with which to lend and invest in future gains. The influx of capital then acts on interest rates by generally making the cost of borrowing, lower. This is reflected in lower interest rates. Same goes for a transaction in the other direction: if you borrow money or charge items on a credit card, the interest rate will raise as a result of the lowered pot of available credit.

On a grander scale, the forces that make interest rates increase are demand-driven. Perhaps counter-intuitively, more credit is demanded in boom times, and less is demanded in slower economic time. Each one of these situations affects the interest rates for capital. When credit reaches an unbalanced state, then we witness the effects of inflation. Inflation is the result of counter-measures taken by banks to make more money from borrowed funds in an attempt to offset any losses or decreased revenue. Inflation is then tackled, in many instances by government agencies.

The Federal Reserve has a big tool box, but the one that gets the most coverage in the media is the adjustment of the Federal Reserve's Federal Funds Rate, or Fed Rate. While the Fed Rate isn't necessarily adjusted with mortgage rates in mind, it indirectly determines the rates available for potential home buyers. Likewise, its effects can be widespread and diverse; there is no one way to determine if mortgage rates are better off when the Fed Rate is stable. To show the indirect effects, the Fed Rate is the cost of borrowing money that one bank charges another bank for investments and credit. If the Fed Rate increases, the bank doing the borrowing is being charged more than usual for borrowed funds. It would then increase its consumer interest rates to make up the difference.

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A new study says a tidal wave of foreclosures-about 1.1 million- will soon flood the nation.

Christopher Cagan, director of research and analytics for First American CoreLogic, explains that the study focused on 8.4 million adjustable-rate mortgages (ARMs) that were obtained in the period of 2004 to 2006. More than a million of those borrowers will lose their homes to foreclosure in less than a decade.

There are ways to tell if you're the type of borrower who is likely to lose your home. For instance, ARMs are a losing bet right now. Homeowners who got one of these mortgages in 2004, 2005 or 2006 have a one-in-three risk of foreclosure. Those who got a subprime ARM during those years have a lower risk, with only one in eight of those homeowners projected to lose their homes.

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Assuming you are basically aware of your tax liabilities for the current year, and you have a feeling about whether additional deductions will be more useful this year or next year is the first step in determining how to schedule your closing. (Of course, if you aren't aware of your tax situation, it's best to consult an accountant or tax-preparer first.)

Now that you know your impending tax liabilities, you need to know that closing before the New Year will allow you to take the deductions for your home purchase immediately, i.e., the next time you file. On the other hand, closing in January will allow you to take those deductions the following year.

How closing costs affect your taxes

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