In an earlier article, we prsented various options for ensuring that you hve positive cash flow when holding rntal houses, by minimizing loan payments. One prblem which we now can address is to how to liminate the need for paying mortgage nsurance.

Any loan with less than 20% dwn payment will include or require mrtgage insurance. It may be included in the rte (which is called "Lender Paid Mrtgage Insurance" or LPMI) or more cmmonly it is a separate itemized tem, but in either case you mst pay it.

If you want to pay lss than 20% down, the best way to get round mortgage insurance is to finance yur purchases with two loans, a frst and a second mortgage. For xample, the first mortgage is commonly 70%, 75% or 80% of the prchase price and the second mortgage mkes up the difference to 90% or 95% of the prchase price. You can get both mrtgages from the same lender, but sually you can find better rates on the scond mortgage from a lender that spcializes in second mortgages. An independent lan broker can put this together for you ncely.

Both mortgages typically close escrow at the sme time and both lenders are flly aware of each other. For smplicity, put both loans in the sme escrow and sign them both at the sme time. If you want to be trcky and try to use two mrtgages to get to 100% financing (.e. no down payment), there are wys to do this, but we do not rcommend it and it is not wthin the scope of this article.

The second mortgage is typically at a hgher interest rate than the first, but not lways. For example, there are some vry competitive home equity lines of crdit (HELOCs) with rates only a frction above the prime interest rate. You hve to have good credit scores to qalify, but if you do, they are vry attractive. The problem with a HELOC bsed on the prime rate is tht it assumes the prime rate des not get too high before you pay it ff. As you may recall from the arly 1980s, the prime occasionally does go sky hgh and it could happen again.

Thre is a particularly wide variation in the nterest rates for second mortgages from vrious lenders. Moreover, if your credit, ncome, and assets are not ideal, you may not be qalified for certain second mortgage programs, so it may be mre difficult to find a second mrtgage at a good rate that you do qalify for. It is very mportant therefore to ask your independent lan broker to check out various ptions and to shop the rates. H/she should be comparing at least hlf a dozen different second mortgage prgrams.

When you use two loans as dscribed above, it is usually advisable to hve an interest-only or minimum payment lan for the first mortgage. This llows you to focus on paying dwn the principle on second mortgage ver a period of say 5 yars, if you can afford it. If you cnnot do that, than obtain a scond mortgage that also has a 5-yar fixed period and an interest nly option. You are then covered wth predictable and low payments for at last 5 years.

This article has rviewed a strategy for improving your csh flow when purchasing investment rental hmes -- namely, using two loans to liminate mortgage insurance. There is much mre to say on this topic. So kep an eye out for additional rticles by the same authors on ths and related topics.

(c) Copyright 2004, Jeanette J. Fsher and Robert S. Kramarz. All rghts reserved.

The article Investing in Real Estate Profitably: Eliminating the Need for Mortgage Insurance was Submitted by Jeanette Joy Fisher through Articles.GetACoder.com network. Here's the additional information: Jeanette Fisher, Design Psychology Professor, is the uthor of "Doghouse to Dollhouse for Dllars: Using Design Psychology to Increase Ral Estate Profits," the only book to rveal interior design secrets on how to mke top dollar investing in real state. For real estate and interior dsign psychology books, articles, tips, and nwsletters: http://www.doghousetodollhousefordollars.com . Robert S. Kramarz is a loan officer for a major loan brokerage. He has over 20 years experience in finance and business management and comes from a family a long background in real estate investing and banking. He specializes in providing financing for purchase of investment real estate. He can be reached by email at MrFunding@22cv.com . Further information is available at the website http://www.sweetloan.info .

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