Mortgage Loans and Investment PropertiesInterested in a mortgage, home equity or refinance loan? Want to learn more about investment properties? Lonnie Cooper, top producer at Absolute Mortgage Co., was online Wednesday, August 17 at 1 p.m. ET to discuss mortgages, the recent interest-only craze or the ins and outs of investment properties.
Lonnie Cooper is a senior loan officer at Absolute Mortgage Incorporated in West Chester, Pennsylvania. Lonnie closes approximately $7 million per month in mortgage volume over the past four years. Before coming to Absolute Mortgage, he worked as a loan officer at Independence Mortgage Group and was made partner. Lonnie also owns several rental properties and can provide suggestions and solutions for being a landlord. Lonnie is a graduate of Penn State University.
The transcript follows.
Moderator: Welcome to Viewpoint. Our guest today is Lonnie Cooper with Absolute Mortgage Co. to answer your questions about loans, mortgages and investment properties. Let's get started!
Lonnie Cooper: Lets do it.
Oaks, Pa.: How do you close so many loans each month?
Lonnie Cooper: Hello Oaks,
I close approximately 35-40 mortgages each month.
Washington, D.C.: Hi Lonnie,
Thanks for taking my question. My husband and I have been in our house for about a year. We recently received a notice from our mortgage company that basically said our escrow amounts hadn't actually covered everything that the escrow pays for (taxes and insurance). So, we had a shortfall, and we should send in a large chunk of money so our mortgage wouldn't increase by $150 a month beginning in October. Okay. So, even if we do send in the large amount, our mortgage is still going to increase by about $70 because of our increased county taxes. Now, I'm a newbie at this, but is this normal? Does this happen to other people, etc.? Does everyone's mortgage increase when their county taxes increase? We have a 30-year fixed mortgage by the way. I'm sure I sound like a complete idiot, but any insight you could share would be great, since in the past we have had ZERO response from our mortgage company when we've had questions.
Lonnie Cooper: I'm sorry to hear that you are getting zero response from them. Taxes often go up and unfortunately the lender has to re-structure your escrow account accordingly. You certainly don't sound like an idiot.
Washington, D.C.: I keep on hearing that interest only loans are a bad choice and that people are using them to afford homes they could not with a traditional 30. What do you think?
Lonnie Cooper: Interest only loans are very popular right now. Unfortunately, many people are taking them for the wrong reason. If used properly by the right person, an interest only loan can make sense. In the current housing market, homes are becoming less and less affordable and an interest only loan is the only way that many people can qualify for the loan. My personal opinion is that if you can't make at least the amortizing arm payment (meaning principal and interest) then you probably are looking at too much home.
Edgewater, Md.: I am in the process of buying a house that I think we will have for a long time, but I am thinking about starting out with an interest only loan with a 7 year arm and refinancing at some point to a 30 year mortgage. Do you think this is the wrong approach?
Lonnie Cooper: I do think it is the wrong approach. Rates are at an historical low. 7 years from now you very well may be looking at not only a large rate spike but also a much bigger payment when the principal is also involved.
Fairfax, Va.: I have a home equity loan and I am maxed out at $100k. I want to extend that to upgrade my house. Do I have to totally apply for a new loan or can I just ask the bank to extend the line of credit?
Lonnie Cooper: Hello Fairfax,
Often the lender that you have with the existing home equity loan will allow you to extend it.
Arlington, Va.: What is the best loan product for new construction that will not deliver until mid-spring 2006? We would like to lock in our rate asap but do not know what is the best.
Lonnie Cooper: Hello Arlington,
Many builders have special deals with local banks and their own mortgage companies. They offer long term locks for your situation with a variety of options. Regarding the product, my answer would be the same for you even if you were closing in 30 days- Take an arm if you know that this isn't your 'long-term' home or go with a fixed if it is.
Camarillo, Calif.: What is your opinion on mortgages for retired people? Your opinion on paying cash for property or financing it? Thank you.
