First Mortgages

A first mortgage holds first loan position over secondary financing sources, and is used as the primary funding source for home purchases. Three are two types of first mortgage loans: conventional and non-conventional. If you are buying a new home, and you do not qualify for a FHA, VA, or other non-conventional loan, you can apply for a conventional home loan to finance your homes first mortgage.

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Conventional v.s. Non-conventional Loans

A conventional loan is not guaranteed or insured by an agency of the federal government. It may, however, be insured by a private mortgage insurance company. The guidelines for conventional loans are set according criteria from lending organizations, such as FNMA or FHLMC. When financing conventional loans, most homebuyers purchase private mortgage insurance to compensate for the loan insurance that they would have received with a non-conventional loan. Non-conventional loans are insured by the U.S. government, and include FHA, VA, HUD, and other government approved loan programs. read more about Non-conventional Loans

More lenders available –No single conventional lender dominates the market, therefore a mortgage loan broker may take a borrower's application file to more than one lender. If a loan is not approved by one lender, the mortgage loan broker may obtain approval at a second or third or fourth conventional lender, because each lender sets its own loan criteria.

If you apply for a non-conventional loan and the loan is rejected, and you have no alternative lender, then you have lost valuable time. If a loan is turned down by one conventional lender, there are other lenders who may approve the loan. When you are applying for a home loan, you can apply for loan pre-qualification, from both an un-conventional loan and conventional loan in order to minimize the risk of loan rejection.

Most lenders prefer to lend on single–family owner–occupied homes or condominiums. Conventional lenders, however, make loans not only on owner homes and one– to four–unit properties, but also on larger complexes, retail centers, office, and commercial properties.

Processing time – The processing time on a conventional loan is usually less than that on a government insured or government–guaranteed loan. The actual processing time for a conventional loan can take around 30 days. If the documentation for closing is completed quickly, then the processing time can be less than 30 days. Usually, government agencies do not have the flexibility in their procedures that a conventional lender enjoys. This faster processing time is one of the major factors that make conventional mortgages more attractive to consumers.

Loan amounts – Unlike government loans, conventional loans have no set loan limits. The FHA sets maximum loan amounts on a home loan depending on geographical location. The Department of Veterans Affairs (DVA) has no dollar loan maximum, but individual lenders do limit the veteran's loan amount because the DVA guarantees only part of the loan.

Flexibility of lenders –When a lender keeps a loan, instead of reselling it in the secondary market, the loan is called a portfolio loan. Portfolio Lenders service, rather than sell your loan to a wholesale lender. Portfolio loans usually have attractive terms, and offer non-traditional loan types such as limited documentation, stated income, jumbo, adjustable rate, interest only, 100%, and other creatively structured loans. Some may also offer what is called the “Quick Qualifier” loan, requiring not much more than pay stubs to satisfy the verification requirements for loans with a large down payment.

Less red tape – Processing a conventional loan involves less red tape. There may be fewer forms to complete, and loan processing is usually more flexible.
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Determine the Real Estate Financial Statistics for a Property

Before you buy an investment property it is critical that you create your own projection of the property's profitability. Real-Estate-Proforma.com has a quick-proforma with which you can calculate real estate financial statistics such as Internal Rate of Return, Capitalization Rate, Cash-on-Cash, Debt Multiplier, Loan-to -Value Ratio, Debt Coverage Ratio, and Mortgage Payments. You can use this JavaScript proforma to project the profitability of a real estate project. By becoming a member you will receive access to a number of Excel real estate proformas. membership | services

If you are analyzing another person's proforma, or you are examining a prospectus for a real estate deal, it is very important that you read the document carefully and determine how the values of the financial statistics above are being calculated. For instance, values such as the Cap Rate may be determined from overly optimistic projections of the future rental income of a property.

You can "reverse engineer" the financial projections you receive from a prospectus and/or request the Excel (or other type of) spreadsheet a developer used to create their proforma. A very useful Excel or Visual Basic macro used to check Excel formulas is available in the spreadsheet below for download. Download Mortgage Formula Excel Spreadsheet

The due-diligence you do on a potential investment may uncover a number of potential problems with a real estate deal and we suggest you research each real estate investment very carefully. There are a variety of real estate financial consultants who can help with this, but if you are like many Real-Estate-Proforma.com members, you can or are learning to do your own due-diligence.

We hope you become a more successful real estate investor by using this site! membership | services