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You’ve Got Money!

June 3, 2015 By

You've got money graphicImagine that after checking www.SSA.gov to see what you can expect when you retire and estimated what your minimum required distributions from your retirement accounts will be, you’ve discovered that you’re not going to have enough retirement income to cover your living expenses.

Ideally, it would be perfect if the extra money you need would just come to your mailbox each month with the same certainty as your social security or retirement income.

Rental homes are a popular choice for passive income because they are an investment that most people understand based on their experience owning a home. They’re easy to manage and the rents should keep pace with inflation.

Mortgage loans for investors are available to investors with good credit and at least 20% down payments. While 30 year terms are the most common, some investors wanting to have the home paid for by retirement may choose a 15 or 20 year term.

A tried and true strategy is to choose average or slightly below average priced homes in predominantly owner-occupied neighborhoods. This will appeal to more prospective tenants wanting to live in good communities and should provide a higher level of revenue.

When an owner has a good property with a good tenant, the income is as predictable and convenient as going to the mailbox each month. To learn more about rental homes, contact your real estate professional.

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Live the Dream

May 12, 2015 By

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Consumers are more easily living the American Dream of owning a home because of the incredibly low mortgage rates. Today, most buyers can get a much lower rate than their parents or grandparents got on their first home.

In a recent housing survey, FNMA released information about consumers’ thoughts on the current market. Almost two-thirds would rather buy than rent and believe that now is a good time to buy. Half of the respondents expect rent and home prices will go up.

Top Ten reasons to move the dream to reality:

  1. It’s cheaper than renting in most cases
  2. Avoid rental increases in the future
  3. Equity build-up with amortization of each payment going to principal
  4. A home is a forced savings account
  5. Appreciation increases your equity and your overall investment
  6. Mortgage interest and property tax deductions
  7. Home equity interest deduction
  8. A place you can call your own
  9. A place to share with friends and family
  10. Capital gains exclusion on profit

Buyers need the confidence that they can afford a home and proof for the sellers when they’re ready to submit a contract.
If a buyer has steady reliable income, a good record of paying their bills, money saved for a down payment and are prepared to pay the mortgage each month, the next step is to get pre-approved by a trusted mortgage professional.

Take a look at the Rent vs. Own to see what the real cost of owning a home for your price range.

 

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Amortization

May 12, 2015 By

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The word describes the process of accounting that will repay a loan over time. Residential buyers will most commonly be required to have an amortized mortgage.

When amortizing a fixed rate mortgage, the payment remains constant for the entire term but the allocation of what goes to principal and interest changes with each payment that is made. Since an amount of each payment retires the principal, the interest due on the next payment is calculated on the unpaid balance after the previous payment was made.

This means that an increasing amount is applied to principal on each payment while the amount owed in interest decreases. If normal payments are made each time, on time, the loan will be completed paid off at the end of the term.

You can see in the example of a mortgage of $200,000 at 3.25% for 30 years that it has a fixed principal and interest payment of $870.41. There is $541.67 due in interest with the first payment and the remainder is applied to principal leaving an unpaid balance of $199,671.25. Since the interest due in the second payment is based on a lower principal, a little more is applied to principal.

If you’d like to have an amortization schedule for a mortgage, click here and enter the information about the loan.

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Filed Under: Better Homeowner, Blog, Buyers Tagged With: ,

Pay More or Less

May 12, 2015 By

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Paying more for your house payment does not make your home more valuable. It does mean that the mortgage rate may be higher than it has to be.

Even though fixed rates may never again be as low as they are currently, an adjustable rate mortgage may provide the lowest cost of ownership depending on how long a borrower plans to own a home. There are different types of ARMs but the one in this example is a 30 year mortgage with the rate fixed for five years and can adjust every one year after that based on independent indexes.

Another feature of a FHA ARM is the maximum rate change in one period is 1% and the maximum lifetime cap is 5% over the initial rate.

In the example below, the payment on the adjustable is $153.48 lower for the first five years or 60 payments. Another interesting thing is that lower interest rate loans amortize faster than higher interest rate loans. In this example, the ARM has a lower unpaid balance at the end of the first five years by $4,239.

The total savings on the ARM at the end of the first period is $13,477. If a borrower felt confident they would sell the home prior to the breakeven point of 8.5 years, the ARM would produce a lower cost of housing even if the mortgage rate escalated the maximum at each adjustment period.

