Last week I broached the subject of No cost home loans, the new phenomenon in the lending industry, which is sweeping the country now. I indicated that major players are jumping on this wagon in ever increasing numbers. This week has reinforce in me the fact that this is going to be a trend for at least the rest of this year (2007) and probably well into next year (2008).
Last week I also left a question for you. What strategies can we use with this trend in lending to benefit us as investors?
It seems to me that if we can save a couple of thousand dollars in closing fees, appraisal costs, lender fees, etc. on the front end of a loan, when we are not planning on keeping the loan for more than 6 to 12 months, we would benefit because the extra dollars paid in interest expense would be less than what we would have paid in fees. The possible negative here would be a “no closing cost loan” that has prepayment penalties which would offset the savings.
Financing the closing costs, which is what is happening with these loans, becomes much easier when the lender sets it up for you. If the property cash flows with one of these loans and there is the availability of appreciation either by market conditions or by some other means the extra that would be paid over the life of the loan could be insignificant compared to the need to keep your cash at the onset of the loan.
Shopping the loan around and negotiating with the broker for a better rate and better terms can also be an effective strategy. Use a interest rate from another possible loan (probably one that you would pay closing costs on) to show that you could have a better deal elsewhere unless they sharpen their pencil and or give you some concessions on the terms of the loan.
Do you have any other ideas? I am waiting with baited breath to hear from you!
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