Should I Buy New?

Should I Buy New?

If you are getting ready to buy a home, you might think it’s a good idea to buy a new property. After all a newer property has a newer structure and newer appliances and is likely to have less repairs in the short term.

Old homes are less expensive. There is more potential for you to fix them up and increase the value. They can also have charming architecture and other features that you won’t find in modern builds.

Here are some things you should consider when making your decision.

Budget

Older homes have older fixtures and appliances that can break down over time making up for any money you saved when buying the home. They are also less energy efficient so you will be spending more on heating and cooling unless you update your home to add eco-friendly features.

Maintenance

Maintenance on an older home can be quite costly. If you are handy and can do some of these repairs yourself, but you need to have money set aside for “projects” that will come up.

If you are buying an older home, it’s important to get a home inspection in advance. A home inspection will reveal any problems the home has to give you an idea of what you can expect moving forward. You also may be able to negotiate the price based on any repairs you will have to deal with.

Builder Warranty and Customization

Builders (on new homes) will often let you customize finishes and certain design elements. Building new allows you to personalize your house to your needs and tastes.

Builders and supply manufacturers will often warranty their products and work. As a new homeowner, this will give you piece of mind for the short term that you are covered and will have limited costs.

Condition of the house

Not all old homes are in bad condition and not all new construction is well built. It is important that you know what you’re buying, age doesn’t mean everything!

Modern vs. Vintage

The design of your home will be another deciding factor. With a vintage home, you may enjoy features like crown moldings and attention to detail. However, a modern home will have interiors with open living spaces, accessible hallways and eco-friendly appliances.

The one you prefer will be a matter of personal tastes and there is no saying which is better or worse.

There are pros and cons to buying old and buying new. Once you start the search, you may fall in love with a property and forget about how old it is. Just be sure to take repairs into consideration when calculating your budget.

Good luck finding the home that’s right for you!

Property Tax

Explaining Property Taxes

We all know that saying about death and taxes. Well, property tax is one of those things homeowners just have to deal with. It’s an ongoing expense that can tip the scales towards rent in the rent vs. buy decision making process.

Those that have to pay property tax may feel better knowing why they are paying them and how they are being calculated…or maybe not! In any case, here’s some information that will help you get a better grasp on the situation.

How are Property Taxes Assessed?

It’s a good idea to get a clear understanding on how property taxes are assessed. That way you will know whether or not you are being overcharged.

Property taxes are assessed based on the value of the land and the structures on it. The taxes will equal a percentage of the assessed value. If you disagree with the assessed value of your home, you can appeal it.

Tax rates for each jurisdiction are calculated separately. Then they are added together to come up with what’s known as a mill rate. The mill rate is multiplied by the assessed value of a property and that’s how the tax rate is determined.

Property taxes are used by city and state governments to fund things such as education, transportation, parks and recreation and libraries. Cities, counties and school districts have the right to increase property tax within their boundaries as needed.

Understanding Mill Levies

One mill represents one tenth of a one cent. So, for every property assessed at $1000 a mill would be $1.

Tax levies for each jurisdiction are calculated separately, then they are added together to determine the mill rate for the region.

So if the assessed value in a region is $100 million and the county decides it needs $1 million to operate, the mill levy would be $1 million divided by $100 million or 1%.

If the school district and city calculated the mill levy as .5% and 3% respectively, the total mill levy would be 4.5% taking the original 1% as well as the additional 3.5% into account. This would equal 4.5 mills.

Property Assessments

Property assessments are done every five years. There are various methods that can be used to assess property. These are as follows:

·        Sales Evaluation: For this type of evaluation, assessors will compare your home to similar homes in the area to determine an approximate value.

·        Cost Method: This type of assessment is based on how much it would cost to replace your home. For older homes, factors come into play including the amount of depreciation that has taken place and how much your home would be worth if it was empty. For newer homes, potential depreciation is considered as well as the cost of the building, materials and labor.

·        The Income Method: Using this method, your home is assessed by how much money the owner could make if he or she rents the property. Factors taken into consideration include the cost of managing and maintaining the property, insurance and taxes.

Once an assessment value is reached, a set assessment rate is used. Your property value is multiplied by that rate and further multiplied by the mill rate to determine your property tax. So, if your home is assessed at $500,000 and the assessment rate is 8%, that’s $40,000. Times that by a mill rate of 4.5% and you get to a property tax payment of $1800.

Hopefully this article has provided you with a better understanding of your property taxes and will help you determine if you are being charged a fair amount.

