Posts

Showing posts from 2019

an Investment Perspective on a Home

Image
Looking for an investment that will turn $10,000 into $80,000 in seven years?Sound too good to be true?What if I told you that you could live in it every day during that seven years?Would that sound even better?A $300,000 home purchased today on an FHA loan would have a $10,500 down payment.If it appreciated at 2% annually, which is less than  the U.S. average, the future value of the home would be $344,606 in seven years.The unpaid balance on the loan would be $256,350 based on normal amortization which would make the equity in the home $88,256.The annual compound rate of return on the down payment would be 35%.This number sounds so large, that you might start doubting the credibility of this example.Looking at some alternative investments, a ten-year Treasury note is currently paying 1.73%.You can earn 2.1% on a ten-year certificate of deposit.If you could handle the volatility of the stock market and pick the right stock, you might earn 7-10%.There really is no alternative investme…

Understanding the Mortgage Interest Deduction

Image
Mortgage interest paid on your principal residence is deductible today as it was in 1913 when 16th amendment allowed personal income tax.The 2017 Tax Cut and Jobs Act reduced the maximum amount of acquisition debt from $1,000,000 to $750,000.Acquisition debt is the amount of debt used to buy, build or improve a principal residence, up to the maximum amount.A common misunderstanding among taxpayers is that you are entitled to that much debt even if you refinance a home during your ownership years.Acquisition debt is a dynamic number that changes over time.It decreases with normal amortization as the principal amount of debt is reduced.The only way to increase acquisition debt after a home is purchased is to borrow additional funds that are used for capital improvements.Assume a person buys a home with a new mortgage and after the home has enjoyed significant appreciation, refinances the home for much more than is currently owed.Let's also say that the refinance amount is less than …

Title Insurance

Image
Most people who have car, home and health insurance have probably made claims and wouldn't consider being without it.However, it might be difficult to find a homeowner who has made a claim on their title insurance which could lead a person to think that it may not be necessary.Title insurance covers the largest investment most people have and if there was a loss, it could be devastating.Title insurance indemnifies the policy holder from financial loss sustained from defects in the title to the property.The policy holder is determined by their interest in the property. An owner's title policy protects the owner of the property from title issues that may arise other than the mortgages that are being placed on the property at the time of purchase.The title of the property goes back in time to check that clear title (no unsatisfied liens or levies and poses no question to legal ownership) was passed from owner to owner up to the current seller.A mortgagee's or lender's pol…

7 Reasons to Buy a Home

Image
Some people don't need a reason to buy a home, they just want it.That can be enough justification by itself.Other people need some solid logic before they're ready to make the commitment.The following reasons might help you to make a decision.Pride of ownership ... among the most popular reasons given by homebuyers is that they want a place they can call their own and decorate and improve it the way they want.It is a place to feel safe and secure and a place for their family.They can share it with their friends and enjoy living in it.Good investment ... Homeowners have a 80 times greater net worth than renters.By investing in a home that appreciates over time, it contributes to an increasing equity.The high loan to value mortgages that are available combined with the low mortgage rates also contribute to the investment through leverage which has been described as "using other people's money" to control an investment.Interest and property tax deductibility ... Hom…

What's the Difference in Pre-Qualification and Pre-Approval?

Image
Before looking for a home, you need to know how much you can afford. While you may have a number in your head, the lender has the final say. Securing a pre-approval from a lender helps make the home buying process easier and helps to avoid delays. Many buyers confuse the terms pre-qualification and pre-approval. They mean two different things. In simple terms, a pre-qualification is an estimate of what you can afford. A pre-approval is a conditional approval based on the proof you provide.
The pre-qualification is a preliminary step some borrowers take to get a feel for what price home they can afford. Based on your income, assets, and estimated credit score, lenders can estimate what you can afford.
It's important to know, there's nothing binding about a pre-qualification. It's simply a starting point. When you are serious about buying a home, though, you want a pre-approval.
Before you shop for a home, meet with a recommended lender to get a pre-approval letter. Sellers and…

