I formed an LLC for real estate purposes. Now my mortgage guy says his company does not do mortgages to LLCs. Is that common? Should I stop putting rental properties in the LLC? What about liability?

A limited liability company (LLC) is an entity generally used by businesses to insulate the owners of the company from liability. Some years ago, people had a choice between a corporation and a partnership. Both of those types of entities had limitations. A limited liability company allowed owners to have flexibility in the manner in which the owners of the LLC entity would distribute profits and allowed other tax benefits.

Most commercial lenders have no problems giving loans to LLCs, and that’s the problem you have run into. You probably aren’t getting a loan from a commercial lender, but from a residential lender.

Residential lenders may have much lower mortgage rates than many commercial lenders, but the rules residential lenders must abide by differ greatly from the rules followed by commercial lenders. One of the rules followed by residential lenders is to make loans to individuals not corporations or companies, and, in addition, the property being financed must be residential — it could be a single-family or it could be a four-unit apartment building.

If you have many properties and run your real estate as a business, you may want to have all of the properties owned by the LLC, in addition to benefiting from the protections from liability that the LLC would give you personally.

Before you decide to stop putting rental properties in an LLC or taking properties out of the LLC, you need to make sure that any transfer from the LLC wouldn’t trigger any adverse federal income taxes. Also, in some states it can be costly to transfer title from the LLC to the individual.

You should sit down with an attorney to discuss these issues. The first issue in deciding whether an LLC is right for you is knowing how it will help you. If you have all of your life savings in the properties that are in the LLC and little in terms of assets outside the LLC, you stand to lose almost everything if your company is sued and loses the case.

For some property owners in your situation, they are better off spending more money on broad coverage liability and property insurance than in the costs to set up and maintain an LLC. For others, the answer may be to have multiple LLCs, one for each property they own. Depending on your circumstances, you may decide to keep the LLC or not use it at all.

Finally, when you ask about liability, you need to determine what kind of liability you are trying to protect yourself against. Do you have sufficient insurance to cover you for that issue? If you manage your own properties, could you be personally liable for your poor management? Do you have a third-party management company taking care of the buildings? Will you be able to escape liability if one of your tenants is hurt as a result of your direct actions? If you make your own repairs on your building and you do something wrong and someone is hurt, would they be able to sue you directly anyway?

These are the issues you need to discuss with your attorney, and perhaps even your company tax preparer. You may find that a better option is to keep your properties out of the LLC, buy additional insurance to cover any potential liability, and obtain cheaper financing from residential lenders.

A common problem among aged homeowners is that they no longer have the income to service their mortgage, and don’t have a good way to convert the substantial equity in their house into cash flow. The case below is typical.

“I am a 67-year-old widow with a mortgage of $414,000 on a house valued at $1.25 million. I can no longer afford the mortgage payment and property taxes, but the lender will not discuss modifying my loan contract until I am behind three payments. I don’t want to destroy my credit, and have been borrowing from family to stay current. Is there anything else I can do?”

Assuming she wants to remain in the house, a reverse mortgage is the best solution to this problem. A reverse mortgage would allow her to convert the existing mortgage with its accompanying payment obligation into a reverse mortgage with no required monthly payments. Unfortunately, the loan limit on FHA’s Home Equity Conversion Mortgage is not high enough to help this borrower, and the private programs with higher loan limits have shut down because of the financial crisis.

In a similar case some years ago, I recommended that the borrower do a cash-out refinance, investing the cash in a mutual fund and drawing cash from the fund monthly to make the mortgage payment. That would work in this case also. For example, if she borrowed $800,000, the cash of $386,000 would cover the payment for at least seven years.

The trouble is that this loan would not meet current underwriting rules, because the payment is too high relative to the borrower’s income — it is not “affordable.” Because of the abuses committed during the housing bubble when many houses were sold to people who couldn’t afford them, underwriting affordability rules have become extremely rigid. No allowance is made for the situation where the borrower is already in the house and can’t afford the payment, and the purpose of the refinance is to allow her to remain in the house for years longer. Applying an affordability rule in this situation is ridiculous.