To help determine whether you pay more or less, consult with a trusted mortgage professional and your real estate agent to learn the advantages and disadvantages of different programs. To try your own comparison, check today’s rates at the Freddie Mac Mortgage Rate Survey and plug your numbers into an
Equity Accelerator

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Filed Under: Better Homeowner, Blog, Buyers Tagged With: ,

Basic Legal Documents

May 12, 2015 By

Basic Legal Documents graghicMany times, young adults feel “bullet-proof” and don’t consider the urgency to get involved or spend the money to take care of certain legal aspects of their lives because they think they’re going to live forever.  Since no one is guaranteed longevity of life, if you want to be in control of who gets what and who is in charge now based on an untimely incapacitation or death, it is important to investigate these basic legal documents.

Will – This is a legal instrument that specifies your desires to care for your minor children and to distribute your personal property after you die and who will manage the process.  Anyone who has property and minor children needs a will.

Living Will – This legal instrument specifies your intentions regarding end of life decisions or to designate an individual to make those decisions on your behalf.  Many times, a person who had been diagnosed with a terminal condition or who is facing a serious surgery or hospitalization might feel a sense of urgency to have this document.

Power of attorney – This document allows you to appoint someone you trust, not necessarily an attorney, to handle important legal and financial matters for you if you are unable to make decisions for yourself.  The time limit can be for a specified period of time or indefinitely.

Trust – This arrangement involves an entity called a Trustee who takes control and manages property for someone else’s benefit called a beneficiary.  When property is placed in a trust, the trust becomes the owner of the property.  There are different types of trusts and a qualified advisor can explain and recommend which type would be best suited for your situation.

HIPPA Release Form – The Health Insurance Portability and Accountability Act, known as HIPPA, was created by Congress to protect the privacy of a person’s health information.  Health care providers are prohibited from discussing any aspect of your medical information with anyone who is not directly involved in your care.  To allow friends or family who do not have legal responsibility for you to have access to this information, this release form is necessary.

Most of the issues affecting these types of documents are determined by state law.  Since they are legal documents, it is recommended that you seek sound financial and legal advice.

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Are You Ready?

May 12, 2015 By

Are You Ready? graphicFor whatever reason you’ve delayed buying a home, it may be time to reconsider that decision based on today’s conditions and what is expected to happen in the future.

Rents are continuing to increase to the point that in most markets, it is significantly less expensive to own than to rent.  Even after you factor repairs into the equation, the low interest rates, principal accumulation due to amortization, appreciation and tax savings lower the monthly cost of housing.

Low inventories coupled with strong demand cause a rising effect on prices.  Another reason for higher values is that builders, especially in certain price ranges, have not ramped up new home starts to keep up with the demand.

Recently, the Federal Reserve announced that they intend to start raising rates. Most experts agree that higher interest rates are a foregone conclusion; it is just a matter of when it will happen.

A $300,000 home today could cost considerably more one year from now.  With a 20% down payment, if prices go up by 3% and the interest rates increase by .5%, the principal and interest payment at 3.625% would be $1,094.52 for 30 years compared to $1,198.05 at 4.125%.

The question is not necessarily “can you afford the additional $103.53 more per month that you’d have to pay for the home during the 30 year term?”  More importantly, “How would you feel about having to pay more because you weren’t ready to make a decision and what would you have spent it on if you didn’t have to pay a higher payment?”

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Rent Again?

April 9, 2015 By

Rent again graphic

After you take the training wheels off your bike and learn to ride it, you’d never consider putting them back on again.  Similarly, once you’ve owned a home, you might think you’ll own a home from now on but there may be some situations where it might make sense to rent again. 

Big shifts in a person’s life like a divorce, death of spouse, empty nesting or a temporary transfer to a new city are certainly things that may warrant renting, at least temporarily, until those circumstances develop the particulars.

A good example might be that you think you’d like to move downtown.  Before selling your home and purchasing a condo, it might be enlightening to rent an apartment to see how you’ll adapt to the changes in that style of living.

The sales and purchase expenses incurred with real estate are absorbed over the period ownership which is usually between ten and twelve years.  When the holding period involves only a few years, it can negatively impact a homeowner’s equity.

