Month: March 2019

When you turn to lenders to acquire a house, they determine how much you can borrow based on computations. But do they really know your financial capacity? They can count your income and concrete expense but they don’t know exactly how much you’re regularly spending? You’re the only one who knows if your income can support your lifestyle. Do you have enough to fund housing costs? And don’t forget to leave room for new furniture’s, appliances, landscaping, repairs and maintenance.

Banks have been using the 28/36 ratio in determining how much they should let you borrow. The approved housing loan should be no more than 28 percent of the borrower’s gross monthly income. 36 percent should be the maximum total debt load of the buyer. This includes credit card payments, loans, car payments.

Canada uses a similar formula. Buyers can borrow up to 32 percent of their gross monthly income. And their total debt load should not be more than 40 percent.

But due to rising rates lenders are willing to stretch the housing loan to as much as 50 percent of the gross monthly income. But before you commit to this loan, think and rethink if you can really afford it.

Evaluate your spending habits. Think if there are areas where you can save so you can sustain the mortgage and keep a well-maintained house. After all it’s not just a matter of keeping your house. It’s also about having peace of mind.

When you go to a real estate agent, the first thing they’ll want to know is what kind of property you are looking for? What are the things you want in a house? What are the things you don’t like. For them to lead you to houses that are up to your standard, you need to be specific about the features and details you want and don’t want. 

Here’s a guide that can help you:

• Are you looking for old, historic properties? Or are you looking for newer houses?
• Is there a particular design/style that you want? Bungalows? Ranch-style?
• How many bedrooms do you want it to have?
• How many bathrooms do you expect the house to have?
• How many stories?
• What kind of design do you want the living and dining room to have? Do you want a formal, contemporary or casual look?
• How big a house are you looking to buy?
• Do you have a specification for the ceiling? How high?
• What kind of kitchen do you want to have? Recently updated? Do you want a kitchen that lead to other parts of the house?
• Do you want to have big cabinets? A lot of cupboards? Does the house need to have a garage?
• Do you want a garage or carport? For how many cars?
• Does the house need to have an attic or basement?

What amenities do you want your future home to have?

• an office
• a mini gym
• a play area
• ‘security system
• sprinkler system
• workshop
• pool
• fireplace
• jacuzzi
• patio, deck, porch
• laundry room

Being a homeowner has its perks and a lot of responsibilities. So before you commit to years of paying for a house, make sure you understand what you’re getting into.

First, think about the costs. There are many costs associated with owning a house. You need to pay a downpayment, home insurance, and other fees needed to close the contract. When you move into a new house, you will also need to spend on moving, buying furnites, appliances, fixtures and landscaping. And there is always a possibility that the property you purchased will depreciate.

If you’re used to calling the landlord whenever there’s a problem like a leaky faucet or a broken cupboard, that won’t be the case anymore. As a homeowner you will now be responsible for all the damage incurred from plumbing, appliances, paint job, roofing and so on. And all these cost money. You can expect to spend more on repairs and maintenance if you purchase an old house.

If you want to find out if you’re ready to become a homeowner, try to do the following:

• Find out the property value of homes that you’re interested in. Your real estate agent can help you with this. The property value can be determined by comparing the value of properties in the area that are of comparable size.
• Study different mortgage loan types. Take note of the downpayment required and compare it with the money you have. Downpayments usually range from 3 to 20 percent of the property value. They vary depending on the value of the property or the type of mortgage you chose. Then there’s private mortgage insurance (PMI). This insurance helps mortgage lenders recover if a borrower fails to fully repay a loan. The lowest downpayment is three percent. The lower the downpayment, the higher the PMI. Usually, they cost  between $40 and $125 a month.
• Estimate your closing costs. This includes points, taxes, recording, inspections, prepaid loan interest, title insurance, and financing costs from your mortgage lender or a real estate agent. All these fees will add to the property value by 2-7 percent.
• Add the cost of the downpayment and the closing costs to know how much money you’ll need upfront. But the expense doesn’t stop there. In fact you’re just getting started.
• On the actual move, you’ll need to spend on movers. The more stuff you have, the more it will cost you.
• As a homeowner, part of your responsibility is to pay property taxes. Most lenders usually require an impound account that pays for both tax (and usually with insurance) and mortgage. The average yearly tax rate is about 1.5 percent of the purchase price of the house.
• House repairs and maintenance. According to HouseMaster, a home inspection company with 300 franchises nationwide, based on a study that evaluated 2,000 inspection reports, these are usually the costs of major repairs:
• Roofing: $1,500 to $5,000
• Electrical systems: $20 to $1,500
• Plumbing systems: $300 to $5,000
• Central cooling: $800 to $2,500
• Central heating: $1,500 to $3,000
• Insulation: $800 to $1,500
• Structural systems: $3,000 to $1,500
• Water seepage: $600 to $5,000