Still another possible way to deal with the problem is for the lender to simply drop the payment to a level that is affordable to the borrower, adding the unpaid interest to the balance, for a specified number of years. Because the borrower has so much equity in the house, the risk of loss to the lender is negligible. The trouble with this is that it constitutes a modification of the loan contract, and in all probability it will not be considered until the borrower is in default.

In sum, the elderly borrower with little income but a lot of equity is poorly served by our housing finance system.

Take a Flyer With a HELOC?

Among those who have benefited unexpectedly from the financial crisis are those with HELOCs (home equity lines of credit). HELOC rates are based on the prime rate, plus or minus a margin. The prime rate is currently 3.25 percent, the lowest it has been since 1955.

A reader with a HELOC who wrote me recently had a margin of minus 0.75 percent, which made her rate 2.5 percent. Her first mortgage had a rate of 6.5 percent, and her HELOC lender offered to increase her line by enough to pay off the first mortgage. The prospect of converting a 6.5 percent loan into a 2.5 percent loan was indeed enticing.

Nonetheless, I advised against it. The reason is that she did not expect to pay off the loan for 15 years, and over that long a period, the risk from the HELOC is too high.

The prime rate is extremely volatile. In 1980, it jumped from 13.5 percent to 21.5 percent in two months! This was an unusual episode, to be sure, but unusual episodes are becoming commonplace these days.

Furthermore, HELOCs offer borrowers no protections against rising market rates. On conventional ARMs, the rate does not change until a specified rate adjustment date, and it is subject to a rate adjustment cap and to a maximum increase over the initial rate. On a HELOC, in contrast, the rate changes whenever the prime rate changes, there are no adjustment caps, and the only maximum rates are those set by the states, which are very high.

I did some simulations using one of my calculators to see how long it would take a borrower who refinanced from a 6.5 percent fixed-rate mortgage to a 2.5 percent HELOC to lose all the benefit of the refinance from a rising prime rate. Assuming the prime rate rose by 1 percent a year starting in six months, break-even occurs in about 7.5 years. The borrower who stays longer than that is a loser. If the prime rate rises by 2 percent a year, which is still quite modest, break-even becomes 3.5 years.

If the spread between the first mortgage rate and the HELOC rate is 4 percent, and the borrower expects to be out within five years, I think a refinance into the HELOC is a good gamble. If the rate spread is only 2 percent, I would not do it unless I planned to be out within three years.

The Obama administration’s $275 billion plan to help up to 9 million families restructure or refinance their mortgages offers carrots for borrowers and lenders, including incentive payments and partial guarantees against losses for lenders who agree to modify loans.

But the administration is also seeking a stick: granting bankruptcy judges the power to modify the terms of mortgages when borrowers end up in their courts, regardless of whether lenders agree to go along.

The mortgage lending industry has long opposed these so-called “cram-downs” of mortgages in bankruptcy court, saying the practice will drive up the cost of home loans for all borrowers.

Although the Obama administration will be able to implement some aspects of its homeowner affordability and stability plan without congressional action, cram-downs would require an act of Congress to amend the bankruptcy code.

Carrots for the lending industry in the plan rolled out today include a $75 billion homeowner stability initiative that the Treasury Department estimates could prop up the average home price by $6,000 by facilitating 3 million to 4 million loan modifications.

The stability initiative would pay loan servicers a $1,000 upfront fee for each loan modification they make that meets the program’s guidelines, plus $1,000 a year for up to three years when borrowers stay current on their loans.

The guidelines would require lenders to reduce a loan’s interest rate so that a borrower’s monthly mortgage payment is no more than 38 percent of the borrower’s income. The initiative would then provide dollar-for-dollar matches for further interest-rate reductions to bring mortgage payments down to 31 percent of a borrower’s income.