Like any move, especially coordinating the sale and purchase of two homes, there are a lot of issues involved.  Your real estate professional can provide information that will help you to make better decisions on whether to buy, sell or rent again.

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Home Too Big Now?

April 9, 2015 By

Home too big now graphic

Once the kids are grown, have careers, relationships and get a place of their own, parents find that they may not need their “big” home like they did before. Their lifestyle may have changed and the house just doesn’t “fit” anymore.

Benefits of a smaller home:

  • Easier to maintain 
  • Lower utilities
  • Lower property taxes 
  • Lower insurance
  • More convenient location
  • Convenience of a single level
  • Possibly more energy efficient
  • Possibly lower maintenance

Moving from a larger home frees equity from the previous home that can be invested for retirement income, purchase a second home, travel, education or just to have a nest egg for unexpected expenses.  The profit on the home, in most cases, will be tax-free up to the exclusion limits set by IRS.

There will be expenses involved in selling a home as well as the purchase of a new home.  These will lower the amount of net proceeds available to invest in the new home.

Like any other big change in life, it is recommended that you take your time to consider the possible alternatives and outcomes.  Your real estate professional can provide information that can be valuable in the discernment process such as what your home is worth, what you will net from a sale as well as alternative properties for your next stage in life.

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FHA or Conventional?

April 9, 2015 By

FHA or Conventional graphic

Buyers with a minimum down payment are generally faced with the decision of whether to get a FHA or a conventional loan.  With the new 3% down payment program on conventional loans, it may become more confusing which loan to pursue.

The two loan programs have mortgage fees that can differ greatly.  FHA has a 1.75% up-front mortgage insurance charge in addition to the monthly mortgage insurance charge which was recently lowered by .5%.

FHA’s mortgage insurance is a fixed amount where conventional mortgage insurance providers’ fees are determined by individual companies and according to the credit score of the borrowers.  A borrower with a good credit score will be charged less than a borrower with a marginal credit score.

Mortgage insurance on conventional loans can be cancelled when the equity in the property reaches 20%.  FHA mortgage insurance in most cases, is paid for the life of the mortgage.  Once a borrower has a 20% equity in their home, to eliminate the monthly FHA mortgage insurance, they would need to refinance the home with a conventional loan and would not be eligible for any refund of the up-front fee paid at closing or added to the mortgage.

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If a borrower has a low credit score, FHA may be the better choice because conventional underwriters may have a higher minimum score.  FHA loans also tend to be more lenient than conventional loans when a borrower’s total monthly debt exceeds 45% of their monthly income.  FHA tends to allow borrowers a shorter time frame after foreclosures and bankruptcies.

The decision-making factor is which mortgage will provide the lowest cost of housing including payment and all loan fees.  A lot of information is necessary to make a good decision and typically, the borrower isn’t able to acquire it on his/her own.

A trusted mortgage professional is very valuable in not only providing the information but guiding the borrower through the entire process.  Your real estate professional is uniquely qualified to make such a recommendation.

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Selecting a Lender

April 9, 2015 By

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Finding a mortgage lender is not a problem. Selecting someone who will help you find the best loan product for your situation even if it means sending you to another lender is paramount.

There is a huge advantage to be able to sit across the table from someone you’re doing business with and look them straight in the eye. It’s difficult to make an informed decision based on a website and a phone call.

Doing business with a full-time professional who specializes in residential loans like you’re trying to get is important. You want the loan officer to be familiar with local conditions, values and practices.

It’s to your benefit to have a loan officer who has the experience to put the unusual transaction together even if yours is not. 

Here are a few questions that will be helpful in selecting the right loan officer.

  1. What percentage of your business are FHA & VA compared to conventional mortgages and how long have you been doing them?
  2. What percentage of your loans close on time according to the sales contracts?
  3. Will my credit score affect my interest rate?
  4. Will you help me select the best loan product for me regardless of your commission?
  5. Are there prepayment penalties on any of the loans we’re considering?
  6. Are there any restrictions on refinancing any of the loans we’re considering?
  7. When is my loan rate locked-in? Is there a charge for that?
  8. Is your loan underwriting in-house?

A real estate professional can be your best source of information and can recommend a trusted lender. If you have any questions as to what kind of answers you should expect, please give me a call.

 

Filed Under: Better Homeowner, Blog Tagged With: ,
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