If after you’ve considered these and you realize you don’t have enough funds to own a house, don’t lose hope. You can also turn to lenders or think of creative ways to come up with a financial source.

Don’t overlook home insurance. Factors like the kind of house you have, the age of your house, your credit and insurance record, and new cases like toxic mold cases can increase insurance rates.

According to a report by the National Association of Insurance Commissioners, in 2007 homeowners spent an average of $822 on home insurance.

But despite the financial woes, there are also financial benefits of owning a house. Mortgage payments are more consistent than rental fees that can increase anytime. There are also tax benefits and the likelihood that your property value will increase as ayears go by. And most of all, it feels good to have your very own home.

For most people, the process of purchasing a house starts with finding what you can afford, finding a lender, finding a real estate manager, making a list of your requirements, checking out properties – a lot of them, making an offer, securing your mortgage and sealing the deal. Visiting and inspecting properties is time-consuming but a very important part of the process. Most people are keen about checking out the houses that no matter how busy they are, they do not want to skip this process. But not all buyers think this way.

Yes, believe it or not, there is an increase in sight-unseen real estate purchases. Some buyers just look up properties in MLS (multiple listing service) or look at the pictures, descriptions and virtual tours online. Some investors are in a hurry to close what they see as great deals online that they are willing to skip inspecting the property. Some properties are also worth the risk to some buyers because they are at a good location that if they wait longer, it might no longer be in the market. But this type of deal is very risky. You may get lucky but it can also be a big problem. You need to study all the risks involved before going into this kind of transaction.

• Distressed Properties

  Distressed properties are properties that are damaged, in poor condition, about to be foreclosed, or advertised as for sale. Banks are in a hurry to get rid of them because they cost so much for them to keep. They would need to pay property taxes, maintenance and legal fees. It can cost them $1,000 per day. So banks often try to sell them for a lot less. Buyers and sellers have an opportunity to make a transaction below market rates.

• Tight Market

  In areas with limited properties, buyers are often driven to buy properties even if they haven’t seen them yet. Though they are sight unseen, prices of such properties are based on market value or even higher. In areas like Boston or New York City, bids can be very competitive and this drives prices high. Investors who bid for proerties in tight markets usually have not seen the property but are willing to take the risk because they know the market value of properties in that area is promising.

• Pre-construction Properties

  Some properties are sold on the market even before the project is done or even started. This allows buyers to purchase them for significantly lower rates than they will be when it has been completed. It also works to the advantage of the seller because they can use the money from the buyers to complete the project. Buyers who invested before the construction can sell the property at a much higher value in the near future.

• Competition

  Buyers’ tough competition in landing a great deal are flippers. Flippers are big-time investors, wholesalers or large companies that buy prime lots for as low as possible and later sell them at a lot higher price. Flippers look for low-priced properties, make necessary repairs and sell them after a short period of time for a much higher price. When they see a distressed property, they assess the property’s After Repair Value (ARV). This means the market value of the property after the cost of repair had been taken out. They estimate their profit by subtracting the purchase price and other fees from the ARV. Other fees include carrying costs or the cost while keeping the property such as property taxes, insurance and utilities. Some flippers do not purchase sight unseen properties when there seems to be more risk than profit. Others like purchasing properties they can get at very low rates despite the damage and odds involved. And they bank on auctions or other opportunities where they could resell the property to buyers who cannot view the it prior to the sale.