The lower rates would have to remain in place for five years, after which they would gradually step back up to the rate in place when the loan was modified. Borrowers would also be eligible for incentive payments — up to $1,000 a year for five years as long as they are current on their loan.

The homeowner stability initiative would also create a new insurance fund of up to $10 billion to partially insure lenders against losses on modified loans. Payments to lenders would be tied to declines in the home-price index — helping assuage fears that engaging in loan workouts rather than foreclosing on homes now is a mistake if home prices will continue to fall.

The loan modification program is focused on borrowers with high mortgage debt or who are “underwater” — meaning they owe more on their home than it’s currently worth. Homeowners whose total debt is 55 percent or more of their income can still qualify, but will have to agree to enter a HUD-certified consumer debt counseling program.

Refinancing program

The Obama administration said it would also enlist Fannie Mae and Freddie Mac in a new program it expects to produce 4 million to 5 million loan refinancings.

That program is aimed at helping homeowners who made down payments when taking out conforming loans owned or guaranteed by Fannie or Freddie, but who have since seen the value of their homes decline to the point where they have less than 20 percent equity — making it difficult to refinance into a low-cost home.

The administration cited a family that made a 20 percent down payment on a $260,000 home that’s now worth only $221,000 as an example of a borrower who would be eligible for the refinance plan. The refinancing plan would allow the hypothetical family to refinance their 6.5 percent mortgage to around 5.16 percent — saving them $2,300 a year despite having less than 10 percent equity in their home.

To support low mortgage rates for borrowers who qualify for loans eligible for purchase or guarantee by Fannie and Freddie, the Obama administration said it would buy $200 billion in preferred stock in both companies, doubling the existing commitment of $100 billion each.

That appropriation was previously authorized by Congress in July 2008 under the Housing and Economic Recovery Act, and does not use any money from the $787 billion financial stimulus bill signed into law Tuesday or the $700 billion Troubled Asset Relief Program (TARP).

The $75 billion homeowner stability initiative will reportedly rely on $50 billion from TARP, and another $25 billion from Fannie Mae and Freddie Mac.

Fannie and Freddie will also be allowed to increase their retained mortgage portfolios — loans the companies hold for investment — to $900 billion, an increase of about 6 percent from the existing limit of $850 billion.

Reaction:

The Center for Responsible Lending welcomed the plan, saying it recognizes that “voluntary actions to avert foreclosures without real government action simply have not worked. With this plan in place, there will be more options and incentives for servicers and investors to avoid foreclosures that don’t need to happen.”

Granting bankruptcy judges cram-down powers “will provide a new avenue for reducing hundreds of thousands of foreclosures without requiring any tax dollars,” the center said — and provide stronger incentives for loan servicers to enter into voluntary loan modifications.

John Courson, president and CEO of the Mortgage Bankers Association, said that while the group was encouraged by the variety of alternatives the plan offered borrowers to avoid foreclosure, it seemed to offer little help to borrowers whose loan exceeds their property value by more than 5 percent.

The 105 percent loan-to-value ratio limit on refinancing will limit the plan’s success in some of the hardest hit areas in California, Florida, Nevada and Arizona, as well as some areas on the East Coast, Courson said.

The plan also offers no assistance to borrowers with jumbo mortgages and those whose mortgages are in private label securities, Courson said.

Dan Green, a Cincinnati-based loan officer for Mobium Mortgage Group Inc., said the government is taking a broad approach to the fundamental issues of supply and demand.

“Falling prices are symptomatic of a lack of demand or too much supply,” Green said. “The government can’t control prices, but they can influence supply and demand. This is a broad approach, and they are hitting the market in so many places, it’s OK if one of them fails.”

Green recently blogged about one example of this broad approach: Fannie Mae this month announced it is increasing from four to 10 the number of single-family loans it will provide financing for, for experienced investors with good credit.

“All this stuff is related,” Green said. Other incentives on the demand side include the $8,000 tax credit for first-time homebuyers in the economic stimulus bill signed into law Tuesday.