Buy Your Retirement Home Now

Image
Maybe you're not ready to move into it but that doesn't mean that you shouldn't take advantage of the present opportunities to acquire the home you want to live in during retirement. The combination of the low mortgage rates, high rental rates, positive cash flows and tax advantages can help you get it paid for by the time you're ready to move into it.Your tenant could literally buy your retirement home for you.  One idea would be to finance it with a 15-year loan that will have a lower rate than a 30-year loan and it will obviously be paid for in half the time. With every monthly rental check from your tenant, you make the payment on the mortgage which includes a portion that reduces debt and builds equity. Even if you don't have the home paid for by the time you retire, your equity will be larger.  Consider you sell your current home which could be paid for by then when you are ready to move into this retirement home .  Taxpayers can exclude up to $500,000 of tax…

A Good Time to Buy a Home

Image
You may have noticed that REALTORS® seem to always think now is a good time to buy and they can usually justify it with solid reasoning.While it can be true in general, a good time to buy has more to do with the individual than anything else.There are four things to consider.It is a good time to buy a home when you have good credit.Since the Great Recession and the housing crisis, lenders have been required to be sure that the borrowers have good credit.This actually benefits not only the lenders but the borrowers because no one wants to buy something that they cannot afford and run the risk of losing it to foreclosure.FHA has the most lenient FICO credit score of 580+.VA requires a little higher at 620 while Fannie Mae guidelines on conventional mortgages require a 700 score.It is a good time to buy a home when you have a good job that gives you the income to qualify for the mortgage and the likelihood that you'll continue to be employed in the future.Two years of steady employme…

Time for a Toilet Upgrade

Image
Whether it is a cosmetic or a mechanical reason for upgrading a toilet, you may not know all the choices that are involved to choose the right one for your home.The current toilet may have cracks or leaks in the bowl or tank.It could be the aggravation of constant clogging or inefficient flushing.Maybe there is damage in the porcelain bowl or built-up mineral deposits that are clogging the inlet holes or syphon tube.If frequent repairs have you on a first name basis with the plumber, it may be time to consider replacing the toilet.There are a lot of things to consider and the following list may help you sort through the choices.Round, oval or compact oval ... There are two basic shapes of toilets: round and oval.The round bowl requires less space and are less expensive.The oval or elongated tend to be more comfortable but require more space from the wall than round ones.Most manufacturers produce a compact oval model also.One-piece, two-piece and wall hung ... Manufacturers make one-p…

Interior Condensation Solutions

Image
Condensation occurs when the air has too much moisture in it which is felt as high humidity.The water deposits on various surfaces that are cooler than the air itself.Several things can contribute to the high humidity such as cooking, dishwashers, clothes dryers, bathing and long showers.If the home has a crawl space under the floor, inadequate ventilation or insulation can cause moisture in the home.  There seems to be a difference of opinions about whether to vent or not vent.  First, determine if you are having a problem and then, weigh the options available to find the best solution.Condensation that forms on windows and other surfaces in your home can cause damage to window trim, frames, drywall, floor coverings and sub-floors as well and the interior framing. To reduce condensation in a home, the moisture saturating the air needs to be reduced.Just as steam from a shower can fog a mirror, warm air holds more moisture.When the air cools, it releases the moisture.There are other t…

Selecting an agent

Image
When a whole lobster was presented at the table of a restaurant, the customer noticed there was only one claw on it.He asked what happened to the lobster and the waiter said, maybe he lost a fight with another lobster.The customer replied to the explanation by saying "then, bring me the winner."There are approximately 1.3 million REALTORS® in the U.S.The July 2019 Existing Home Sales annualized about 5.4 million units with a listing side and a selling side that totals 10.8 million transactions.That means that the average number of units sold per agent is 8.In any given market, 20% of the agents are selling 80% of the homes.260,000 agents are selling 8,480,000 or an average of 32 transactions sides.Some markets are dominated by 10% of these successful agents selling 90% of the market.If that were the case, 130,000 agents are selling 9,720,000 or an average of 75 transactions sides.The question you should ask yourself is who do you want representing you in the purchase or sale…

