There has been a lot written about how buying a home is less expensive than renting one in most parts of the country. Rents are skyrocketing and homes are still at great prices. These two situations are also causing some sellers to consider renting their home instead of selling it. After all, a homeowner can get great rental income now and perhaps wait until house values increase even further before selling.
This logic makes sense in some cases. There is a strong belief that residential real estate is a great investment right now. However, if you have no desire to actually become an educated investor in this sector, you may be headed for more trouble than you were looking for.
Before renting your home, you should answer the following questions to make sure this is the right course of action for you and your family.
10 Questions to ask BEFORE renting your home
- How will you respond if your tenant says they canâ€™t afford to pay the rent this month because of more pressing obligations? (This happens most often during holiday season and back-to-school time when families with children have extra expenses).
- Because of the economy, many homeowners cannot make their mortgage payment. What percentage of tenants do you think cannot afford to pay their rent?
- Have you interviewed experienced eviction attorneys in case a challenge does arise?
- Have you talked to your insurance company about a possible increase in premiums as liability is greater in a non-owner occupied home?
- Will you allow pets? Cats? Dogs? How big a dog?
- How will you actually collect the rent? By mail? In person?
- Repairs are part of being a landlord. Who will take tenant calls when necessary repairs come up?
- Do you have a list of craftspeople readily available to handle these repairs?
- How often will you do a physical inspection of the property?
- Will you alert your current neighbors that you are renting the house?
Again, renting out residential real estate is historically a great investment. However, it is not without its challenges. Make sure you have decided to rent the house because you want to be an investor, not because you are hoping to get a few extra dollars by postponing a sale.
Many sellers are still hesitant about putting their house up for sale. Where are prices headed? Where are interest rates headed? Can buyers qualify for a mortgage? These are all valid questions. However, there are several reasons to sell your home sooner rather than later. Here are five of those reasons.
1. Demand is Strong
There is currently a pent-up demand of purchasers as many home buyers pushed off their search this past winter & early spring because of extreme weather. According to the National Association of Realtors (NAR), the number of buyers in the market, which feel off dramatically in December, January and February, has begun to increase again over the last few months. These buyers are ready, willing and able to buy…and are in the market right now!
2. There Is Less Competition Now
Housing supply is still under the historical number of 6 months’ supply. This means that, in many markets, there are not enough homes for sale to satisfy the number of buyers in that market. This is good news for home prices. However, additional inventory is about to come to market.
There is a pent-up desire for many homeowners to move as they were unable to sell over the last few years because of a negative equity situation. Homeowners are now seeing a return to positive equity as prices increased over the last eighteen months. Many of these homes will be coming to the market in the near future. Also, new construction of single-family homes is again beginning to increase. A recent study by Harris Poll revealed that 41% of buyers would prefer to buy a new home while only 21% prefer an existing home (38% had no preference).
The choices buyers have will continue to increase over the next few months. Don’t wait until all this other inventory of homes comes to market before you sell.
3. The Process Will Be Quicker
One of the biggest challenges of the 2014 housing market has been the length of time it takes from contract to closing. Banks are requiring more and more paperwork before approving a mortgage. As the market heats up, banks will be inundated with loan inquiries causing closing timelines to lengthen. Selling now will make the process quicker and simpler.
4. There Will Never Be a Better Time to Move-Up
If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by over 19% from now to 2018. If you are moving to a higher priced home, it will wind-up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. You can also lock-in your 30 year housing expense with an interest rate in the low 4’s right now. Rates are projected to be over 5% by this time next year.
5. It’s Time to Move On with Your Life
Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?
Only you know the answers to the questions above. You have the power to take back control of the situation by putting your home on the market and pricing it so it sells. Perhaps, the time has come for you and your family to move on and start living the life you desire.
That is what is truly important.
