Better Homeowners – Page 2 – Montgomery Real Estate Guy

Every Renter Should Know

August 13, 2014 By admin

The first home purchase can be the culmination of years of planning and consideration. Buyers typically look for 12 weeks and use a variety of information sources for research before purchasing. However, many renters are not near as thorough in their study.

Like any other commitment a person makes, careful consideration and understanding is required. There are things that every renter should know before they rent a home or apartment.

A lease is a binding, legal document.
Understand the lease before signing and ask questions.
Get the complete agreement in writing instead of verbal statements.
Tenants have rights too and they vary depending on the state and city.
Tenants need renter’s insurance for their personal belongings and liability.
The landlord is responsible for a habitable and safe environment and should typically pay for repairs due to normal wear and tear.
Do a walk-through of the property before signing a lease.
Don’t withhold the rent to settle a disagreement with landlord.
The landlord must return your deposit or tell you why it is being held in a reasonable time.
It may cost you considerably less to own the home than to rent.

With the exceptionally low mortgage rates available, the house payment including taxes and insurance can easily be less than the market rent of a home. By the time you factor in appreciation, forced savings due to amortization, leverage and tax savings, the actual cost of housing could be close to half of the rent even if a reasonable repair allowance is factored. Check out your net cost of housing.

Filed Under: Better Homeowner, Blog Tagged With: Better Homeowners, Every Renter Should Know

Fifteen Will Get You Three

August 13, 2014 By admin

Freddie Mac chief economist, Frank Nothaft, says that affordability, stability and flexibility are the three reasons homebuyers overwhelmingly choose a 30 year term. However, for those who can afford a higher payment, there are three additional reasons to choose a 15 year term: save interest, build equity and retire the debt sooner.

First-time buyers have a higher tendency to use a minimum down payment and are very concerned with affordable payments. It is understandable that the majority of these buyers select 30 year, fixed-rate mortgages.

Consider a $200,000 mortgage at 30 year and 15 year terms with recent mortgage rates at 4.2% and 3.31% respectively. The payment is $433.15 less on the 30 year term but the interest rate being charged is higher. The total interest paid by the borrower if each of the loans was retired would be almost three times more for the 30 year term.

Another interesting thing about the 15 years mortgage is that more of the payment is going to principal than interest from the very first payment. It would take over 13 years on the 30 year mortgage for the principal to exceed the interest allocation.

Some people might suggest getting a 30 year loan and making the payments as if they were on a 15 year loan. That would certainly accelerate amortization and save interest. The real challenge is the discipline to actually make the payments on a consistent basis if you don’t have to. Many experts cite that one of the benefits of homeownership is a forced savings that occurs due to the amortization that is not necessarily done by renters.

Filed Under: Better Homeowner, Blog Tagged With: Better Homeowners, Fifteen Will Get You Three

Make Good Offers Better

August 13, 2014 By admin

It’s disappointing, frustrating and sometimes, discouraging when you lose a home you want to buy.

One of the hardest lessons for today’s buyers is that writing an offer doesn’t mean that you’ll get the home or even a counter-offer. The low inventory affecting many of the housing markets requires a different strategy to give you the best chance to get the home you want.

Make your best offer initially; you may not get a chance to accept a counter.
Submit a written pre-approval letter from the lender.
Increase earnest money above what is considered normal.
Make a larger down payment.
Eliminate unnecessary contingencies.
Don’t ask for personal property not included in the listing agreement.
Pay your own customary closing costs.
Shorten the inspection period.
Buy the home “as is” subject to inspections which still allows you to get your earnest money back if the inspections are unacceptable but doesn’t require the seller to make repairs.
Write the seller a hand-written, personal letter telling them why you want their home; include a picture of your family.
Offer to use the seller’s or listing agent’s preferred title company.
If you can pay cash, do so and arrange financing after closing. Be prepared to show proof of available funds.
Schedule the closing as soon as possible but let the seller know you can be flexible.
Once you decide on a home, act with expedience.
Ask your real estate professional if they have any other suggestions.

Think of making an offer like applying for a job. You want to make your best impression and show why you are the best choice. You won’t always know that there are multiple offers. Approach the process like the competition is doing their best to get the home.

Filed Under: Better Homeowner, Blog Tagged With: Better Homeowners, Make Good Offers Better

An Unexpected Expense

August 13, 2014 By admin

In a study released by TD Bank, 65% of buyers with mortgages that required mortgage insurance said the higher monthly payment was more than they originally expected.

Private mortgage insurance is required on loans that exceed 80% of the home’s value. For conventional loans, the premiums range from 0.5% to 1% annually. The PMI could add close to $100.00 a month to the payments on a $200,000 mortgage and over $200.00 a month on a FHA mortgage.