Price It Right the First Time

Image
The Internet has empowered all buyers with information and home buyers are no exception.The amount of information available to public includes details on size, condition, sales history, current inventory, recent sales, photographs, videos, school info, drive-times, entertainment and much more.When a seller realizes that buyers are educated with facts, it becomes unlikely that they will pay more than a home is worth.If a home is priced too high in the beginning, it may stay on the market longer than normal which could adversely affect the ultimate sales price.It is a natural reaction from people, personally or professionally, to assume that something must be wrong with a home that doesn't sell in a reasonable time for that market.The seller is entitled to maximize the equity in their home and pricing it properly in the beginning is the best way to achieve that.Overpricing can reduce buyers activity because they assume that the best homes are purchased soon after they are offered fo…

What every homeowner should know about their property insurance

Image
Insurance is required on a home by the mortgage company, but homeowners rely on it for peace of mind also.Unfortunately, people may not take the time to investigate their policy and what it covers until they need to file a claim, which could be too late.While it may not seem like the best use of your time, an in-depth visit with your property insurance agent once a year could be valuable to you if you have losses and could increase your peace of mind.The following are some questions you can ask your insurance agent:What is the insured value of the policy and the replacement cost of your home?Insured value is the amount that would be paid for a total loss but replacing the home could cost more than that amount.What is the deductible?Higher deductibles on the first amount of the loss are one way to lower the cost of the premium.It may sound good when you're having to pay for the policy but feel very different at the time you file a claim.What does the policy cover? Typical policies …

Want to be a Landlord?

Image
Real estate has consistently been one of the highest rated investments available to individuals.  TV shows certainly make rentals look easy and you may even know someone who has made a lot of money with them.  Possibly, the thought has crossed your mind that if they can do it, you can too.Before you contract for your first investment, ask yourself some questions that could save you time and energy.  Not all people have the time, the inclination or even the skill to manage property.  Landlords need to be good business people who can maximize revenue and minimize expenses.  If investors don't have the skills and talent to handle some of the repairs, they at least need to know reputable and reasonable service professionals.Another important element is to be familiar with the state and local landlord tenant laws.  You'll need to know what are allowable security deposits and where the money can be held.  Knowing how long you have to return it to a tenant is important and what to do…

Money You Saved for a Down Payment

Image
Occasionally, buyers who can qualify to purchase a home decide to "take a break" and wait to purchase a home.When the focus of buying a home is relaxed, other uses for the money that was going to be used for the home are considered. Maybe they think how much fun it would be to have a Sea Doo or a motorcycle or a new car.It is amazing how many people would like to buy a home but either don't have the down payment, the income or the good credit to make it possible.Instead of spending the money, consider investing the money for two years until the time is right to buy a home.Let's look at putting the money in a certificate of deposit that earns 2% or in the stock market that could average a 5% return.Assume you were purchasing a $295,000 home on a FHA loan with 3.5% down payment.The $10,325 would grow to $10,742 in the CD which isn't a big increase but at least it is safe and secure, and it will be available when you're ready.If the same amount were invested in …

Downsizing is an Alternative

Image
It is estimated that over 15% of the population in the U.S. are over 65 years of age.With one of the most common fears of seniors being their money will run out early, it is understandable that downsizing may be strategy to meet their goals.Once the kids are grown, have careers, relationships and get a place of their own, parents find they may not need their "big" home like they did before.In other situations, their lifestyle might have changed, and the house just doesn't "fit" anymore.The benefits of a smaller home can include the following:Easier to maintainLower utilitiesLower property taxes Lower insuranceMore convenient locationSingle levelPossibly more energy efficientPossibly lower maintenanceLike any other big change in life, it is recommended that a person should take their time to consider the possible alternatives and outcomes.Are they going to stay in the same area?What type of property would suit their needs for the future?The tax-free exclusion al…

