Buy Mortgages
How to buy-to-let mortgages differ from “normal” mortgages?
Can anyone tell me how buy-to-let mortgages differ from ones where the borrower would be residing in the property?
I’m aware that you usually need a larger deposit, but how much larger? And what other differences are there?
I don’t need specific details of current mortgages available as, although I’m in the UK, I’m thinking of purchasing a property elsewhere.
The main difference from residential mortgages is in terms of affordability criteria, as a Buy To Let lender will be more interested in the rental potential of the property than your personal income. Most will want to be assured that the rental value can match or exceed 125% of the mortgage payment, though this criteria may be slightly different depending on which lender you go with. Most, but not all, require a minimum level of personal income, anything between £10,000 to £25,000 per annum.
And you’re right about deposit, almost all Buy to Let lenders currently require a minimum of 25% deposit.
Edit: Bud, what you are referring to is a “Let to Buy”, not a Buy to Let, and can only be done on a residential property you already own. Although it is true lenders sometimes do this, subject to affordability.
Free Special Report: Buy Mortgages
-Reinstatement of the original loan.
-Property Sold to a new Buyer or Paying off the entire loan.
-Auction.
-REO – lender takes ownership of the property.
What does that mean? And how can this be done? There are several different ways in which each one of the above can be done, but for this article, we will focus on what each one of the above means. Let’s walk through each one individually.
Reinstatement of the original loan. When you fall far enough behind on your mortgage payments, the bank will consider you loan in “default”. This basically means that you didn’t make you payments like you agreed to in the contract, so that agreement is broken and the bank is entitled to certain action in order to recover the money they lent to you that you have not paid back. There is a certain amount of money that you owe in order to bring the loan current and that usually consists of two or three past due payments plus interest and late fees. If that amount isn’t paid back to the bank, then the bank will later add in attorney’s fees to that amount during the foreclosure process. During the foreclosure process, the homeowner has the right to catch up the past due amounts and in most cases, this can be done clear up till the day of the auction. When that past due amount consisting of past due payments, interest, late fees, and even attorney’s fees is paid to the bank, then the original loan is considered “reinstated”. You can then return to making your normal house payments as you originally agreed.
Property Sold to a new Buyer or Paying off the loan. This I think is pretty straight forward. Most people know what it means to sell your house. Selling your house means you are not the owner anymore and someone else bought your house and they now own the property. However, you can sell your house without paying off your old loan. So for learning purposes in this article, one of the endings is paying off you original loaned amount. Most people will automatically think that the only way to do that is the sell their house and use that money to pay the bank off. That is why I have chosen this heading.
Auction. An auction will take place towards the end of the foreclosure process. If is just like any other auction for goods where there is one person in charge auction and there are other people for the general public that show up to bid on your house. This usually takes place on the county courthouse steps, but can take place in the front yard of the property to be sold as well. The highest bidder wins ownership of your house. In some states like Wyoming, there is a redemption period after the auction where the homeowner has the right to pay off the loan balance in full and in cases like that; the highest bidder only gets ownership at the end of that redemption period. If the homeowner pays off the entire loan balance during the redemption period, then the bank or sheriff’s office will give the highest bidder his or her money back.
REO – lender takes ownership of the property. REO means Real Estate Owned. This happens when your house goes to auction and nobody bids on your house. So the ownership of your house is then given to the bank so they can later sell it through their own means to get the money back that they originally lent. In some cases, if you have a second mortgage that is also in default, the second mortgage holder can show up at the auction and buy the first mortgage also making it an REO. The second/third lender might do this in order to gain full ownership of the property. You see, ONLY, the first mortgage can own your property through foreclosure. The second or third mortgages can only lien your house; they cannot take ownership from you after the auction like the first mortgage can. This is going a little in depth for the beginner, but the basic you need to understand is that REO is when ownership of your house goes to your lender after the auction is over. When it is not sold at auction, then the bank owns your house. If your second/.third mortgages go to auction, they cannot become an REO and take ownership of the property, UNLESS the first is foreclosing as well and they buy the first mortgage.
These 4 endings are the basics of your options. Knowing your options on what you can do can feel very helpful. You have many rights as a homeowner while you own the property, regardless of whether you are in default or not.
Foreclosure can feel intimidating and hopeless. Most peoples’ first response is to run out of fear, but the reality is that if you run now, you will be running for a long time. If you are good at hiding and are a strong runner, you may be able to do this for the rest of your life and succeed. However, foreclosures can haunt you long after the auction and running from it robs you of your freedoms later in life. Your freedom has great value! Don’t chain yourself right out of the gate by saying “Well, I’m headed for foreclosure and I don’t know what to do about it so I won’t do anything.” Do the research, look around, talk to people you trust and then decide what to do. Walking away may be a good decision, but know your rights and options first – THEN decide.
A great resource goes further into depth on the possible endings of foreclosure and getting a foreclosure stopped is an ebook called What To Do When Facing Foreclosure located at http://www.foreclosureroadway.com
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