Honolulu Real Estate: The Coconut Wireless

Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a scholarship is not a possibility, there still may be another way to use some “other people’s money.” A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year. The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment. With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate. Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages. FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers. Interest rate won't change for the qualified buyer Lower interest rate means lower payments Lower closing costs than originating a new mortgage Easier to qualify for an assumption than a new loan Lower in

Anytime a lender and borrower can agree on rates and terms, it can be a good match but IRS has specific rules that govern the transaction especially when the parties are family or friends. The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien to allow the interest deduction. Sometimes, a friends and family situation might have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS based on current Treasury securities. For July 2017, the rate is 2.57% for terms over nine years. The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.  A mortgage between family and friends can be good for both parties. It may al

There is increasing difficulty for first-time home buyers to save for their down payment as indicated in the graph.  Several factors that contribute to this trend include rising rents, rising home prices, student loan debt and flat wages. Some would-be buyers feel they cannot buy a home today but a large part of those decisions may be based on inaccurate assumptions. Nine out of ten non-owners believe they need ten percent or more for a down payment. The typical down payment for first-time buyers is six percent. VA has 100% loan programs as well as USDA for certain qualifying areas and buyers. FHA is known for 3.5% down payments. And FNMA and Freddie Mac have down payments as low as 3% and 5%. There are gift provisions available for buyers who have an “angel” who would like to help them with their down payment. There are ways to borrow against a person’s qualified retirement program for a down payment. It isn’t necessarily limited to the buyer but could include a relati