On the supply side, the Obama administration’s claims that it can prevent as many as 9 million foreclosures may prove to be overly optimistic, as were similar claims made by the Bush administration when it rolled out new programs.

But Green noted that transactions in many markets are up as investors snatch up distressed properties at bargain prices, and that homebuilders have cut production of new homes drastically.

“That’s getting inventory off the market, and all that was happening before Fannie opened up to 10 units per person,” Green said. “I hear investors show up at an auction and say they want to buy more but they can’t — they are handcuffed” by financing issues.

Dismal numbers on housing starts released today are actually a good sign, Green said, because builders aren’t adding more supply.

The Commerce Department reported that housing starts dropped 16.8 percent from December to January, to a seasonally adjusted annual rate of 466,000 units. That’s a 56.2 percent drop in the rate of new home construction from a year ago.

“Everybody says it’s a terrible sign that the economy is in bad shape — it’s actually hastening the recovery,” Green said. “I think we’ll look back and see December 2008 was the start of the housing recovery.”

The American Bankers Association called the plan “a constructive, flexible and multifaceted initiative” that’s “likely to have a positive effect on preventing mortgage foreclosures.”

The plan represents a “major commitment of funding sufficient in scope to have a significant impact,” the group said, aimed at the homeowners who are most likely to avoid foreclosure.

Cram-downs:

While many aspects of the administration’s plan to boost loan modifications and refinancings were welcomed by real estate and consumer groups, the administration’s continued support for changes to the bankruptcy code may prove worrisome to mortgage lenders.

So-called mortgage cram-downs have been a hot-button issue since the fall of 2007, when Sen. Dick Durbin, D-Ill., introduced legislation that would have amended the bankruptcy code to give judges the power to modify mortgage loans, including principal reductions (see story).

Bankruptcy judges already have the power to restructure other consumer debt, such as car loans and credit-card loans, when they see opportunities to provide troubled borrowers relief without relieving them of all their obligations to repay creditors. Bankruptcy judges can even modify the terms of a mortgage on an investment property or vacation home, but not a borrower’s principal residence.

Many in the mortgage lending industry want to preserve the protections against cram-downs on most home loans, saying that all borrowers can expect to pay more if they are lifted.

Critics of cram-downs say bankruptcy courts would be flooded with indebted homeowners, and that investors who fund mortgage lending through the purchase of mortgage-backed securities would demand greater returns if they perceived there was a risk that the loans could be modified without their consent.

Although the cram-down legislation being considered by Congress would apply only to some loans made during the housing boom — loans made in the future would remain exempt — critics say that if Congress demonstrates a willingness to change the rules of the game once, there are no assurances it won’t do so again.

Many who support granting bankruptcy judges more power to modify mortgages say the lending industry has overstated the potential impacts for borrowers, and that the prospect of borrowers ending up in bankruptcy court would serve as an incentive for lenders to do more voluntary loan modifications.

The Obama administration said it will seek “careful changes” to the bankruptcy code to allow modifications of mortgages written “in the past few years” when borrowers run out of other options.

Only existing mortgages under Fannie Mae and Freddie Mac’s conforming loan limits would be eligible for court-ordered modifications, so that “millionaire homes don’t clog the bankruptcy courts,” the administration said.

The bankruptcy code would be changed so that mortgage loans exceeding the current value of a property would be treated as unsecured, allowing a bankruptcy judge to develop a plan for the homeowner to make payments that are affordable.

To be eligible for a cram-down, homeowners would be required to first ask their lender or loan servicer for a modification, and certify that they have complied with “reasonable requests from the servicer to provide essential information.”

Last month, Durbin announced that Citigroup had agreed to support his cram-down bill after the bill’s sponsors agreed to limit the legislation to existing mortgages, and require homeowners to contact their lender about a modification before filing for bankruptcy.