~Thank you to KCM Blog for the post
A recent study by the National Association of Realtors, Home Buyer and Seller Generational Trends, revealed that Millennials are a much higher percentage of the overall housing market than the public may realize. Here are the breakdowns:
Contrary to what many believe, Millennials make up the largest percentage of all buyers and a substantial percentage of all sellers.
~Thank you to KCM Blog for the post.
A recent study revealed that the number of existing home owners planning to buy a home this year is about to increase dramatically. Some are moving up, some are downsizing and others are making a lateral move. Another study shows that over 75% of these buyers will, in fact, be in that first category: a move-up buyer. We want to address this group of buyers in today’s blog post.
There is no way for us to predict the future but we can look at what happened over the last year. Let’s look at buyers that considered moving up last year but decided to wait instead.
Assume they had a home worth $300,000 and were looking at a home for $450,000 (putting 10% down they would get a mortgage of $405,000). By waiting, their house appreciated by approximately 10% over the last year (based on the Case Shiller Pricing Index). Their home could now sell for $330,000. That would mean an additional $30,000 in equity assuming they didn’t incur any expenses in selling the home.
But, the $450,000 home would now be worth $495,000. Adding the original 10% down payment ($45,000) to the additional equity ($30,000), they would now have a $75,000 down payment. That would still need a mortgage of $425,000.
According to the Home Price Expectation Survey, home prices are projected to appreciate by approximately 6% over the next eighteen months. Interest rates are also expected to rise by as much as another full percentage point in that same time period according to FreddieMac. If your family plans to move-up to a nicer or bigger home, it may make sense to move now rather than later.
Branch Manager RJ Crosby Leads Exciting Team of Mortgage Professionals First Choice Loan Services Inc. – Scottsdale, Branch Manager – RJ Crosby We want to deliver them a ‘wow’ experience. Scottsdale, AZ (PRWEB) April 23, 2014 New Jersey-based residential…
Buying a home can be intimidating to many, especially first-time homebuyers. When armed with the right information and some timely tips, you’ll be prepared to become a first-time homeowner. Here are the top 3 mistakes that first-time homebuyers make along with some seasoned advice.
Not Knowing Your Credit Score
Assuming that you plan to apply for a home loan in order to purchase your first home, your credit score is the most important number you will need to know before starting the home-buying process.
Your credit score is formally known as a Fair Issac Corporation Score – commonly called the FICO® Score. It ranges from 300 (very poor) to 850 (excellent). To learn more about what makes up a credit score, visit our post on what impacts a credit score here.
Not Getting Prequalified for a Home Loan
When you prequalify for a mortgage, the lender will calculate the approximate amount you will be able to borrow, based on the information you provide on your current income, assets, and debt during the last 2 years.
Keep in mind that the prequalification process is not an in-depth analysis of your financial situation. Prequalifying helps to save you time by providing you with a realistic price range you can afford. This way, you are able to manage your expectations and make appropriate decisions based on facts, not fantasy.
The biggest benefit of prequalification is that it gives you a specific dollar figure that you can use when searching for a home. Also, being prequalified provides you with an advantage over homebuyers who aren’t prequalified when multiple offers are made on a home. Be prepared with a prequalification letter.
Not Budgeting for Maintenance and Repairs
A major mistake that many first-time homebuyers make is that they underestimate the expenses that come with homeownership. Each month, you can count on having to make maintenance and repairs more often than not. Aside from minor expenses – such as lawn care and landscaping – there will be major costs such as paying for a new roof or having a new A/C unit installed.
You’ll also need to make purchases for your new home such as a lawnmower, washing machine and dryer, dishwasher, tools, etc.
A good way to be prepared for all of these expenses is to save about 2% of the home’s purchase price as a maintenance fund.
How did you do with last week’s list of Mortgage terms? Did you learn something new or were they all familiar terms? Below are some new mortgage vocabulary terms for you to get familiarized with.
Interim Financing: A construction loan made during the completion of a building project. After completion of the project, a permanent loan typically takes the place of this loan.
Lien: A claim against property. Property is said to be encumbered by a lien and the lien must be removed to clear title.