Buying During Coronavirus

Buying During Coronavirus

The coronavirus has affected businesses all over the world and the real estate industry is no exception.

How the Coronavirus Has Affected Buyers

The coronavirus has caused many businesses to close on a temporary or permanent basis. Now, as cities start to reopen, many still face financial uncertainty. Businesses are trying to recover from the economic impact of being closed for three months and many are opening in limited capacity to slow the spread while keeping an eye on their bottom line.

As a result, many employees are uncertain of their financial futures. They are wondering whether they will be able to return to work at all, and if they do, they are concerned that their hours or salaries may be cut.

Those that are concerned about their economic situations will be in no position to buy a house.

Lending

Lenders are hesitant to approve loans as they are wary of anyone that applies for a loan. The economic uncertainty means even those who seem to be in good shape to repay a loan today may not be so lucky tomorrow. Banks understand this and have tightened up their criteria.

Open Houses

The coronavirus has also made it more difficult to conduct open houses and to show properties at all.

Showing a property requires human contact and, with all the social distancing being enforced, people are going out of their way to stay physically separated from others. As a result, many open houses have been canceled completely (as in Washington for example). House showings are by appointment only.

Most people are not going to buy a home without being able to see it first, so the lack of open houses and showings is a major obstacle.

Housing Prices

Depending on your housing market, prices have not necessarily come down significantly, if at all. In Seattle for example the prices have not dramatically decreased for several reasons.

1)      Many first time home buyers still have secure jobs. Unemployment is worst in the labor sectors that primarily rent. The Tech industry on the whole has not experienced high unemployment. Major employers like Amazon and Microsoft are still hiring and bringing in talent from out of state and country.   

2) There is very little supply. Many sellers have “temporarily” taken their homes off the market in hopes of selling in a “hotter market” down the road. A lack of supply in the market place keeps the price up. Nationally, there are (approx.) 2 million homes on the market, compare that to the last financial crisis that had about double (4 million) the amount of homes for sale.  

Pent up Demand

The downturn caused by coronavirus may lead to an upturn when the lockdown restrictions are removed. It is expected that buyers will be flooding the market eager to make a deal and take advantage of low interest rates.

Those that are interested and able to buy should keep an eye on the market and be ready to pounce when they see the right home.

Reverse Mortgages

Reverse Mortgages Explained

If you are preparing for retirement, a reverse mortgage can be a good way to help you maintain an income.

A reverse mortgage is a loan for homeowners who are 62 or over and have considerable home equity. They can borrow against the value of the home and receive funds as a lump sum, a fixed monthly payment or a line of credit.

Unlike other types of mortgages, reverse mortgages are not paid back through loan payments. Rather, the entire balance becomes due when the borrower dies, moves away permanently or sells the home.

The loans are structured so the amount of the loan does not exceed the home’s value. The borrower’s estate will also not be held responsible for repaying the loan if the home’s value drops and, therefore, is not worth enough to compensate for the loan.

Reverse mortgages are a great way to give seniors access to the equity in their home, however, they are complex, and they are not the best choice for everyone. Scams involving reverse mortgages are common so seniors should use caution before signing any paperwork.

How Does a Reverse Mortgage Work?

Instead of the homeowner making payments to the lender, the lender makes payments to the homeowner.

The home serves as collateral for the loan. Therefore, the proceeds from the home’s sale goes to repay the reverse mortgage’s principal, interest, mortgage insurance and fees. Any proceeds beyond that go to the homeowner or the homeowner’s estate.

Reverse Mortgage Pros and Cons

One of the biggest advantages of a reverse mortgage it that it gives seniors access to the equity in their home without having to sell or moveout. The money they get can cover their basic living expenses through retirement. As long as they are able to keep up with property tax, maintenance and insurance, they can remain living in their houses as they get older.

The downsides of taking out a reverse mortgage are:

1)      A substantial amount of your home’s equity will be paid to interest and loan fees.

2)      You won’t have as much of an inheritance to pass on to your heirs.

3)      If you have a housemate, they won’t have the right to continue living with your after you pass away.

Finally, reverse mortgages may not be worth it if you outlive the proceeds. If you pick a payment plan that doesn’t provide a lifetime income, in time, you may not have any money left. It is for this reason that you may be better off opting for a lump sum or term plan rather than a line of credit that can be used up.

If you are a senior, a reverse mortgage can be a great way to maintain an income in your twilight years. Just know the benefits and drawbacks before proceeding.

Rent vs Buy: What's Right for Me?