Mortgage Bankers Association Chairman David Kittle said borrowers who can’t be helped by the Obama administration’s new loan modification and refinancing measures are also likely to have a hard time regaining their footing in bankruptcy court.
“Our fear is that … their bankruptcy plan will fail, they will lose their home anyway, and will now be stuck with the black mark of bankruptcy on their record” making it harder to buy or rent a home in the future, Kittle said.

While welcoming many aspects of the plan, the American Bankers Association also said it was committed to “working closely with the administration as it completes the remaining details of the plan.”

If you’re planning to buy a house this year, you’re buying because you feel that interest rates are at a historic low (they are!), millions of foreclosures have driven down the prices of homes near you to something much more affordable, and because you have a job that you expect to keep over the next few years.

The fact that you might get an $8,000 tax credit because you buy this year hasn’t entered a lot of people’s consciousness.

Last year, as part of the Bush administration’s stimulus package, first-time homebuyers who purchased a home through June 2009 were given a one-time $7,500 tax credit. Although the $7,500 first-time homebuyers’ credit (10 percent of the purchase up to $75,000) may have factored into some people’s decision to buy at the end of the year, a lot of home buyers have written to let me know that it seemed like a big surprise bonus — they had no idea there was anything in the pot for them.

Last year’s $7,500 credit was more like an interest-free loan, requiring a payback at $500 per year over 15 years. But getting that money all at once, when you file your tax return, made it seem like a big chunk that could be used for other things.

Now the pot is a bit bigger and has a gilt edge. President Obama this week signed into law HR 1, the American Recovery and Reinvestment Act of 2009, which expands the $7,500 first-time homebuyers’ credit into an $8,000 credit that would be available to first-time buyers of a primary residence (sorry, real estate investors). Better yet, it would not need to be repaid as long as you stay in the house for at least three years.

The $8,000 tax credit could be a deciding factor for some buyers who are on the fence and aren’t sure how long they’re going to be staying in their new residence.

I heard from one Atlanta resident this week who is thinking about moving to a Chicago suburb. She’s a transferee, and her company would probably buy her house through its relocation company if it doesn’t sell quickly. She wanted to know if it made sense to buy in her new location.

If she’s there for only four years (her current estimate), there’s a good chance she might not make any money on the property, unless she’s extremely savvy about which home she buys and how much money she pours into improving it. However, getting an $8,000 tax credit could swing the pendulum definitively into the “buy” column, especially if she’s able to use the cash to pay down debt, build equity, or fund needed renovations of the property.

The real question members of Congress need to ask: What is the optimum level of home buying that should be taking place? Over the past decade, a significant percentage of homebuyers were actually real estate investors buying up condos, townhomes and single-family houses to fix and flip, or to rent. Lots of people bought homes who couldn’t afford them even in good times, not to mention a massive recession.

Because real estate investors are having a difficult time getting financing, that sector of the market has dwindled dramatically. So 40 percent of homes sold may not be to real estate investors, a level achieved for several years running earlier this decade.

But if the real estate infrastructure is now set for 7 to 8 million new- and existing-home sales each year, but the real number of first-time and trade-up buyers is actually more like 4.5 million, increasing the number of buyers this year may wind up siphoning the home-buying market in years to come.

It’s been a different winter than usual this year. Roofs have collapsed under the weight of our country’s surprising snows. (A white dusting in Las Vegas? Really.) Violent flooding has moved foundations and deposited debris never seen before on lakeside lots and creekside properties.

The repair and maintenance on primary residences has been expensive for many. And, the thought of keeping a weekend getaway in a down economy can really hit home if the kids are grown and no longer around to do the heavy lifting.

Is this the year to ask the kids to buy you out, or to sell the mountain retreat outright — suddenly a financial luxury/burden you no longer need — and hunker down for another tight financial year?