Lifetime Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.
Loan Origination Fee: This pays the administrative costs of processing the loan. Usually, it is expressed in points with one point being 1% of the mortgage amount.
Loan-to-Value Ratio (or LTV Ratio): The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property?s value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
Lock-In: The lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time through this written agreement. This typically specifies the number of points to be paid at closing as well.
Lock-In Period: The time period during which the borrower is guaranteed an interest rate by the lender.
Margin: For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.
Market Value: The lowest price a seller would accept and the highest price that a buyer would pay on a property. The price a property could be sold for at a given time could differ from the market value.
Mortgage: A voluntary lien filed against a property to secure a debt, usually a loan.
Mortgage Banker: A company that originates and services mortgages exclusively for resale in the secondary mortgage market (to other lenders and investors). Certain mortgage bankers are subsidiaries of depository institutions or their holding companies but do not receive money from individual depositors.
Mortgage Broker: An independent professional or company that brings together borrowers and lenders for loan origination purposes, both in residential and commercial circumstances. Mortgage brokers typically charge a fee or require a commission for their services.
Mortgage Insurance (MI): Insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. MI typically is required if the borrower’s down payment is less than 20% of the purchase price.
Mortgage Insurance Premium (MIP): Insurance provided to the lender from the Federal Housing Administration (FHA) to cover an instance of the borrower defaulting on the mortgage. Borrowers pay one-half percent each month on FHA insured mortgage loans.
Negative Amortization: When a borrower’s monthly payments are not large enough to pay all the interest due on the loan. The unpaid interest then is added to the unpaid balance of the loan. Negative amortization can cause home buyers to owe more than the original amount of the loan.
Net Effective Income: The borrower’s gross income minus federal income tax.
Non-Assumption Clause: A portion of a mortgage contract prohibiting the assumption of the mortgage without the approval of the lender beforehand.
Origination Fee: Lenders charge the borrowers this fee to cover the services needed to take a loan application, process it, and prepare it for closing; it is typically computed as a percentage of the face value of the loan.
Paper Trail: Copies of all paperwork to cover the lender should the borrower default on the loan. Depending on the lender, this may be required from the borrower. It can include copies of all checks, deposit slips, loan paperwork, forms to liquidate assets, etc.
PITI: An acronym for the four primary components of a monthly mortgage payment: principal, interest, taxes, and insurance (PITI).
Pre-Payment: The ability established in the mortgage agreement for a borrower to make advanced payments before their due date.
Pre-Payment Penalty: A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principle balance.
Prepaid Expenses: Needed to create an escrow account or to adjust the seller’s existing escrow account; taxes, hazard insurance, private mortgage insurance and special assessments can be included in the prepaid expenses.
Prequalification: A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.
Principal: The amount of money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.
Private Mortgage Insurance (PMI): Insurance coverage required for expenses incurred if the borrower defaults on the loan. Borrowers typically are required to carry private mortgage insurance when they have a small percentage of a down payment to offer. An initial premium payment of 1% to 5% of your mortgage amount will be required. Private mortgage insurance also may necessitate an additional monthly fee depending on the borrower?s loan structure.
Recording Fees: A lender is paid this money for recording a home sale with the local authorities; this makes it part of the public records.
Refinance: Acquiring a new mortgage loan on a property already owned; this usually is done to replace an existing loan on the property (often to benefit from a lower interest rate).
Rescission: The cancellation of a contract. In regard to mortgage refinancing, by law the homeowner has three days to cancel the new loan if the agreement uses equity in the home as security.
RESPA: Real Estate Settlement Procedures Act. Through this, lenders are obligated to disclose information to potential customers throughout the mortgage process. By doing so, it protects borrowers from abuses by lending institutions. RESPA requires lenders to fully inform borrowers about all closing costs, lender servicing, escrow account practices, and business relationships between closing service providers and other parties to the transaction.