Renting vs. Buying: What is right for Me?

When people are looking into housing options, one of the first questions they will ask themselves is, should I rent or buy?

Home ownership comes with many benefits. Home values increase over time making them good investments. Your monthly payments are paying off your principal (as well as interest) increasing your equity over time. It also gives piece of mind having a place you can truly call your own.

Renting, on the other hand, minimizes the need to pay for costly repairs, has a much shorter commitment level, and in some markets allows you to live in areas of a city you may not be able to buy in.

So which option is best? Well, the answer to that question may vary from person to person, but here are some things to consider when making a decision that works for you.

How Long Will You Be Staying in Your Home?

When you buy a home, there are many costs involved including appraisal fees, title insurance, brokers’ fees and a mortgage origination fee. If you plan to live in your home for a while, you will be able to pay these fees off over time. However, if you sell within a few years, your home may not have appreciated enough to offset these costs (including selling costs, approx. 8%-10% of sale price).  

If you are planning to stay in your home 2 years or less, you are probably better off renting.

Will Home Prices Increase?

Most people buy a home because they think it will be a good investment that will increase in value over time. This is a called appreciation. Historically this is true, especially when looking at the Seattle area. However, there are often housing market dips or crashes where the value of houses goes down temporarily.

Is Renting a Waste of Money?

Many people would say that those who rent are just “throwing away your money”, since your monthly payments don’t go towards equity. However, homeownership can be expensive with unexpected maintenance. The expected expenses include property tax, insurance regular maintenance and interest.

How About Tax Deductions?

There are certain tax deductions homeowners are eligible for that will somewhat counter their expenses. Recent laws have lowered the cap on mortgage interest that can be deducted. Other requirements are that affect the deductions homeowners are able to claim.

The Rent vs. Buy Calculator

To truly determine whether renting or buying is right for you, it’s a good idea to use a rent vs. buy calculator.  

Input the following information:

·        Where you want to live.

·        The home’s purchase price.

·        Your down payment.

·        The terms of your mortgage.

·        How long you plan to live there.

·        The cost of renting a comparable home.

The calculator will go from there to measure all expenses including rent, renter’s insurance and security deposits for renters as well as closing costs, down payments, ongoing expenses, home renovations, taxes and tax deductions for homeowners. It will also account for equity, the growth and decline of home prices and long-term capital gains.

After taking all this information in, the calculator will give you a good idea of what you can expect to spend on each and where the breakeven (and profitability starts) when buying.

Renting vs. buying is a difficult decision to make. It can be daunting transitioning from being a renter to a homeowner. Knowing when the right time is right will make your transition smooth and successful.  

Coronavirus: Changes to Seattle Rental Policies

Since the pandemic has swept the world, everything has changed. Like it or not, it has come into almost every aspect of what we do and that includes real estate and rental matters. For instance, many landlords and mortgage companies are becoming more forgiving of renters and homeowners that are unable to make monthly payments.

This article will focus on Seattle renters and what they need to know about the changes the coronavirus has made on their living situations.

The Eviction Freeze

One of the major changes Seattle residents will need to know about is the eviction freeze. Originally enacted through June 4th, the Seattle council has extended the due date through the end of the year.

In addition to the eviction freeze, the council also put a ban on rent increases earlier in the year. This extends to both residential and commercial properties as well as renters stuck in Air BnBs and motels.

Landlords are also prohibited from charging any late fees due to nonpayment of rent.

The laws were put in place to help the many people who are unemployed in the state. It aims to keep people healthy and off the street and gives them a more positive outlook about staying at home.

Daily Operations

In addition to the laws the Seattle Council has put in place, RHAWA (Rental Housing Association of Washington) is offering online resources on how landlords can work through the pandemic while maintaining safety in their buildings and good relationships with their tenants.

They are making recommendations on how landlords can work out payment plans with their tenants.

They are also providing guidelines on how landlords can keep their buildings clean and how they can contain the spread of disease if a renter is sick.

There are also recommendations for how landlords can work with clients with minimal contact. This includes collecting rent checks, taking care of maintenance issues and showing empty properties to prospective renters.

Meeting and Events

If you are a Seattle renter and you are unsure of your rights during the pandemic, RHAWA is hosting online events that can provide you with the information you need. Their next relevant event, Washington Landlord- Tenant Law will be taking place on May 28 from 3-5 PM. 

If you are a Seattle renter, now is a good time to get familiar with your rights so you can assert them when you need to. Hopefully this article has given you some valuable information on getting through the pandemic. Stay home and stay safe!

