Few people have the cash lying around to pay for a piece of real estate in its entirety. In order to become a homeowner, you’ll need to apply for a mortgage – a loan that allows you to purchase real estate. However, when you budget for your monthly mortgage payments, that

principle and interest of your mortgage loan aren’t the only things that you’ll need to include in your financial plan. You may also be required to purchase lender’s mortgage insurance, which is also sometimes called private mortgage insurance or PMI. Private mortgage insurance is an unexpected expense for many first-time real estate owners. Don’t get surprised be this expense!

Private mortgage insurance is meant to protect the lender, not you. If you should stop making payments of your mortgage, your lender has the right to begin foreclosure proceedings. However, this is not the best-case scenario, as lenders aren’t in the business of owning property. They need to sell as soon as possible, and depending on the market, this often means that they sell way below market value. If that sell price doesn’t cover the amount left on your mortgage, the lender can case in the private mortgage insurance policy you’ve purchased. This will cover the rest of the cost of the house to ensure that the lender does not lose any money in the long run.

Not everyone has to buy private mortgage insurance. It depends on the terms of your mortgage. Usually, mortgage lenders ask that you pay about 20% of the total property’s cost in the form of a down payment. However, if you don’t have a lot of money saved up, it is still possible to get a mortgage. This is where the private mortgage insurance comes into play. Usually, you are required to pay for an insurance policy for the lender until you’ve completely paid off that 20% of the mortgage’s principle.

Sometimes, the terms are a bit different, depending on the circumstances. For example, if you have a jumbo mortgage (a very expense loan for a high-priced property), you may be required to keep your private mortgage insurance property for a longer amount of time. Or, if you have an interest-only mortgage payment plan, in which you don’t pay on the principle right away, you might not have to carry the plan until the mortgage’s principle is paid of at 20%.

What kind of rate can you expect when it comes to private mortgage insurance? That depends on your specific situation. For some people, the monthly premium will be fairly low. For others, it might be fairly high. However, no matter what kind of premium you have to pay, the important thing is that you are prepared to pay it. Some of the main factors that come into play when insurance agents are determining your private mortgage insurance rate are the following: how much you did pay in a down payment, the total price of the loan, the type of property you are purchasing, and your credit score. The more likely you are to pay the mortgage in full, according to these standards, the more likely you are to get a lower insurance rate.

Some people have successfully avoided the need for private mortgage insurance by using the piggyback loan strategy. With this kind of mortgage lender, you’re using more than one loan in order to pay for the real estate. You make a 20% down payment, but only by using a second (piggyback) mortgage to pay for part of that down payment. So, you might have an original loan for 80%, a second loan for 10%, and a 10% out of pocket down payment. This way, you avoid the need for private mortgage insurance.

However, the cost for private mortgage insurance might actually be lower than what you pay for the interest on your second loan, depending on the factors listed beforehand. This used to be rare, but today, private mortgage insurance is tax-deductible. That means that it is now less expensive for some homeowners to get private mortgage insurance than it is for them to go for the second mortgage loan. This law will be in effect until at least 2010. It doesn’t apply to mortgage agreements signed before January 1, 2007.

Although private mortgage insurance doesn’t affect everyone, for many people, this is an expense they have to pay. Be prepared for it. If you are going to purchase a home using a mortgage, it is important to understand your expenses before you sign on the dotted line.

Like many real estate investors, I started out investing in real estate using my own money and credit. This worked fine for the first few deals. But eventually, as I purchased 20 to 30 properties, my lender at the time, Washington Mutual, cut me off from further deals and my personal funds dried up. I had built up a great deal of real estate equity, but was locked out from doing other deals with my traditional lender and could barely pay for my own groceries.

I had to find another way to fund real estate deals or
my investing career was over.

This is when I discovered private lenders who have funds to lend for real estate deals, but do not want the headaches and paperwork to actually manage tenants or properties. These individuals are generally middle class people, like you and me, who have some extra funds to lend. They can be retired business people, corporate executives, professionals such as doctors, lawyers, or business owners or even blue collar workers all looking for returns substantially above the 3% to 5% they get at the banks.

Let me first explain my definition of “Private Money”. Private money is funding that comes from private individuals, friends, family, IRA’s or any source other than institutional or conventional means. It is sometimes referred to as “Hard Money” or “Flash Cash.”

The question I had to figure out was, “How do I find enough of these folks to run an active real estate business buying 2 to 4 houses per month?” To address this issue, I developed a marketing plan that would allow these individuals to call me and raise their hand to indicate their interest in our lending program.

How Do I find Private Lenders?

Well, frankly, we advertise for them. It’s as simple as that! Finding private money is not nearly as difficult as people think. My simple marketing plan includes many of the following activities:

Network with everyone you know and develop a 60 second “Elevator Speech”:
“Are you getting a safe 9 to 12% return on your idle cash or retirement funds? No! Well, we buy houses and pay cash for each house and we use private lenders to fund our deals. We pay 9% to 12% on notes secured by local real estate. If you are not getting that type of predicable return on your money, I’ll be glad to get you the details. We occasionally hold a free small luncheon for potential investors, or I could also sit down with you at your convenience and show you how it works. If you like what you hear, simply let me know how much you’re looking to invest and how long you can have your funds tied up. I’ll put you on my list and look for an investment opportunity that meets your needs. When I find one, I will call you. At that time you can pass or play. There’s no obligation.”

Newspaper Ads such as Private Money Needed, Earn 14% plus 5 points, Rental, 70% LTV $65,000 call xxx-xxx-xxxx or Mortgage Note for Sale: $190,000 1st mortgage at 9% with low LTV. Call xxx-xxx-xxxx

REIA Newsletter and CraigList Ad:PRIVATE LENDERS NEEDED – Earn 9% to 12% hassle free on your idle cash or retirement funds secured by local real estate. I’m a professional real estate investor with over 50 successful transactions completed since 1999. I am not a financial planner, but a full-time buyer and seller of single family homes. We use private funds to pay cash for our real estate purchases and can pay you 9% to 12% when you help us fund our purchases.

To learn more visit us at www.xxxxxxxxx.com or call me at xxx-xxx-xxxx. Invest by xxxx 31, 200x and earn a $1,000 bonus.

Flyers, Postcards, and Speeches/Presentations: We also use flyers and postcards with a similar message using the above examples. Also, one of the best ways to get private lenders is to speak or present to groups. Senior citizen groups are always looking for presenters to attend their meetings and these people quite often have excess cash in CD’s or IRA’s that make them a natural lender.

Having private capital resources is critical to the success of the serious creative real estate entrepreneur. Even if you desire to use your own money, it never hurts to have another source or two available. If your funds are tied up, and a great deal comes along, you can immediately jump on it.

If you follow some or all of the above marketing suggestions, you will have people with money seeking you out to lend you money for your next deal.