FHA has two components to its mortgage insurance which includes an up-front charge on closing of the loan and an annual charge. The up-front premium is 1.75% of the mortgage which can be paid in cash at closing or added to the mortgage amount. The annual premium ranges from 0.45% to 1.35% depending on the loan-to-value and term of the mortgage.

Most lenders are required to automatically cancel coverage when a 78% loan-to-value is reached which on a 30 year loan with normal amortization could be eight to eleven years depending on original loan amount and interest rate. If the value of the home has increased as documented by an appraisal so that the current mortgage is below 80% loan-to-value, the lender can be petitioned to eliminate the PMI.

Beginning in April, 2013, FHA requires the mortgage insurance to be paid for the entire term of the mortgage. Prior to this rule change, it was required to remain in effect for a minimum of five years but could be cancelled when the mortgage is reduced to 78% of the original purchase price.

A homeowner can greatly reduce their cost of housing by avoiding mortgage insurance with a minimum 20% down payment. If a higher loan-to-value mortgage is required to purchase the home, the objective should be to pay down the mortgage amount to relieve the need for the mortgage insurance. Generally, loans with lower loan-to-value mortgages also have lower interest rates.

Filed Under: Better Homeowner, Blog Tagged With: Better Homeowners, Unexpected Expense

What is a Seller’s Market?

August 13, 2014 By admin

It is generally considered a seller’s market when the conditions favor the seller. This condition exists when demand is high and supply is low without any significant adverse economic conditions taking place.

Demand is determined by ready, willing and able buyers. Low interest rates with indications that they will begin to rise fuels part of this demand. Rising prices also creates a sense of urgency to avoid higher housing costs.

Inventory is currently below what is considered balanced in most areas. In some areas and price ranges, homes are selling very quickly, with multiple offers and sometimes at above the listing price. When too many buyers are chasing too few properties, things get competitive and the seller is the beneficiary.

Even when buyers and sellers come to an agreement on price and terms, a challenge can occur if the appraisal doesn’t meet the sales price. Either the purchaser has to come up with the additional cash or the purchase price has to be renegotiated.

A typical seller wants the most money possible for their home in the shortest time frame with the fewest inconveniences. A Seller’s Market provides the most likely environment for this to happen.

Filed Under: Better Homeowner, Blog Tagged With: Better Homeowners, Seller's Market

Winter Maintenance

December 9, 2013 By admin

With a 2,000+ mile long winter storm affecting much of the country, there are plenty of home owners who wish they were better prepared. Even when you live in warm climates, some of these things are important to check periodically.

Preparing for the change of seasons can make your home more comfortable and protect your investment. Regular maintenance extends the various components of a home and can generate savings in operating costs while avoiding expensive replacements.

Weather strips around doors and windows should be checked for possible air leaks.
Caulking around windows and doors should seal out moisture and air leaks.
HVAC should be inspected and serviced by a professional annually.
Smoke and carbon monoxide detectors should be tested regularly.
Ductwork and supply lines from water heaters should be insulated.
Fireplace chimneys should be cleaned regularly and fireplaces should be inspected for cracks in mortar and to see if the damper closes properly.
Gutters should be free of leaves and debris to prevent rainwater build-up.
Tree branches touching or hanging over your roof should be trimmed.

Please contact us if you need a service provider recommendation.

Filed Under: Better Homeowner Tagged With: Better Homeowners, Winter Maintenance

Motivated Sellers, Better Prices and Less Competition

December 9, 2013 By admin

The Winter Home Buyer Report conducted in the second week of November by REALTOR.com^® revealed the sentiments of current home buyers expecting to buy a house during the winter months. It appears that there is pent-up demand with buyers who were unable to purchase a home recently.

Most cited as an impediment to purchase was the challenge of low inventory. Strong demand coupled with short supply explains why home prices have been increasing.

“This summer and spring home buying season was particularly challenging for buyers, especially first-time home buyers trying to compete with all-cash offers and bidding wars because of reduced inventory. In fact, a quarter of the winter home buyers revealed they are in the market now because they were unable to find a home during this last home buying season,” said Alison Schwartz, vice president of corporate communications at REALTOR.com^®. “While buyers are still experiencing challenges with inventory and approximately one in five buyers plan to put down all cash, there are advantages to looking for a home in the winter. Motivated sellers, better prices and less competition between buyers are some of the top reasons winter home buyers are interested in purchasing a home during the colder months of the year.”

Some interesting statistics taken from the report are:

Biggest challenges when searching for a home during winter:

• 34 percent shared that there is not enough inventory on the market
• 29 percent believe that winter weather makes house hunting unpleasant

Traditionally, the industry has found that the fourth quarter of the year has a lower sales volume and is generally attributed to distractions from the holidays and not wanting to make a move during consistently inclement weather. Even in areas that are not affected by extreme winter weather, there seems to be a mindset about moving in the winter.