Pros and Cons to owning Multiple Properties

Pros and Cons to owning Multiple Properties:

If you are an investor, you invest. That’s why many real estate investors are likely to own multiple properties. 

Owning multiple properties may seem like a good idea, especially if these properties are all making money. However, they also come with their share of downsides.

Read on to find out the pros and cons of owning multiple properties and what you should think about before you invest.

Benefits to owning multiple properties:

·        You are diversified; geographically, product type and tenant mix. This helps insolate you from volatility.

·        Incremental growth; you can add to your portfolio as you get more cash. This can help avoid big gaps in cashflow and reduce risk.

·        Increased Equity: The more properties you own, the more equity you will have. Your equity can help you buy other properties.

·        More Experience: The more you invest the more you learn. Investing in multiple properties will help you figure out what types of buildings make the best investments. It will also help you develop strategies that allow you to invest wisely to make the most out of your money. Each property you take on the more you will learn and improve for the next.

Cons

·        Liquidity: real estate (generally speaking) is not a liquid asset. Therefore, it can take weeks or months to sell. If you need to sell multiple properties it can be hard to synchronize the sale. Or, you may have to take a discount in order to do so.

·        Keeping track of repairs and maintenance takes time and money. You must rely on contractors to do this work so it’s important to find servicepeople you can trust. Multiple properties complicates these.

·        Managing property managers: if you ae dealing with a diverse portfolio, it may be hard to find a management team well equipped for the task. If you need to take on multiple managers it’s more time and energy to upkeep your investment.

Finding your Dream Home

For most people buying a house requires some amount of sacrifices. When working within a budget, it can be hard to find a home that has everything you are looking for when considering space, location, amenities and more.

And while finding the perfect home may not be realistic, if you have a bit of time, you may be able to build a strategy that allows you to find a home that is pretty terrific. With that in mind, here are some ways you can get into the home you’ve always dreamed of.

Think of What You Need and What You Can Do Without

Start by making a list of what you absolutely need in your home and what you can do without. For instance, you may absolutely need a two car garage and a large yard for your pets. However, you may be able to do without that fourth bedroom you wanted to convert into a weight room and that patio in the back of your house.

Base your needs on your lifestyle for the next five years. You can always sell to upsize or downsize after that initial period of homeownership.

That way you won’t be paying for things you won’t be using. This will get you lower payments and more money to reinvest in your new home or pay for other things you enjoy doing.

Be on Top of the Market

The early bird gets the worm.

You may be relying on your agent to let you know when new properties you are interested pop up on the market. But remember, you and your agent are a team and there are many resources for you to see new homes on the market. Discussing the pros and cons of new listings with your partner and your agent allow you to hone in on 1) Value 2) What is truly important to you.

Therefore, you should make it your responsibility to keep on top of the latest listings. You can do this be setting up alerts on real estate listing sites or just keep hitting the refresh button when you’re sitting at your desk and logged in. Many sites update as often as every 15 minutes.

Present Yourself as an Attractive Buyer

You may think you have found your dream home, but guess what? It’s probably someone else’s dream home too. In order to ensure your seller picks you instead of all the other buyers making offers, it’s important to make yourself look as attractive as possible.

When you submit your offer, include a personal touch that will make you stand out from other buyers. Think of including a letter that lets the seller know that they are making a good choice by selling their home to you.

Your agent will guide you through what to include in your offer and how to best negotiate:

Should you attempt to lowball the sellers? Or make an offer that is close to the selling price? Should you add stipulations and requests to your offer. How do you keep the offer as “clean” as possible? 

Most of all, be sure to get preapproved. This lets the seller know you are a serious buyer with the funds to go through with the purchase.

A dream home can make your life complete. Hopefully these tips will help you find a home that is ideal for you and limit the chances of sellers going with different buyers. We wish you the best of luck finding a place you really love.

Refinancing

Opportunity Zones

What Are Opportunity Zones and What Benefits Do They Offer?

Efforts are continually being made to improve distressed communities.

Opportunity zones are economically distressed communities where certain new investments may be eligible for preferential tax treatments.

The areas have been nominated by the state and they have been certified as Opportunity Zones by the Secretary of U.S. Treasury via the Internal Revenue Service.

The zones were added to the IRS tax code by the 2017 Tax Cuts and Job Acts were created to spur economic development and job creation in the area.

Read on to find out more about opportunity zones and how they can benefit investors and the community.

What Tax Incentives Are Available Through Opportunity Zone Investments?