  Real estate wholesalers also buy properties and sell them in a short period of time. But unlike flippers, they don’t spend time fixing or improving the property. They buy properties and draft a contract with contingencies so they could cancel the contract if necessary. Then they sell the property to other investors. They profit by selling the property at a higher rate than they originally got it. Wholesalers are like middlemen that scout good deals and hand over the properties to other investors.

  Institutional investors have the capacity to buy many distressed properties all at the same time and sell them with the most profit. They are the toughest competition especially when it comes to good deals. They can get all of the good deals in their target market.

  Some individuals are compelled to purchase sight unseen properties usually out of necessity. Oftentimes, it’s because they need to move to a new location, making it difficult for them to scout for a new place. They usually contact a local agent and trust them to find a good property that match their requirements. They settle for the pictures, virtual tours and information that are sent to them or which they can access on the internet. If you’re looking to buy sight unseen properties, it is important to be specific about what you want. It should not be limited to the house but the area or neighborhood you want as well.

• Risks

  Buying sight unseen properties is very risky. There are many things you cannot see on the surface and cannot be captured by cameras. Structural damage, infestation, molds and water damage (among others) can be hidden from cameras. Some of these damages were caused by the previous owner’s neglect. They probably didn’t have the time, knowledge and resources to take care of the house. But in some cases, the damages were intentionally made. Some people resort to damaging the property so the bank will have a hard time finding a new buyer for it. Or the sale value will be a lot less. In other cases, it’s a matter of practicality. They bring with them all that they could from the structure so they could still use it. Furnitures, appliances and some fixtures are usually among the things that they take with them.

  Another important aspect of the property that you cannot see from pictures or virtual tours is the environment in the neighborhood like the noise, pollution, traffic, unpleasant odor or a troublesome neighbor. Unless you actually visit the property, you won’t be able to see these things and decide if you are okay with them.

  Time is another risk that flippers, wholesalers and institutional investors face. The longer time they hold on to a property, the more money they lose. While they keep a property, they incur carrying costs. Their object is to buy and sell the properties in the soonest time. Aside from carrying costs, they can also end up paying for more necessary repairs.

• Protect Yourself

  Adding a contingency clause is the best way to protect yourself in buying sight unseen properties. A contingency is a condition that needs to be honored so the deal can push through. An inspection contingency allows the buyer a certain period of time, like 5 to 7 days to inspect the property. A professional home inspector checks the house’s internal and external structure including  the electrical, plumbing and ventilation. The buyer can still make negotiations or cancel the deal if necessary. This contingency allows the buyer to:

  • Accept the report of the professional home inspector and push through with the deal
  • Back out of the deal based on the report
  • Ask for more time to make further inspection
  • Request for repairs or concessions

Buyers can also include a walkthrough contingency. This clause allows you to do a waltkthrough before pushing through with the contract. Keep in mind though that sellers are not obliged to accept any contingency that the buyer set. They can also make the price go higher because of the risk that a contingency brings. The deal can not push through because of a contingency.

Hiring a professional real estate agent can give both buyer and seller extra protection. It should be clear that your agent is on your side protecting your interest. Your agent has a fiduciary responsibility to you and should protect your propety and money. So it’s important that you can find a reputable agent whom you can trust.

Buying sight unseen properties is very risky. You might get a property that’s not actually worth your investment. But to some it is unavoidable because the deal sounds too good to pass up or the buyer is not able to check the property before purchasing it. What’s important is you protect yourself with a good real estate agent and make use of contingency clauses. Having a good real estate agent can help you with this.

• The higher interest rates, the more it’s going to cost you

  If it’s your first time to invest in real estate and you don’t know much about interest rates, here’s something you should always remember: the higher the interest rate, the more it’s going to cost you. When you borrow money, this means that you have to pay a lot higher than what you borrowed. Another good tip is to use an adjustable rate mortgage. This can make the property more affordable for you. You can choose from many price range depending on the financing plan you choose.