Lonnie Cooper: Hello Camarillo,
I often get asked by people in the 70's and 80's whether or not they can apply for a 30 yr mortgage. Even though lenders can discriminate for income, credit, employment etc, they can't discriminate for age. So, that being said, if you need the money take it. Mortgage money is the cheapest out there. There are reverse mortgages out there as well for retirees. They often make sense as well. "Cash is king" as they say- but if you have it and it helps you sleep at night paying for your home outright is a wonderful feeling. (Or so I've heard)
Rockville, Md.: Hi Lonnie,
I am a consultant and have a 2-3 year assignment that will keep me in Baltimore during the work week. I currently own a home in Rockville and have a roommate. Recently, I have been thinking about buying a place in Baltimore and also getting a roommate there to help pay for the mortgage. What are the implications of borrowing equity from my current home to buy the new home? What are the tax implications of actually residing in both homes?
Lonnie Cooper: Hello Sandra,
I try not to give out too much info on tax advice as it often varies from state to state. I believe that the other home needs to be 50 miles from your primary residence to qualify as a 2nd home. If its not, it would be viewed as a rental property- ie higher rate etc. There are definitely deductions available for rental properties - consult your CPA.
Fairfax, Va.: My primary loan is for $300,000 and is a 30-year. I am looking at getting a vacation property. What can I do to get the best rate on my second property?
Lonnie Cooper: Hello Fairfax,
If its a true second home aka vacation property, the rate will be identical. If there is plenty of equity in your current home you can take out a line of credit, but they are variable and prime seems to be going no where but up. Our rates are available at www.absolutemortgageco.com and my extension is 104 if you'd like to talk later.
Goshen, Ind.: Could you please elaborate on what the pros and cons of interest only loans and what is negative amortization? Thank you.
Lonnie Cooper: Hello Goshen,
I was cut short on my response previously. I'd like to apologize to the submitter of that question. Some quick pros are:
1- They create a significant amount of cash flow
2- They enable you to qualify for more 'house'
Cash flow enables the owner to take that difference and invest it into the stock market or pay down other non deductable debts. Cash flow for a real estate investor allows for immediate positive income.
Qualifying for more house enables for example a young Doctor get into a larger home knowing that his income will be going up in the near future.
Washington, D.C.: Is this a good time to look for investment property, even though the market is about to bust?
Lonnie Cooper: Investment properties are always available, but because of the national real estate buying craze the 'deals' are much harder to find. Like anything else in life, its a matter of hard work and who you know- meaning get a great realtor and an even better mortgage guy. (Okay so I'm a little biased on this one) Regarding the market bursting- many top analysts feel its going to slow down but not necessarily bust. If your question is would you be buying at the top of the market right now, I'd have to say probably.
San Diego, Calif.: What is a free float down?
Lonnie Cooper: Hello San Diego,
A free float down is a product that Absolute Mortgage (the company that I work for) offers along with a few others. Basically its a s simple as "if the rates go lower while you are locked in, you get the lower rate" Its a product that brings a lot of people to us and when the rates go down, people love benefitting from it. It basically makes locking in a win-win
Falls Church, Va.:
Does Absolute Mortgage offer long-term interest only loans and are these available on investment properties?
Lonnie Cooper: Yes, we offers long term interest only loans. These come in quite a variety. They can be fixed/adjustables that are fixed for the first 10 years or 30 years fixed that are interest only for the first 20 years. There are some that are interest only for all 30 as well. The rates obviously vary on all of these. Yes, we have I/O loans for invest. properties as well.
Bethesda, Md.: I was looking to buy a plot of land for a second home sometime down the road. What type of land loan products are available and do you offer such a mortgage?
Lonnie Cooper: Hello Bethesda,
There are many land loan products out there. The majority of them are not 30 year fixed loans, but realistically if you are building on the land in the future you wouldn't want one anyway. Local banks are often the best for this. We don't offer them.
Reston, VA: Is there a hard-fast rule about refinancing? I thought there used to be a rule that if rates .5 point below your rate you would refinance. Is that still a good rule?