There are three tax incentives available to those investing in low income communities through a qualified Opportunity Fund. These include the following.

·        Temporary Deferral of Taxes: Investors can place existing assets with accumulated capital gains into Opportunity Funds. Money placed in these funds can not be taxed until the end of 2026 or when the asset is disposed of.

·        Basis Step Up: Capital gains that are placed in Opportunity Funds for at least five years will increase by 10%. After 7 years, the profit margins increase by 15%.

·        Permanent Exclusion of Taxable Income on New Gains: Investors will not have to pay taxes on any capital gains produced through investments in Opportunity Funds that are held for at least 10 years.

Opportunity Funds can be used to finance a variety of projects including commercial and industrial real estate, infrastructure, and businesses. For real estate projects to qualify, the investment must result in the properties being substantially improved.

What Qualifies a Community as an Opportunity Zone?

Areas that are designated as Opportunity Zones have been nominated by the governors of the 50 United States and 4 territories as well as the mayor of Washington. They account for 12% of US census tracts. These zones were chosen based on their income, poverty rates and unemployment rates.

Socioeconomic factors also come into play. Home values, rents and home ownership rents are lower in Opportunity Zones. There are also more minorities and lower education levels.

Are Opportunity Zones Effective?

Opportunity zones are great for investors who can benefits from the tax incentives. However, there is a concern that it raises prices for those living in the area, essentially pricing them out. It is hopeful that the jobs created will eventually make up for this loss bringing income levels higher so that properties are more affordable.

So what do you think? Is an Opportunity Zone investment right for you?

What is a 1031 Exchange?

What is the 1031 Exchange?

If you are an investor, you are probably familiar with the term 1031. In simple terms, IRS section 1031 is a like-kind exchange or an exchange of one property for another. However, there are many tax implications and time frames involved that can make the concept a bit hard to grasp.

Read on to find out more about 1031’s, what they are and how you can use them to your advantage.

What is a 1031?

A 1031 is a property swap, but unlike most exchanges, there will be limited or no tax due during the exchange. This is because the swap will be recognized as a transaction with no capital gain. This allows your investment to grow with no tax being owed.

For example, if you bought a property for $100,000 five years ago and it now worth $250,000, if you sold it you would need to pay capital gains tax on $150,000. A 1031 exchange allows you to defer paying tax if you reinvest the $250,000 in a different property.

You can do a 1031 swap an unlimited amount of times and you can continue rolling over your profits into new investments. Although you continue to profit, you will not have to pay taxes until you decide to cash out.

At that point, it is hopeful that you will only have to pay one tax, usually 15-20%. Some lower income investors may not be taxed at all.

This is designed for investments and business properties.

The main benefit of a 1031 exchange is that, unlike buying and selling a property, the tax deferral makes it easier for you to reinvest your money.

As an investor, here are some reasons why you might want to utilize a 1031 exchange:

·        To acquire a managed property as opposed to one you will have to manage yourself.

·        To diversity assets

·        To find a property that offers a better return potential

·        To consolidate several properties into one

·        To divide a single property into several assets

·        To reset the depreciation clock

Why is Depreciation Important?

Depreciation is the cost of a property written off each year due to wear and tear. When a property is sold, the price is based on its net adjusted worth which is the original purchase price plus improvements minus depreciation.

If a property sells for more than its depreciated value, the seller may be taxed for depreciation. In this sense the depreciation will be recaptured.

Depreciation recapture increases over time but a 1031 allows you to avoid the taxes on the recapture. However, it will factor into the exchange rate of your 1031.

Qualifications for 1031 Exchange

When utilizing a 1031 exchange, you can exchange any type of property for any other. For instance, you can exchange a commercial property for a lot, or a residential property.

However, the property being exchanged must be held for investment, not resale or personal use. This usually means the property has been owned for at least two years.

To fully take advantage of all a 1031 has to offer, replacement properties should be of equal or greater value than the original property. Replacement properties must be identified within 45 days and the exchange must be completed within 180 days.

Now that you understand some basics of the 1031 exchange, what do you think? Will you be making these transactions to boost your potential income?

The above is meant as a general guide, for specific tax questions please speak to a professional accountant.  

Why Invest in Real Estate?

What Lender is Right for Me?

What Type of Mortgage Lender is Right for Me?

If you are thinking of buying a home, one of the most important steps you will take is finding the right lender. Before you go comparing rates and reputations, you should consider that there are different types of mortgage lenders available. This article will review the different types of mortgage lenders so you can find one that is right for you.