Steps in Home Buying Process

Image
The process of buying a home can be different based on the price range and whether a mortgage is needed.While some things are different, others are similar regardless of price, financing or local customs.Each year, the National Association of REALTORS® surveys buyers and sellers who have purchased or sold in the previous twelve months in order to identify the process and steps taken.It provides a lot of information for the people who will be going through the process now and in the near future.44% of all buyers looked online for properties for sale.This might be considered a logical first step to determine the prices of homes in certain areas and what features they offered.17% of all buyers stated that their next step was to contact a real estate agent.In another REALTOR study, it is reported that 87% of all buyers purchased their home through a real estate agent or broker.Buyers identify a wide range of services the agents offer that is considered valuable in the purchase of a home.T…

Invest in Equity Build-up

Image
Equity build-up could be one of the biggest advantages to buying a home.There are two distinct dynamics that take place to make this happen:each house payment applies an amount to reduce the mortgage owed and appreciation causes the value of the home to go up.It is easy to make a projection based on the type of mortgage you get and your estimation of appreciation over the time you expect to own the home.Even conservative estimates can produce impressive results.Let's look at an example of a home with a $270,000 mortgage at 4.5% for 30 years and a total payment of $2,047.55 payment including principal, interest, taxes and insurance.The average monthly principal reduction for the first year is $362.98. If you assume a 3% appreciation on the $300,000 home, the average monthly appreciation is $750 a month.The total payment of $2,047.55 less $1,112.98 for principal reduction and appreciation makes the net monthly cost of housing, excluding tax benefits, $934.57.If this hypothetical per…

America Still Considers Real Estate the Best

Image
35% of respondents, in a recent annual Gallup poll that dates back to 2002, identified real estate as the best long-term investment option compared to 27% who identified stocks.The top choices included real estate, stocks, savings accounts and gold.Even with the remarkable prices of the different U.S. stock indices recorded in 2019 through April and May, homes have the highest confidence in the minds of the respondents.This seems to be based on the stability of the housing market and the expectation that home prices will continue to rise.Homeowners build equity from both appreciation as well as reducing principal with each payment made. These same factors exist for investors of rental homes in predominantly owner-occupied neighborhoods.Real estate has another dynamic working to produce favorable investment results due to leverage.Leverage occurs when borrowed funds are used to control an asset.When the borrowed funds are at a lower rate than the overall investment results, positive le…

Determining Property Type

Image
The Internal Revenue Service considers four different types of real estate.  Specific types of properties have benefits based on their classification.  The determination does not depend on the property itself as much as it depends on how the property is used and what the owner's intentions are.Principal Residence ... a principal residence is the place a person lives or expects to return if they are temporarily away from it.  It could be a single family, detached home or condominium or a duplex, tri-plex or four-unit.  The owner(s) can deduct the qualified mortgage interest and property taxes on the schedule A of their tax return.  There is a capital gains exclusion on profit of up to $250,000 for a single taxpayer and up to $500,000 for a married taxpayer.  Income Property - is improved property that is rented or leased to tenants as opposed to using it personally.  It can include houses and condos, apartment buildings, office complexes, shopping centers, warehouses and other comm…

Get Leverage Working for You

Leverage is an investment term that describes the use of borrowed funds to control an asset; sometimes referred to as using other people's money.  Borrowed funds can affect the investment in your home positively.For instance, if you had a $100,000 rental property, collected the rents and paid the expenses and had $10,000 left, you would earn a 10% return (divide the $10,000 by the $100,000.)  With no loan on the property, there is no leverage.If you decided to get an 80% mortgage at 8%, you would owe an additional $6,400 in expenses leaving you only $3,600 net.  However, your return would grow to 18% because your investment is now $20,000 in cash (divide the $3,600 by $20,000.) Leverage, the use of borrowed funds, causes the return to increase in this example.  While, most people associate leverage with rental properties, it also applies to a home.  The larger the mortgage, the more leverage you have.  A FHA mortgage with a 3.5% down payment has more leverage than an 80% loan.Assu…