Lonnie Cooper: Hello Reston,
Thats a great question. The old 'rule of thumb' was that the rate had to be 2% lower. That is certainly no longer the case. We offer what is called a 'True No Cost" mortgage where you can refinance with no costs at all. The costs are not rolled into your principal balance- we pay them. As an example- if you have a 30 yr fixed today at 6.0% and you owe 200k then at todays rate of 5.5% it probably wouldn't make sense to refinance with a traditional closing cost loan. However with a 'True No Cost' loan at say 5.875% you'll save thousands over the life of the loan for simply signing your name.
Yardley, Pa.: Hello Lonnie,
I recently purchased a new home and would like to refinance the 2nd loan for Home Improvements. How long would I have to wait in order to accomplish this? The home was purchased for $279k, but with the right repairs and can be valued at $350k.
Lonnie Cooper: Hello Christian,
Most 2nd mortgage lenders have at least a 6 month "seasoning" rule for 2nd mortgages in that they won't let you take out a new 2nd based on your new/higher value. We have some products with no seasoning that would allow you to accomplish what you are looking for. Yardley is fairly close to West Chester, Pa. feel free to stop in.
Front Royal, Va:
I have a rather high fixed rate mortgage currently and I am looking to refinance. I have one negative on my credit report which is probably a few months away from coming off which would greatly
increase my credit scores. Would you recommend waiting until my credit is clean or refinancing now to take advantage of these great rates. My average score is 674 but should be in the mid 700's. Thanks.
Lonnie Cooper: Hello Front Royal,
Great question. You guys are full of the. With a 674, I'd recommend giving the refinance a shot now. With the right amount of equity in the property and assets in reserve you very may still be approved.
Ponte Vedra Beach, Fla.: Does Absolute Mortgage offer loans in other states and what is involved to apply as far as upfront fees (does this vary state to state or based on the loan amount or credit scores)? Thanks Lonnie.
Lonnie Cooper: Hello Ponte Vedra,
(That is a beautiful part of Fla if I may say so myself) We are licensed in a number of states that are listed at www.absolutemortgageco.com. The owner doesn't believe in charging up front fees- its a much cleaner way of doing business.
Wilmington, Del.: I currently have quite a bit of equity in my home (primary residence) and was looking to do quite a bit of renovations to the property - which would increase the value. Would you recommend to refinance my existing mortgage for cash out or get a Home Equity Loan or Line. I currently have a 30-year Fixed at around 6% and plan on living in the home for quite some time. Thank you very much.
Lonnie Cooper: Hello Wilmington,
See my response above for a "True No Cost" loan. It would work great for you. The home equity lines are very popular, but most are variable and again- prime seems to be consistently going up.
Cherry Hill, N.J.: What is involved with a No Doc or stated income loan?
Lonnie Cooper: Hello Cherry HIll,
The question is what is not involved- We have a "True No Doc" loan in which we don't even ask if you are employed. We don't need any bank statements etc. Its just a credit score and a pulse.
Newark, Del.: Is there any tried and true rule to figure out if a home improvement project is worth doing in order to add value to your home (adding garage or addition, finishing a basement., etc.?
Lonnie Cooper: Hello Newark,
I don't know if there is such a rule. If you ask a contractor you may get a different answer though. In speaking with property appraisers over the years, a sure fire return is adding square footage. (As long as you don't over-improve for you neighborhood) Kitchens and bathrooms also provide the highest return for improvement projects.
Clinton, Md: If you sell a home (designated investment prop) less than 2 years after settlement, do you have to put the proceed into another investment property otherwise pay the taxes?
Lonnie Cooper: Hello Clinton,
This one is probably best answered by a cpa. My unoffical opinion is as follows:
A 1031 tax deferred exchange can be done regardless of how long you've owned the home. If you keep the property for at least 12 months then you'll pay long term capital gains vs. short term.
Moderator: Our hour is up. Thank you for taking all of our questions, Lonnie.
You are very welcome. Its been a pleasure. I hope to hear from you all again.