Banks and Mortgage Bankers

Banks are the first place most homeowners will turn to when they need a loan. Banks get their money from their own investors and customers and they can offer different types of mortgage loans to their borrowers. Many people won’t do business with any other type of lender.

Credit Unions

Credit unions are similar to banks but they are owned by account holders, also known as members. Members are required to sign up for membership with the credit union. Credit unions offer members checking, savings and retirement accounts and they provide mortgage loans as well.

Mortgage Lenders

Mortgage lenders are similar to a bank but they originate and fund their own loans. Unlike banks and credit unions, they exist solely to fund loans for real estate purposes. They get their money from banks or investors.

Another difference between lenders and banks, mortgage lenders do their own underwriting, processing and closing in house. Once the process is completed, they sell the loan to a bank or servicing company and it is up to that company or institution to collect the payments.

Mortgage Broker

A mortgage broker works as the middleman between a homeowner and a bank. They do not lend the money directly. They have access to many loan programs and lenders and take a commission when connecting lender to borrower.

If you’re credit isn’t great, a mortgage broker may be able to help you find a loan that isn’t being offered by a bank, credit union or even a lender. For this reason, mortgage brokers are ideal for those who don’t have the best financial histories.

Which Lender is Best for Me?

There is no right answer to this question. The ideal lender varies from borrower to borrower and depends on their individual situations. However, here are some things you will want to consider.

If Time is a Factor: A lender that does loans in-house may be the best option.

If Money is a Factor: Credit unions tend to offer lower closing costs and interest rates to their members.

Do You Need a Government Backed Loan: Government backed loans are loans subsidized by the government. They protect lenders against defaults on payments making it easier for lenders to offer buyers lower interest rates. Lenders and brokers are more likely to offer government backed loans as opposed to banks and credit unions.

Bad Credit: If you have bad credit or a high debt to income ratio, lenders or brokers will be more flexible than banks and credit unions.

Convenience: If you already have an account with a bank or credit union, you may choose to get a loan with them for the convenience of having all your accounts in one place.

Finding the right lender starts with determining the type of lender that is right for you. While your personal circumstances will be a factor, costs and interest rates will also come into play. Good luck finding a lender that provides you with the best service possible.

Summary of Interest Rates: A Historic View and Key Terms

Summary of Interest Rates- A Historical View and Key Definitions

Throughout the years, interest rates have fluctuated considerably hitting historic highs and all-time lows. This article will look at interest rates throughout the years and give you some insight into how different types of mortgages will affect the amount of interest you are paying.  

Mortgage Rates Since 1971

1971 was the year when Freddie Mac started surveying lenders. At the time, rates for 30-year fixed mortgages hovered right around the 7.29% to 7.73% mark.

After that, inflation went up and by 1981, the rates soared to a historical high of 18.63%.

Steps were taken to decrease inflation and by late 1982, rates were back to normal. They stayed in the single digit range for most of the next two decades and by November of 2012 they were down to an all time low of 3.31%.

Since then, interest rates have not fluctuated much and they are currently in the low to mid 3%.

Comparing 30 Year Fixed Rates to 15 Year Fixed Rates

Inflation plays a major role in the fluctuation of interest rates, but the type of mortgage you get will also affect your payments. Here is a bit of what you can expect in terms of interest rates on a 30-year fixed rate mortgage vs. a 15-year fixed rate mortgage.

Rates on a 30-year loan tend to be higher than rates on a 15-year loan. This is because lenders take an extra risk on 30-year loans. It is more likely a borrower will default on a loan in 30 years than 15.

Despite the fact that interest rates are lower on 15-year loans, most borrowers will opt for a 30-year mortgage. This is because the shorter repayment schedule of the 15-year loan results in a higher principal. Interest has to be paid off quickly as so the overall monthly payments are higher.

Fixed Rate vs. Adjustable Rate Mortgages

An adjustable rate mortgage is a mortgage that periodically adjusts to reflect the cost to the lender of borrowing on the credit markets. Five-year adjustable rate mortgages tend to have lower initial rates than 30-year fixed mortgages currently averaging about .37% lower.

The low initial rate periods offer short term savings for home buyers. However, if fixed rates are lower, consider refinancing your ARM to a fixed loan before the ARM resets.

An ARM offers temporary savings. Once the low rate period ends, the rate adjusts based on the index and margin you agreed on and it can’t rise above a certain level.

The index is what changes and it is tied to a benchmark rate. The margin is the fixed part and it’s added to the index to determine your rate after the initial rate period passes.