Delay Will Usually Cost More

Two things can happen when the mortgage rates go up before you've found a home or locked-in your mortgage.You'll either pay the current mortgage rate which means a higher payment, or you'll have to increase your down payment to keep the monthly payment at the same level.If the rate were to go up by ½%, the payment on a $275,000 mortgage would increase by $82.87 per month for the entire 30-year term.That would increase the cost of the home by $29,835.Some people are purchasing the maximum home that they can qualify for.In that case, they cannot qualify for a higher payment and the only way to buy the same price home is to put more money down which may not be a possibility.The other alternative is to buy a lower price home which may not be in the same area or size which will involve some compromises.The rate is not the only dynamic that affects buyers waiting to purchase.The home they want could sell to someone else.Prices could increase as new homes come on the market.The q…

Measuring Square Footage

Square footage is commonly used to determine if a home will fit a buyer's needs.The price per square foot can be used to compare the costs of different homes and even, determine the value of a property.The challenge is what is the source of the square footage measurement and how was it done.County records use square footage to determine assessed value for property tax purposes.They are assumed to be reliable but there can be inaccuracies in their tax rolls.Another source of square footage could be from the house plans but the problem there is that the builder may have made modifications, or a subsequent owner could have made additions.Appraisers are required to measure the home to determine square footage and they generally, adhere to a standard method which leads to uniformity in the industry.The ANSI, American National Standards Institute, guidelines are considered the standard but there are no laws governing the process.Because basements are below grade level, regardless of whe…

Checking for Water Leaks

Aside from standing water in your yard or water running out from under a sink, the first indication that you might have a water leak comes from a larger than normal water bill.Before calling a leak specialist or a plumber, there is a simple diagnostic you can perform.Go through your home and make certain that all the faucets are turned off and that the toilets have indeed stopped filling the reserve.Then, go to the water meter and make a mark on the lens where the dial is currently.If there is water in the meter box, the meter itself could be leaking.If the meter is still turning, the leak is between the meter and the house. By inspecting the area between the meter and the house, you can look for soft, muddy areas or grass that is greener than the rest of the yard.One of the hardest places to isolate a leak is in a swimming pool.If you have an automatic filler, like in a toilet, you'll need to turn it off.Mark the water line on the wall and wait to see if the water level goes down…

Checking for Water Leaks

Aside from standing water in your yard or water running out from under a sink, the first indication that you might have a water leak comes from a larger than normal water bill.Before calling a leak specialist or a plumber, there is a simple diagnostic you can perform.Go through your home and make certain that all the faucets are turned off and that the toilets have indeed stopped filling the reserve.Then, go to the water meter and make a mark on the lens where the dial is currently.If there is water in the meter box, the meter itself could be leaking.If the meter is still turning, the leak is between the meter and the house. By inspecting the area between the meter and the house, you can look for soft, muddy areas or grass that is greener than the rest of the yard.One of the hardest places to isolate a leak is in a swimming pool.If you have an automatic filler, like in a toilet, you'll need to turn it off.Mark the water line on the wall and wait to see if the water level goes down…

Building Equity

Owning a home is the first step to building equity.Tenants build equity but not for themselves; they build it for the owners.Equity is the difference in the value of the home and what is owed on the home.There are two dynamics that cause this to grow: appreciation and principal reduction.As the home increases in value, it is said to appreciate.Various authorities will annualize an appreciation rate based on average sales prices from one year to the next.Since appreciation is based on supply and demand as well as economic conditions, it will not be the same year after year.If you looked at a ten to twelve-year period, some would be higher than others and there may even be some individual years that it is flat or even declined.For the most part, values tend to appreciate over time.Most mortgages are amortized which means that a portion of the payment each month is applied to the principal in order to pay off the loan by the end of the term.A $300,000 mortgage at 4.5% for 30 years has $3…

Taxes and the Homeowner

Whether you're an owner now or expect to be one in the future, it is important to be familiar with the federal tax laws that affect homeownership.Since personal income tax was enacted in 1913 with the 16th amendment, homes have had preferential treatment.The mortgage interest deduction is based on up to $750,000 of acquisition debt used to buy, build or improve a principal residence.In addition to the interest, the property taxes are deductible, limited to the new $10,000 limit on the aggregate of state and local taxes (SALT).The taxpayer may also deduct interest and property taxes subject to limits on a second home.Homeowners can decide each year whether to take itemized personal deductions or the allowable standard deduction which was significantly increased under the Tax Cuts and Jobs Act of 2017.Single taxpayers may exclude up to $250,000 of capital gain on the sale of their home and up to $500,000 if married filing jointly.They must have owned and lived in the home for at lea…