Two attractive options for keeping the cabin in the family are an outright sale to the kids — the parents could even rent back from the kids if they choose — or placing the cabin in a Qualified Personal Residence Trust. Both can be beneficial depending upon the parents’ need for cash and the children’s ability to pay. Unlike the couple’s personal residence, the cabin will not escape a capital gain tax. The place has probably appreciated in value so a tax is almost certain even though most of it may well be offset by capital improvements.

The actual gain is the difference between the adjusted sales price (selling price less selling expenses) and the adjusted basis. The adjusted basis is the original cost plus capital improvements. Capital improvements are the cost of improvements having a useful life of more than one year. Examples include the new roof, dock, deck, remodeled bathroom and finished basement.

Generally, an expense is a capital improvement if it adds value to the property or extends its useful life. If these criteria are not met and the expenditure is considered necessary to maintain current usefulness, it is a maintenance cost.

Under the Qualified Personal Residence Trust (the cabin can be viewed as a second residence), you place the cabin in a trust for a specific time period. You choose the term of the trust, for example 10 or 15 years. During that time, you continue to use it. If you survive the term, the cabin goes to the kids and your estate is reduced by the value of the cabin. If you die during the term of the trust, the cabin reverts back to your estate as if no trust were set up.

“I find a Qualified Personal Residence Trust works best for clients who need to reduce the size of their estate and have an heirloom-type property to pass along to the next generation,” said Bob Pittman, an attorney specializing in trusts and senior issues. “The tricky and sometimes delicate-to-discuss part is guessing at a parent’s life expectancy. The longer the term of the trust, the more you save in estate taxes. But, you get a big zero for your efforts if the parent dies too soon.”

The government has statistical tables, based on age and life expectancy at the time the trust is made, on the value of their right to use the cabin.

The main drawback for children buying a family cabin is that a lot of kids can’t afford to carry the negative cash flow each month. However, they are providing an income for the folks and could offset some losses by renting the cabin — perhaps until the siblings’ salaries rise. The sale also pulls the appreciation out of the parents’ taxable estate now instead of later, and gives the kids more mortgage interest to deduct from their taxable income.

If the kids do convert the family getaway to rental property — even temporarily — the rules change significantly. If the kids switch to a rental status, they should do so for periods of at least one year at a time. They would receive all the tax benefits of rental property, including depreciation.

The way the individual families use the cabin could change, too. The Internal Revenue Service will not allow the children to show a taxable loss on the property if they personally use it for more than 14 days or 10 percent of the rental period. Personal use includes a rental to any relative unless you charge a fair-market rent.

Pittman said he often encourages families to write a “mission statement” for the family cabin. If a family works together on a mission statement, the chances of long-term success are much greater. Everyone in the family needs to feel they have contributed to and agreed on the elements of the mission statement. It then becomes something they will defend and pass along to succeeding generations, and the legacy of the parents is preserved.

If you have a family getaway and want it to stay in the family, you can sell it to the kids now, or create a trust for them so that future appreciation will avoid taxation. The first choice lets you supplement your income with monthly payments from the children, and the second sets up a larger nest egg for them. To decide on the best option for you, check with an accountant and tax attorney.

As 30-year mortgages continue to hover around the 5 percent mark, interest in refinancing has remained high.

But even as some homeowners seek to trade in their adjustable-rate mortgages (ARMs) for fixed-rate loans, or combine first and second mortgages into one loan with a lower overall interest rate, others who would like to get in on the action can’t make it work.

There are many reasons why refinancing doesn’t work for some homeowners. In an era of declining property values, job loss, income reduction, legislative and regulation change, more homeowners are finding themselves out of luck when they visit their local lender. According to Eileen Fitzpatrick, a spokesperson for Freddie Mac, the top reasons for not being able to refinance include (in no particular order): lack of equity due to falling house prices; low credit scores; tighter credit/lending standards; junior liens (where the total debt or loan balances leave insufficient equity); and lack of employment.