To understand this in plainer English, if you get an ARM with a 2/2/6 cap, it means that:

·        The first adjustment can’t exceed 2% over the initial rate.

·        The second adjustment can’t exceed 2% a year for subsequent adjustments.

·        The maximum rate increase will be 6% above the start rate for the life of the loan.

If you are looking to buy a home, a low interest rate will make for lower mortgage payments. Hopefully this article has provided you with information that will help you determine interest rate trends and find the mortgage that works best for you. Good luck making a smart decision with this important purchase.

Real Estate Coronavirus Tipsheet

Here are some tips for home buyers and their realtors on how to house hunt during the pandemic.

For Buyers:

1) Refine your search criteria. Of course you've already talked about the features you want in a house, now is a chance to redefine what you need. What is most important? What are deal breakers?

2) Get a floor plan. For some this isn't the most intuitive way to understand a space- it's a great time to learn!

3) Ask for a video walk through. If your realtor can Facetime you through, that's even better.

4) Don't go house touring if not all decision makers are present.

5) Use your realtor! Ask them their impressions and advice.

For Realtors:

1) Video walk through of house (either live or recorded). Move slowly. Narrate what you are seeing. Tell the audience what they can't see- for example, is the yard flat, is there street noise, natural vs artificial light.

2) Bring a tape measure!

3) Get your clients as much information as possible ahead of time. Information on: the neighborhood, previous ownership, easements or restrictions, etc.

4) Challenge and guide your clients. Make sure that the house they are interested in seeing really fits their needs.

5) Use a Matterport 3D camera. This allows someone to virtually tour the home at their own pace, looking in all directions. It also creates a digital floorplan allowing clients to understand the full house layout.

Unexpected Real Estate Fees

What Unexpected Fees Are Involved in Buying a Home?

When you buy a home, it’s likely you are expecting to be making principal and interest payments. But when your lender provides you with your loan estimate, you may be in for a rude awakening as many other fees will be added on. If you are aware of what these fees are and how they originate, you may be able to take steps to minimize and plan for them.

This article will review some of the common fees you may encounter so you will know what to look out for when you are getting a mortgage on your home.

Appraisal Fee

Before you can close on your mortgage, your home will need to appraised. An appraisal is done by a third party to determine your loan to value ratio and it will result in a one-time fee that can range from $300-1000. Appraisals are a necessary part of the closing process and they are unavoidable.

Home Inspection Fee

Another necessary part of the closing process, a home inspection is done to make sure the home is livable and structurally sound. The inspection typically costs $300 - $500.

Credit Report Fee

Lenders will want to know your credit rating so they can determine the amount of risk they are taking in giving you a loan. There are financial institutions like Credit Karma that provide free credit monitoring but your lender may choose to pull the score themselves which can result in a fee that can range from $30-$50.

Some lenders will cover this fee themselves. Talk to your lender to find out if he or she will be agreeable to covering this cost. Every penny counts!

Document Prep Fee

Lenders may also charge you for the time and administrative expenses that go into them preparing your documents. This fee typically ranges from $50-$100 and it is often negotiable. Talk to your lender to find out how flexible they will be in lowering this cost.

HOA Fees

Buying a townhouse or condo can be more affordable than purchasing a house, but be warned, HOA fees often apply. These are fees that are paid to the homeowner’s association for the upkeep of the property. Even though these are an added expense, they may be worth it in the long run in comparison to the money homeowners spend on major repairs.

Loan Origination Fees

Probably the biggest expense you will encounter, the loan origination fee is the primary way lenders make money. This fee will equal 1% of the total loan amount. So if your mortgage is $100,000 expect to pay your lender a $1000 origination fee.

Title Fees

When buying a home, the title must be transferred from the old owner to the new owner. This can result in a variety of fees. For example, there may be a search fee if a search is done to see if anyone has a claim to the title. There may also be a recording fee that is paid to the local recording office to make the sale a matter of public record.

Some homeowners may also choose to get title insurance to protect their investment.

The fees you pay on the title can be negotiated. The saving may not amount to much but any savings is good.

Taxes

Homeowners can also expect to pay taxes that include county and city property taxes and a transfer tax for transferring the title. Just like the famous Mark Twain saying dictates, these are unavoidable.

There are many fees attached to a mortgage. In some cases, you may be able to talk to your lender to have these reduced. You may also be able to counter fees with tax deductions (talk to an accountant for guidance). Good luck making your mortgage fees as low as possible.

How to get the Best Rate on your Mortgage

How Do I Get the Best Rate for My Mortgage Loan?