Show Them You're Serious

June and July are the busiest home sale months of the year. When inventory is in short supply and you may be competing with other offers, it is important to show the seller you're serious. Make your offer look as good as possible because you may not get the chance to make or accept a counter-offer.Put yourself in the seller's shoes.Your home has just gone on the market.There is lots of activity and suddenly, there is more than one offer to purchase.The seller's first consideration may be to accept the highest offer but there are many other things to consider like closing dates, closing costs, possible repairs, contingencies and of course, the ability of the borrower to get a loan.Offer a fair price for the property in your initial purchase agreement.It shows sincerity and good faith that you're actually trying to purchase the home and not trying to take advantage of the seller.The old adage that you can always go up later may never happen if there are multiple offers o…

Don't Leave Home Without...

You've been planning this trip for some time and almost every detail has been considered...or has it?Have you thought about how to protect your home while you're out of town?What's going to make sure that everything you left is still there in you return?Nothing could ruin a trip more than coming back to find out your home has been burglarized or worse.It makes sense to spend a little time before you leave on making sure your home is as safe and sound as it can be.There are a host of devices to use across the Internet including camera door bells, video cameras, door locks, garage door openers, light and thermostat controls.You can monitor your home whenever you have an Internet connection.The question is whether you want the distraction from your trip.Consider these low-tech suggestions along with your other normal efforts:Tell your neighbors you'll be out of town and to be aware of any unusual activity.Notify your alarm companyDiscontinue your postal deliveryUse timers…

Temporarily Renting a Home

IRS has provisions for homeowners regarding the sale of a principal residence that allows for temporarily renting the home without losing the ability to exclude the gain if the home is sold under the correct conditions.The rules for the exclusion of gain on the sale of a principal residence are:Up to $250,000 of gain may be excluded for single taxpayers and up to $500,000 for married taxpayers filing jointly.Ownership and Use must have been a principal residence for two of the five years preceding the date of sale (closing date).This allows for a temporary rental for up to three years maximum.Either spouse may meet the ownership test.Both spouses must meet the use test.No exclusion has been used in the previous 24-month period.Let's pretend that a person had owned a home from more than two years.This person married and moved into their new spouse's home two years, six months ago.That person decided to sell the home and would have approximately $200,000 of gain in the sale.If t…

Time to Buy Again

Image
For people who have experienced a distressed sale of a home and gotten their finances and credit back in shape, there can still be an unanswered question of "How long do we have to wait to qualify for another mortgage."The loan types for the new loan will differ in amounts of time based on the event.The different lending authorities, VA, FHA, Fannie Mae (FNMA) and Freddie Mac (FHLMC), establish their own waiting periods.A borrower may be eligible to qualify for one type of mortgage before another type, even though during this waiting period, that the person was current on all payments and maintained a history of good credit.The following chart indicates how long a person might have to wait.A recommended lender can give you specific information regarding your individual situation and can make suggestions that will improve your ability to qualify for a mortgage.This process should be started before looking at homes because of the time constraints listed here can vary based on …

Tech to Find the Right Home

According to the 2018 Profile of Buyers and Sellers, 52% of buyers want help to find the right home to purchase.Physically locating the home is certainly part of what buyers want from their agent but finding the right home at the right price and terms is also crucial.87% of buyers purchased their home through a real estate agent or broker.Slightly more than half of buyers were referred to their real estate professional by/or is a friend or relative or had used the agent previously to buy or sell a home.There are tech tools that can be used together with the expertise and experience of your real estate professional to make the home buying process efficient and effective.Listing Alert ... while this service is called by other names, the buyer identifies the specifics about the home they want, and it will notify them directly when a new listing comes on the market that matches their needs.Real estate smartphone apps ... imagine driving a neighborhood, seeing a sign and immediately being …