Indications are that it may be advantageous for sellers to put their home on the market now rather than wait until after the first of the year.

Filed Under: Better Homeowner Tagged With: Better Homeowners, Winter Home Buyers

Refinance to Remove a Person

December 9, 2013 By admin

Most people are familiar with the various reasons a homeowner refinances their home which generally result in two major benefits: saving interest and building equity.

There is however another reason to refinance which may not be as common which is to remove a person from the loan. In the case of a divorce, when one party wants to keep the home and the other party wants their equity out of the home, it is possible for the remaining party to refinance the home. If the equity is sufficient to justify it and the remaining owner can qualify for the new loan, the refinance can provide the proceeds to buy out the other spouse.

Refinancing to remove a person from the loan could also involve a situation where two or more heirs jointly own a property and have differing opinions on when to sell. The same situation could apply to a rental property with multiple owners and the refinance would provide a way to buy out a partner.

Sometimes, it’s not about taking cash out of the home to buy out the other party. If a person’s name is on the mortgage, they’re responsible if it goes to default. One party may be willing to deed the home to the other party but it doesn’t necessarily relieve them of the liability of the mortgage they originated.

Many times, once a person has made their mind to move on, they’ll take the fastest and easiest way out. Removing a person from the deed or a mortgage is a reason to consider obtaining legal advice to protect your interests. Refinance Analysis calculator.

Reasons to Refinance

1. Lower the rate
2. Shorten the term
3. Take cash out of the equity
4. Combine loans
5. Remove a person from a loan

Filed Under: Better Homeowner Tagged With: Better Homeowners, Divorce, Refinancing

Who’s Paying Your Mortgage?

December 9, 2013 By admin

As a homeowner, you obviously pay for your mortgage but as an investor, your tenant does. Equity build-up is a significant benefit of mortgaged rental property. As the investor collects rent and pays expenses, the principal amount of the loan is reduced which increases the equity in the property. Over time, the tenant pays for the property to the benefit of the investor.

Equity build-up occurs with normal amortization as the loan is paid down. It can be accelerated by making additional contributions to the principal each month along with the normal payment. Some investors consider this a good use of the cash flows because interest rates on savings accounts and certificates of deposits are much lower than their mortgage rate.

In the example below, is a hypothetical rental with a purchase price of $125,000 with 80% loan-to-value mortgage at 4.5% for 30 years compared to a 3.5% for 15 years. The acquisition costs were estimated at $3,000, the monthly rent is estimated at $1,250 and $4,800 for operating expenses.

Notice that both properties have a positive cash flow before tax. The cash on cash return is the revenue less expenses including debt service divided by the initial investment to acquire the property. The 15 year mortgage will obviously have a smaller cash flow and lower cash on cash but the equity build-up is significantly higher.

If the goal of the investor is to pay off the property to provide the highest possible cash flow at a later date, a shorter term mortgage with a lower interest rate will help them achieve that. A simple definition of an investment is to put away today so you’ll have more tomorrow. Sacrificing cash flow now, during an investor’s earning years, is a reasonable expectation to provide more cash flow in the future when it might be needed more.

Contact me if you’d like to explore rental property opportunities.

Filed Under: Better Homeowner Tagged With: Benefits of Rental Property, Better Homeowners

All Dollars Not Equal

December 9, 2013 By admin

The division of assets between the spouses is an important decision to finalize a divorce. The exercise looks relatively simple: assign a value for each of the assets and divide them based on a mutual agreement between the parties.

The challenge is to make a fair division which requires an analysis to determine their value after they’re converted to cash.

Assume the two major assets in the example, a retirement account and the equity in the home, are equal at $100,000. It might seem logical to give the home to one spouse and the retirement account to the other. However, if the person receiving the home decides to sell the home, the net proceeds could be considerably less than the spouse receiving the retirement account.

Let’s pretend that the spouse with the home negotiates a lower price of $475,000 due to current market conditions. The former couple had owned the home for many years and refinanced several times, pulling money out of the home each time. When the remaining spouse sells the home, there could be a considerable gain that was never recognized.

As a single person, he or she is now only entitled to $250,000 exclusion and would have to pay tax on the excess gain. After paying the sales costs, outstanding mortgage balance and the taxes due on the gain, the remaining spouse would have net proceeds of $24,375 compared to the $100,000 that the former spouse received in the settlement.

The message in an example like this is to examine and consider the potential expenses that may be involved with converting the assets to cash after the divorce. Obviously, expert tax advice is valuable in making such decisions.

Filed Under: Better Homeowner Tagged With: Better Homeowners, Divorce

Judd Welch