If you are looking for a mortgage loan, you will want to get the best interest rate possible. After all, this rate will determine the amount you will be paying on your home each month, so it’s best to start off with payments that are as low as possible.

Fortunately, there are steps you can take that will help you get a low interest rate. Here are some things you can do to get the best rate possible.

Research Lenders

The internet is a great resource when it comes to finding lenders. You can look online to find out which lenders are reliable, the minimum down payments they require, the minimum credit score they accept and more. Customer ratings and reviews are available as well.

Also, remember, once you are quoted an interest rate, you are under no obligation to accept that rate. You are free to shop around to try and find one that is lower and go with the lender who offers you the best deal.

Finally, when talking to lenders, be sure to ask them the right questions. Interest rates aren’t the only thing you need to be concerned about. You also want to ask them about their customer service policies, their turnaround time and any fees in addition to interest and capital.

Get Your Credit Score in Shape

Got a lot of unpaid debt? Is it bringing your credit score down?

Unfortunately, lenders will look at low credit scores and see it as a poor reflection of your ability to repay the debt. The fact that they are taking a risk on you will make your interest rates increase.

Luckily, you can do things to improve your credit rating. One is to pay off any debt you have.

You can also order a free credit report from one of the major credit bureaus to make sure your report is accurate and free of errors that can bring down your score.

Find the Right Kind of Lender

There are different types of home lenders and the one you choose will affect your interest rate. Here is a list of the ones you can choose from:

·        Credit Unions: Credit unions are member-owned financial institutions that offer low interest to shareholders. Membership restrictions have eased up over the years so it shouldn’t be too hard to find one you can join.

·        Mortgage Bankers: These bankers work for a specific financial institutions and offer loans directly to consumers.

·        Correspondent Lenders: These are usually local mortgage loan companies that can make you a loan but rely on a pipeline of other lenders who they will immediately sell your loan to.

·        Savings and Loans: S&L’s have dwindled in popularity over the years, but they are community-oriented and therefore worth seeking out.

·        Mutual Banks: Like S&L’s mutual banks are also community oriented and offer competitive rates.

Hopefully this article has given you some valuable background on finding a low interest loan that’s right for you. We wish you luck moving forward in the home buying process.

Mortgage Basics

The Basics of Getting a Mortgage

So, you want to buy a home. Normally, that entails getting a mortgage.

Most of us understand that a mortgage is a type of loan that is repaid over the course of time you own your house, but once the buying process starts, we learn it’s much more involved than all that.

But don’t worry, this article will provide some mortgage basics that will give you a good idea of what to expect on your home buying journey.

What is a Mortgage?

A mortgage is defined as a type of loan you can use to buy or refinance a house. It’s a way of buying a house without having all the cash up front.

Benefits of Getting a Mortgage

A mortgage is good for people who can’t afford to buy their homes outright… aka most people, but it can also be good for those who can. For example, some investors will get a mortgage so they can free up money for other investments.

How Do You Qualify for a Mortgage?

Before being approved for a mortgage, the lender will want to make sure that you meet certain financial requirements.  This includes an income that is high enough to cover the payments on the loan. You will also need a good credit score, typically above 620, and a debt to income ratio of less than 50%.

What’s the Difference Between a Loan and a Mortgage?

Loans are transactions where money is loaned to a borrower. The borrower must pay off these loans over a set course of time, usually with interest rates added.

All mortgages are loans but not all loans are mortgages.

A mortgage is a type of loan used to finance property. They are secured loans. This means the borrower promises collateral to the lender in the event that they default on their loan.

In the case of a mortgage, the collateral is the house. So, if they borrower is unable to make payments, they will lose their house.

How Do Mortgages Work?

In the case of a mortgage, the loan you get from a lender will cover the full value of the house. The loan must be paid back with interest over a specified period of time. The borrower will not fully own their home until the loan is paid off.

The interest rate on a loan is dependent on two factors, the current market rate and the amount of risk the lender is taking in lending you the money. While you can’t control the market rate, the risk the lender is taking will depend on factors like your income, your credit score and your Debt to Income ratio.

It’s a good idea to take any steps you can to improve your credit and DTI before even speaking to a lender about a mortgage.

The amount of money you will be borrowing will depend of what you can afford and the market value of the home which will be determined during an appraisal. The lender can not lend you an amount that is more than the appraised value of the home.

Now that you have some basics under your belt, you are ready to start exploring your options in the home buying process. Good luck finding a property that is right for you.