Basic Financing Questions - Posted by Andre_DC

Posted by Mike on March 17, 2002 at 19:37:19:

Well the WLOC question would be best asked by your bank. The line of credit that I use (Well Over 1.2 Mil now)I can take out wahtever I want to buy the property with and I don’t get questions. It didn’t use to be that way I used to have to check with my banker before I took it out. Now the relationship I have with my banker allows me to do whatever I want with it (No trips to Vegas of course LOL) The interest should start ticking the second you pull it out of the bank. If it doesnt give me your bankers phone number I want to borrow money from him. On the question of the interest only vs no payments again you will need to check with your banker. He may want interest only payments, or he may wait the full 6 months before gettign any of it.

P.S. I would neve use my WLOC to go over 80% of value on the property unless I either already had it sold or it was in a HOT HOT neighborhood.

Basic Financing Questions - Posted by Andre_DC

Posted by Andre_DC on March 17, 2002 at 18:32:59:

Hello everybody,

I have a few specific questions, which are rather basic I suppose:

  1. If you have a WLOC and you want to use it to purchase a property, are you restricted in the amount of money you can borrow from the WLOC to purchase that property, i.e., can you borrow only a certain percentage of the FMV of the property (such as 70% or 80% of FMV) or can you actually borrow up to 100% of FMV?

  2. Once you bought the property with the money from the WLOC, you are now considered to own that property free and clear, correct? (which seems kind of strange because you are, in fact, owing money to the WLOC)

  3. If the answer to 2) is ?yes?, you can then refinance the property for up to 90% of appraised value, correct?

  4. For the refinance loan, you would also have to pay closing costs, correct?

  5. I understand that closing costs run at about 3%, correct? What do the 3% refer to? 3% of the amount borrowed (i.e., 3% of the 90% of the appraised value) or 3% of the full FMV of the property or 3% of what?

  6. Can the 3% closing costs of the refinance loan be wrapped into the refinance loan, i.e., could you actually borrow the 90% of appraised value PLUS the 3% for the closing costs in one loan?

  7. When you borrow money from your WLOC, I understand that you pay ?interest only? on the WLOC for 6 or 12 months and then a balloon payment is due, correct?

  8. If the answer to 7) is ?yes?, does interest start to accrue from the very day I borrowed money from the WLOC? For example, if I buy a property with money from the WLOC and then I refinance two weeks later and I pay off the WLOC with the loan proceeds from the refinance loan, do I have to pay interest on the money I borrowed from the WLOC for the two weeks?

Thank you very much for your comments,

Re: Basic Financing Questions - Posted by Dave T

Posted by Dave T on March 17, 2002 at 22:13:20:

  1. If you have a Line of Credit, you can borrow any amount to the loan limit of your LOC. If you have a LOC for $75000, you can borrow any amount up to $75000 regardless of the FMV of the property you intend to purchase.

  2. Correct. Some other asset may be pledged as collateral for your LOC.

  3. You can refinance the property you now own free and clear. Loan limits are established by the lender doing the refinance.

  4. Correct.

  5. Depends upon your area. If the “rule of thumb” for your area is 3%, then use 3% of the purchase price as your estimate. Estimates, such as 3%, are guesses – not precise quotes.

Recording fees may be based on the mortgage amount, while transfer fees (tax stamps in some areas) are usually based upon the purchase price. Lenders title policy costs are based on the loan amount, while the owner’s title policy cost is based on the purchase price. The attorney fee, title abstract fee, and title binder fee are usually fixed charges, as are your survey cost, appraisal fee, and credit report fee. To be safe, it is best to use the purchase price as the basis for your estimates of closing costs.

These estimates of closing costs typically do not include items such as loan origination fees, loan discount points, and prepaid escrows for taxes and insurance, which may add a lot more money to the amount you need at settlement to “close” the purchase.

  1. Depends upon the lender, your credit score, whether the property will be owner occupied or a rental, and what the property appraises for. If the refinance amount plus settlement costs do not exceed the lender’s maximum LTV for the loan, you may be able to add these costs to the loan amount.

  2. Correct, usually. In most cases with a LOC, you are only required to make interest only payments during the loan term. You may prepay the loan or any amount of the principle balance at any time during the loan term. At the end of the loan term, the remaining principle balance is due in full.

  3. Yes, interest accrues from the first day of the loan. This is not unique with a LOC. Even your traditional mortgage loan accrues interest daily. In your example, if you payoff the LOC after two weeks, you will owe the lender two weeks worth of interest. There is no grace period such as with a credit card.

Hope this helps