• No one knows for sure

  No one can predict interest rates – not even the Feds. Mortgage interest rates are influenced by political, economic and social events that are unpredicatable. Experts will try to predict this but no one can be certain. When you make financial decisions look at the real estate climate. Consider your budget, expenses and future plans.

• Lock in for low interest

  Once you’ve decided to lock in at a certain interest rate, complete your loan application and send it to your lender in the soonest possible time. This ensures that your commitment doesn’t expire before your loan is approved. Check ton make sure that all the necessary documentation is there. Get a property appraisal through your loan agent as soon as possible. This usually costs $300.

• Don’t wait too long

  Some buyers wait hoping for lower interest rates. But this isn’t always the best idea. You may actually end up paying more. In the event that interest rates go down, you can think about refinancing.

Are you excited to purchase a new house for the first time? Here are useful tips that are sure to help you in your new venture. 

• Do a research on how much comparable properties cost in the same area. There are websites where you can do this. Websites like National Association of Realtors allow you to search actual MLS listings in your area. Websites like Zillow and Homegain gives you an estimate of how much it will cost you.
• Use a mortgage calculator to see how much it will cost you and see which properties you can afford. MSN Real Estate’s home affordability calculator can give you a good idea of how much you’ll need to prepare.
• Find out what is the maximum cost you will have to pay every month for the house (including staxes and insurance). MSN Real Estate’s home affordability calculator can help you do that. According to the Insurance Information Institute, annual premiums can range from ($477 in Utah) to $1,372 (in Texas). Where you live influence your cost. In some states, taxes and insurance costsare so high, they can increase your mortgage payment by almost 100%. To get a good estimate of how much insurance will cost, call an insurance agent in the area you’re interested in. Getting a quote does not oblige you to get insurance from them. With regards to taxes, you can go to Zillow. There you can find property-tax information for homes across the country. Keep in mind that there may be exemptions and irregularities in local tax law that could cause rates to differ.
• Keep in mind closing costs. This is one of the things required to purchase a property but oftentimes overlooked. It needs to be paid upfront. The fee is estimated by the lender. It will include other fees like origination fees, taxes, settlement fees and prepaid fees. If you want to know the average closing cost in your area, check Bankrate.com’s annual closing cost survey.
• Study your finances and see if it can still accomodate payment for a house. According to Fannie Mae (FNMA), you should not spend more than more than 28% of your budget on housing fees. If you do, you risk becoming house poor.
• Get insights from reputable real estate agents in your area. Get their forecast on the real estate market and gauge if they think it’s looking up or if it’s not doing so well.
• Think about this: Can you really afford a new house? It may need major repairs soon. Can you handle the costs?

Buying a new house is a good investment. But you need to be sure you’re ready for it because it’s also a big responsibility.

• Aim for pre-approval versus pre-qualification

  If you are looking to get the best house at the most reasonable rate, you need to show them that you are in a good negotiating position. There are several factors involved in a transaction. Price is one of them but not necessarily the most important. What matters more are facotrs like the length of escrow and the buyer’s buying power.

  I used to suggest that buyers get pre-qualified by a lender. To be pre-qualified, a lender will ask you a few questions. Based on your answers, the lender will declare that you are pre-qualified. You are then issued a certificate stating this which you can show to the seller. The problem is, sellers won’t buy this.Because they know that your answers were not validated. Some problems are eventually discovered like problems with alimony, a bad credit report, or other negative legal reports.

  So the more credible way to show your worth is through getting pre approved. You can achieve this after all the information you gave out had been verified. When the process is done, this means you are approved for the loan. It can take days or weeks to process. Once you’re pre-approved, you have established a strong negotiating position.

• Sell before making a purchase

  If you’re trying to sell a property so you could afford to buy another property, sell the property first. It is better to have cash in hand or clear funding rather than going into contingency sale. Why? Because you’ll end up paying more for the property you want and will give you pressure to sell your current property. Think about this: You found a house you want to buy. You make try to make a deal with the seller. Most likely they will agree to sell you the house. But since they are making a big risk by reserving the property for you even if you don’t have the money yet, the seller will let you pay full price and you’ll be pressured to sell your property before the deadline. If there are no potential buyers in sight, you’ll be persuaded to sell your property for a low price just to lure buyers and make the deadline for your new property.