Let’s take a look at the top reasons why refinancing won’t work for many homeowners, even as interest rates fall to historic levels, and what you can do about it:

1. You don’t have enough (or any) equity in your house.

Feel like your house isn’t worth what it once was? You’re right on the money. According to the Case-Shiller House Price Index, property values dropped an average of 18 percent last year. With property values dropping like stones, many homeowners are finding their homes are either worth less than what they owe (called “negative equity”) or are worth exactly what they owe, meaning there is no equity in the property.

If you don’t have enough equity or if you have negative equity, you won’t be able to refinance your home — unless you have a lender that will refinance without doing an appraisal. Currently FHA is doing a “streamline refinance” for its loans that does not require an appraisal.

The federal government just announced it would help homeowners plagued by negative or inadequate equity by writing down the value of mortgages it owns. Watch for information on how to know if you have one of these loans and who you should call for help.

2. You don’t earn enough income.

At the height of the real estate market several years ago, you could tell the lender what you earned — and no one would have called your job to verify your salary.

Today, lending standards are a lot tighter and if you don’t earn enough income, you won’t qualify to buy a home or refinance your existing mortgage, which is a problem these days, given the rather grim economic environment.

If you’re out of work, you won’t be able to refinance unless you can show proof of other income, including renting out part of your primary residence, or having a family member (who has a job) co-sign the mortgage documents with you.

If the problem isn’t really your income (let’s say it hasn’t changed) but the debt you’re carrying, consider paying down (or paying off) credit-card debt, auto loans, school loans or any personal loans that you have. There’s no use keeping money in the bank if you are carrying high-interest debt. This can also help to get your debt-to-income (also known as “DTI”) ratios back in order.

3. Your credit history and credit score aren’t good enough.

As lenders are requiring more income, they’re also requiring a higher credit score in order to get the best interest rate. If you could have gotten the best mortgage interest rate with a score of 680 or 700 three years ago, you might need 720 or even 760 today. (This is also true for auto loans.)

What can you do? If your credit history and score aren’t quite where you’d like them to be, but you don’t want to pass up a chance to refinance and save some cash, consider refinancing with an FHA loan. FHA requires a lower credit score than conventional lenders to get the best interest rates. Find out more at www.hud.gov (where you can get linked to a HUD-approved housing counselor in your area).

You should also work on rebuilding your credit history by paying all of your bills on time and in full (if possible) each month.

4. You’re a successful real estate investor who owns too many properties.

If you’re investing in real estate, even if you’re doing it successfully, you’ll find that the game has changed with regard to financing those properties. While previously you could have refinanced if you had up to 10 properties that you owned, today you’ll have trouble if you own more than four properties at the same time.

Why? Lenders are being burned big-time by real estate investors who stretched way beyond what was reasonable to buy up more properties. Now those properties are worth less (sometimes a lot less) than what the investor paid and the low-interest-rate teaser loan has converted into a higher-cost loan.

I’m often asked what real estate investors can do in this market? My answer: Not much. There aren’t a lot of lenders out there willing to work with real estate investors to finance or refinance their property. And if you own too many properties, you may find it impossible to refinance your primary residence as well.

5. You can’t save enough with a refinance to make the effort worthwhile.

I get e-mails daily from readers who want to know if they should refinance. For some folks, the answer will be an easy “yes.” But for most homeowners, the answer is more complicated.

The big mistake homeowners are making is focusing too much on the interest rate and not enough on how much they’re actually saving by refinancing the loan.

Here’s one easy rule: If you can reduce your monthly payment enough to pay off the costs of the refinance within a year, and you’re going to stay in your house for at least four to six years, then it probably pays to refinance your mortgage.

But remember, reducing your payment while lengthening the term of the mortgage makes sense only if you’re having a cash-flow problem today. In other words, if you need a refinance to make your paycheck last through the end of the month, then do it, even if it means you’ll pay more interest over the life of the loan.

But if you’re already 15 years into your mortgage and it would reset to 30 years, that may not make sense. Try to get a 15-year mortgage at a lower interest rate so that you’re truly saving money.