Second Mortgage: A mortgage that has a lien position subordinate to the first mortgage.
Simple Interest: Interest calculated only on the principle balance.
We want you to feel comfortable making the decisions that get you into your dream home. A large part of that is speaking the language. This is Part 1 of a brief overview of mortgage vocabulary that you will run into. A basic understanding of these terms will make you feel right at home when working with a loan officer.
Amortization: The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.
Annual Percentage Rate (APR): The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges.
Appraisal: A written estimate or opinion of a property’s value prepared by a qualified appraiser.
Assumption: The act of becoming responsible for the repayment of a loan not originally in your name.
Balloon Mortgage: A mortgage in which the borrower’s monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.
Bankruptcy: When a debtor yields his or her assets to the bankruptcy court and thereby is relieved of the duty to repay unsecured debts. After claiming this provision of federal law, the debtor is discharged of existing unsecured debt; the unsecured creditors may not continue collection actions. Although they may not take additional action to collect from the debtor, those creditors holding deeds of trust or judgment liens are secured by the property. Not all debts may be discharged.
Broker: A person who coordinates funding or negotiates contracts for a client but does not loan the money him- or herself.
Buy-down: A situation in which the lender subsidizes the mortgage by lowering the interest rate. During the first few years, the loan payments are low, but they will increase when the funding expires.
Cap: For an Adjustable-Rate Mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease.
Certificate of Title: The attorney’s written opinion establishing the status of title for a property as reflected on the public records. The certificate does not address issues not on record and offers no protection unless the writer of the certificate was negligent.
Closing: Also called settlement, a meeting between the buyer, seller and lender and/or their agents during which the property and funds legally transfer.
Closing Costs: Expenses that fall above the price of the property that are incurred by buyers and sellers in the process of transferring ownership of a property. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing typically is about 3 percent to 6 percent of the mortgage amount. Closing costs will vary according to the area of the country; your PrimeLending loan officer is able to provide estimates of closing costs for you.
Collateral: Property assured to secure a loan.
Commitment: A pledge by a lender to provide a loan on specific terms or conditions to a borrower.
Credit Report: A report with documentation of the borrower’s credit history and current status of credit.
Debt-to-Income Ratio: The relationship between a borrower’s total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.
Deed: The written document conveying real property. The original piece of paper is not needed to convey title in the future once recorded at the county recorder’s office.
Default: The failure to make a schedule payment or otherwise comply with the terms of a mortgage loan or other contract.
Deferred Interest: The amount of interest that is added to the principal balance of a loan when the contractual terms of that loan allow for a scheduled payment to be made that is less than the interest due.
Delinquency: Failure to make payments in a timely fashion. Foreclosure is a possible result.
Department of Veterans Affairs: An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.
Depreciation: A decline in property value.
Discount Point (or POINT): A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.
Down Payment: Money paid up front to make up the difference between the purchase price and the mortgage amount. Down payments usually are 5% to 20% of the sales price on conventional loans.
Earnest Money: Money paid by a buyer to a seller to cement a transaction or ensure payment. Usually between 1 to 5% of the purchase price, the amount becomes a part of the down payment if the offer is accepted. The money is returned to the borrower if the offer is rejected. If the borrower cancels the transaction, the entire amount may be forfeited.
Easement: The right to use the land of another for a specific limited purpose.
Encroachment: The physical intrusion of a structure or improvement (such as a fence) on the land of another.
Equity: The owner’s interest in a property, calculated as the current fair market value of the property less the amount of existing liens.
Escrow: An item of value, money, or documents deposited with a third party to be delivered upon
the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
Federal Home Loan Mortgage Corporation (FHLMC): Also known as “Freddie Mac,” the Federal Home Loan Mortgage Corporation provides a secondary market for mortgage financing by purchasing conventional loans.
Federal Housing Administration (FHA): A division of the Department of Housing and Urban Development. Its main purpose is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA): Also known as “Fannie Mae,” this secondary mortgage institution is the largest single holder of home mortgages in the United States. FNMA purchases VA, FHA, and conventional mortgages from primary lenders.