  If you’re worried that there is no prospective house for you, take time to look around. Think about a location you’d want to live in or look at houses so you’ll have an idea on the kind of house that you want. When you do put up your house for sale, add this phrase: `”subject to seller finding suitable housing”. This gives the buyer a picture of what’s hoing on and those interested will know that this is part of the deal. This gives you time to look for a new house. If you don’t find a new house that you want, don’t sell your current house.

• Play the game of nines

  Before you start looking for a new house, think about the things that you want and don’t want in a house. Take this list with you everytime you see a new house. Use this list to evaluate each potential new house. This list will be very helpful when you’re having a hard time deciding which house to purchase. When evaluating a house, make a clear distinction between style and substance. Substance refers to things that cannot be changed, like the location, the neighborhood, popular landmarks, lot size and floor plan. Style means elements in the house that can be removed or changed. So this could be curtains, furnitures, paint, wallpaper and carpet. Since based on our description, it’s sound to say that you should make a decision based on substance and not style. You may not like the current style of the house but remember, they are something you can adjust to your liking. I always tell the buyers to imagine that the house is empty. Do not forgo a good deal just because you don’t like the former owner’s taste.

• Don’t buy a house just because you feel pressured

  A good agent will show you properties that meet your requirements. Do not settle on a house until you’ve thought about all your viable options. Ten years ago, houses were easily sold. So deals had to be made fast. If their client wanted a house, they were advised to make an offer right away. But that is no longer applicable today. There is no urgency requiring fast deals.

  It’s also a good idea to check school districts in the area of the house you’re looking into. All the information you’ll want such as class size, SAT scores, achievements should be available in the school. You cuold also get this information online.

• Do not fall for ads

  More often than not, ads leave out the unpleasant parts Their sole purpose is to lure people. They are paid for by the seller and therefore they will only look after their advantage. Your best protection is to hire an agent. They can check the property thoroughly. They know things that you don’t and they are there to look after your interests. Choose an agent that you’re comfortable with. As their client, you will have access to all the rights and privileges that they have to offer. As buyer your options will no longer be limited to those that are publicly advertised. When they hear of a great deal, they notify their clients. Being their client, you have access to great deals that is usually not advertised.

  If you want to get the best property for your money, I strongly suggest you get an agent to help you.

People have different goals and principles when it comes to investments. But here are vital tips that every investor needs to know to ensure success.

• Compare property rates.
  The best way to assess the value of a property is to find out the sale value of other properties in the vicinity. This is also how you determine the rental fee. Rental fees should be reasonable. Otherwise, potential tenants will think about purchasing a property instead.
• Keep tax laws in mind
  Bear in mind that tax laws could change over the years. When investing, make sure that they won’t be affected even if tax laws will change.
• Focus on a market you’re familiar with
  Determine a market you’re good at – be it condominiums, apartments, starter homes, low-cost houses, fixer-uppers or foreclosures and start with that product.
• Know the costs involved
  You should be knowledgeable about the costs and expenses like financial statements, operating expenses, loan payments, taxes, cash flow, vacancy costs. You must have a clear understanding of these things before you commit to an investment.
• Find out where the tenants came from
  If the rent went up just recently, the tenants are probably thinking about moving. If they have a short-term contract with, there is a chance that they are living there to get buyers. Don’t forget to get their security deposit.
• Study the taxes involved
  Taxes play a very important role in investments. Oftentimes, they spell the difference between a positive and negative cash flow. You might want to seek help from a tax advisor. You should find out how you can use the tax situation to your advantage.
• Learn about insurance coverage
  If the seller’s coverage is lower than the current replacement value, you might incur higher insurance cost. 
• Verify the cost of utilities
  Ask local utility companies of the current charges especially if utilities are included in the rental fee.
• Find a good accountant
  One of the things that make a succesful real estate investment is taxation. Find an account who is good with tax codes and reliable.
• Inspect the property
  Carefully inspect the property before buying it. You might need to hire experts to assess the property.