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Showing posts from 2020

Why Put More Down

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The least amount in a down payment is an attractive option when people are thinking of buying a home.  A common reason is to have cash available for furnishing the new home and  possible unexpected expenses. Some people don't have any options because they only have enough for a minimum down payment and the closing costs.  For those fortunate buyers who do have extra money available, let's look at why you'd want to do such a thing.Most loans in excess of 80% loan to value require mortgage insurance to protect the lenders for the upper portion of the loan if the home were to go into foreclosure.  FHA requires an up-front premium of 1.75% of the amount borrowed plus a monthly amount of .85% on the balance.  FHA mortgage insurance premium must be paid for the life of the loan.Mortgage insurance on conventional loans varies depending on the borrowers' credit and the amount of down payment being made.  Unlike FHA, when the unpaid balance reaches 78% of the original amount bo…

Financing Home Improvements

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Home improvement loans provide a source of funds for owners to finance the improvements they want to make.These are usually, personal installment loans that are not collateralized by the home itself.Since there is more risk for the lender with this type of loan, the interest rate is higher than a normal mortgage loan.In today's market, the rates on home improvement loans could vary between 6% and 36%.A borrower's credit score will determine the interest rate; the lower the score, the higher the rate and the higher the score, the lower the rate.Smaller loan amounts are under $40,000 with larger loan amounts over $40,000 based on the extent of the improvements to be made.With all things being equal, a larger loan may have a lower interest rate.Besides the interest rate being higher than a regular mortgage, the term is shorter.Similar to a car loan, the term can be between five and seven years.A $50,000 home improvement loan for a borrower, with good but not great credit, could h…

House-Hacking Rental Property

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House-hacking refers to buying a multifamily property on an owner-occupied mortgage, living in one unit and renting the others.  If you're thinking about becoming a rental mogul, starting early is an advantage.  Not only will you have longer to accumulate a larger portfolio, you can increase the leverage on the first acquisitions if they are owner-occupied.  Leverage is the use of other people's money to finance an investment.  The higher the loan-to-value, the greater the leverage which can increase the yield.A $200,000 rental property with an 80% LTV at 4.5% for 30 years producing a 16.88% before-tax rate of return would increase to a 23% return on investment by increasing the mortgage to 90%.  A typical down payment on an investor property in today's market is 20-25% but, in some cases, a higher loan-to-value is possible.Owner-occupied, multi-unit properties, two to four units, allow a borrower to occupy one of the units and rent the others out.  The cash flows from the…

Who Earns the Commission?

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What do you think the motivating reason would be for the 5% of all homebuyers who chose not to work with an agent but instead conducted their own home search, contacted the seller, negotiated the contract, located their financing, arranged their inspections and all of the other services provided by REALTORS®?Most people would probably guess the buyers were wanting to do the work themselves and earn the commission in the form a lower purchase price.Looking at it from the seller's perspective, what would be the reason for the 8% of all home sellers who chose not to work with an agent but instead did their own research to determine the value of their home, coordinated all of the marketing efforts necessary to have sufficient exposure to the market, negotiate directly with the buyer, and investigate all of the other steps necessary to close the sale?Is it possible and even probable, that they too were trying to earn the commission and net more proceeds from the sale?If the home sold f…

Take the Standard Deduction & the Home

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Now that the standard deduction is increased to $12,200 for single taxpayers and $24,400 for married ones, many homeowners are better off with the standard deduction than itemizing their deductions to write off their mortgage interest and property taxes.  There was some speculation that without the tax advantages, homeownership is not the investment it once was.By looking at the other benefits, you can see that homeownership is still one of the best investments people can make.A $275,000 home financed with a 4.5%, 30-year FHA loan would have an approximate total payment of $2,075.  The difference in the value of the home and the amount owed on the mortgage is called equity.  Two things cause equity to increase: the home appreciating in value and the principal loan balance being reduced with each payment made on an amortizing loan.In this example, if the home were appreciating at 2% annually, the value would increase by $5,500 the first year which would be $458.33 per month.  At the sa…

Understanding Reverse Mortgages

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Reverse mortgage loans are like traditional mortgages that permits homeowners to borrow money using their home as collateral while retaining title to the property.Reverse mortgage loans don't require monthly payments.The loan is due and payable when the borrower no longer lives in the home or dies, whichever comes first.Since no payments are made, interest and fees earned are added to the loan balance each month causing an increasing unpaid balance.Homeowners are required to pay property taxes, insurance and maintain the home, as their principal residence, in good condition.
Reverse mortgages provide older Americans including Baby Boomers access to their home's equity. Borrowers can use their equity to renovate their homes, eliminate personal debt, pay medical expenses or supplement their income with reverse mortgage funds.
Homeowners are required to be 62 years and older and meet the following requirements:
Own the home free and clear or owe very little on the current mortgage t…

Downsizing in 2020

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Approximately 52 million or 16% of Americans are age 65 and over.It is easy to understand that some of them are thinking of downsizing their home because they don't need the same space they did in the past.It can be liberating to divest yourself of "things" that have been accumulated over the years but are no longer needed.Moving to a less expensive home, could provide savings for unanticipated expenditures or cash that could be invested for additional income.Savings can be realized in the lower premiums for insurance and lower property taxes, as well as,  the lower utility costs associated with a smaller home.Typically, owners downsize to a home to 2/3 to 50% of their current home's size.In some situations, it is not only economically beneficial, but their interests may have changed so that a different style of home, area or city might fit their lifestyle better.The sale of a home with a lot of profit will not necessarily trigger a tax liability.Homeowners are eligi…