Fixed Rate Mortgage: Throughout the term of the loan, this mortgage interest rate will remain the same for the original borrower.
Float Down Option: The float down option gives you the ability to reduce your interest rate if the market improves after you lock in your rate. The float down option is applied to the interest rate only and is based on the initial lock period; it may be utilized with all conforming loans – both government and conventional.
Foreclosure: Also known as a repossession of property, this occurs when the lender or the seller legally forces a sale of a property because the borrower has not met the terms of the mortgage.
Good Faith Estimate: A list that estimates all fees paid before closing, all closing costs, and any escrow costs the borrower will encounter when purchasing a home. This must be supplied by the lender within three days of the borrower’s application so that the borrower is able to make sound decisions when shopping for a loan.
Guaranty: The pledge of one party to pay a debt or fulfill a responsibility contracted by another if the original party neglects to pay or perform according to terms of the contract.
Hazard Insurance: When an insurance company covers the insured from loss or damage to the property resulting from issues, such as fire, windstorm and the like.
HUD: The U.S. Department of Housing and Urban Development. Established in 1965, HUD develops national policies and programs to address housing needs in the U.S. One of the main missions of HUD is to create a suitable living environment for all Americans by developing and improving the country’s communities and enforcing fair housing laws.
Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Everyone knows the importance of having a favorable rate on their mortgage. One of the most important factors in obtaining that favorable rate is your credit score. We will review what your credit score means, how it is determined, and how to improve it.
Image via Flickr by Dave Dugdale
What Your Credit Score Means
Your credit score is a standardized way for lenders to determine how risky it is to lend you money. The theory is that the better score someone has, the less risk they are. Because of this, the lower the risk, the lower your interest rate is. Therefore, in order to get the best rate on your mortgage, you will want to have the best credit score possible.
Most lenders use a standard “grading” system to categorize credit scores. While some lenders may develop their own systems for classification of scores, here is a general guide to score categorization:
Credit Score Grade
800 – 850………. A+
750 – 799………. A
700 – 749………. A-
650 – 699………. B
600 – 649………. C
550 – 599………. D
500 – 549………. E
300 – 499………. F
How Your Credit Score is Determined
Your credit score is formally known as a Fair Issac Corporation Score (commonly called the FICO® score). It ranges from 300 – 850 and is calculated according to the following risk factors:
Payment History (35% of score)
Payment information on several types of accounts
Public record and collection items
Details on late or missed payments such as:
How late they were
How much was owed
How recently they occurred
How many there are
Amounts Owed (30% of score)
Amount owed on all accounts
Amount owed on different types of accounts
Whether you are showing a balance on certain types of accounts
How much of the total credit line is being used
How much of installment loan accounts is still owed
Length of Credit History (15% of score)
How long your credit accounts have been established
How long specific credit accounts have been established
How long it has been since you used certain accounts
New Credit & Inquiries (10% of score)
How many new accounts you have
How long it has been since you opened a new account
How many recent requests for credit you have
Types of Credit (10% of score)
What kinds of credit accounts you have and how many of each
Total number of accounts you have
How You Can Improve Your Credit Score
If your credit score is keeping you from obtaining a better mortgage rate, there are a few things you can do to clean up your credit history.
First, you’ll want to obtain a complete copy of your credit report from the three leading reporting agencies:
Next, report your credit report line-by-line. Specifically, you’ll want to search for errors, omissions, duplications and “common name” errors.
If you come across any errors, write out exactly what should be corrected and why. You are able to add 100 words or less to reports on questioned items.
You can also find assistance through credit counselors, who are available through the various credit bureaus.
Federal law requires credit bureaus to contact all creditors on items where mistakes were made. According to the Fair Credit Reporting Act of 1971, if these firms fail to respond to you in writing within 30 days, they are obligated to remove the disputed items from your records.