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Vanneste Blog
  • Would-be Buyers with Student Debt

    59% of non-owners are not comfortable taking on a mortgage with their student debt according to the Aspiring Home Buyers 2017 survey. It is estimated that the college graduates have an average of $37,172 in student debt.16522219-250.jpg

    Fannie Mae, who has loan programs with as little as three to five percent down payments, has announced changes to how student loan debt is treated that could make the difference in qualifying for a mortgage.

    For the 5 million borrowers who participate in the reduced payment plans, actual payments are considered for calculating debt-to-income ratio rather than maximum payment amount.

    Non-mortgage debts paid by another party for at least 12 months won’t be included in calculating debt-to-income ratio.  For example, payments being made on a student loan by the parents would not be counted against the DTI ratio for the student.

    These changes can make it possible for would-be buyers with student debt to get a home now instead of waiting for years. Being pre-approved by a trusted mortgage professional is the best way to confirm that these changes apply to your situation. Call today for a recommendation of a trusted mortgage professional.


  • Good Info - Good Decisions

    While low inventory is certainly challenging buyers, not having a clear understanding of mortgage financing is also causing issues. By having good information, they are able to make better decisions as well as compete favorably.Mortgage Rate History0517.png

    Most buyers don’t realize how the mortgage rate is determined for a borrower. While annual income is important, a good credit score, low debt-to-income ratio, loan-to-value ratio and ability to repay the loan are vital concerns.

    A variety of myths seem to permeate the market such as rates are set and released once a day; FHA loans are for first-time buyers only; pre-qualification commits the lender; lender fees are not negotiable and adjustable rate mortgages always go up.

    Misunderstanding of actual mortgage practices may be a contributing factor to why more buyers are not taking advantage of what are still historically low mortgage rates.

    While getting solid information about mortgages and being pre-approved from a lender are very important, it is only one step in the home buying process. Success in buying a home in today’s market should begin with a real estate professional who will coordinate all the different parts of the transaction including mortgage, title, insurance, inspections.


  • Reasons to Refinance

    Regardless of the reason to refinance a home, the basic question to ask is: “Do you plan to live in the home long enough to recapture the cost of refinancing?” There are always expenses involved in refinancing which can be paid in cash or rolled into the new mortgage.

    From a strictly financial standpoint, the break-even point is achieved when the cost of refinancing has been recaptured by the monthly savings. It would take approximately 23 months to recapture $4,000 of refinance costs with a lower payment of $175 a month.22683914-250.jpg

    1. Lower the rate
    2. Shorten the term so that the loan will build equity faster and be paid off sooner.
    3. Lower your payment to reduce your monthly cost of housing.
    4. Convert an ARM to a FRM to stabilize your payment due to concern of rising interest rates.
    5. Cash out equity to be able to use the money for another purpose.
    6. Combine a first and second mortgage.
    7. Consolidate personal debt so the interest is tax deductible.
    8. Payoff higher cost debt such as credit cards, student debt, etc.
    9. Remove a person from a loan as in the case of a divorce.

    Points paid to purchase a principal residence are tax deductible completely in the year paid. However, the points must be spread over the life of the mortgage on a refinance. For that reason, consider getting a “par” value loan with no points. It may have a slightly higher rate but the interest will be fully deductible and it will lower the cost of refinancing.

    Determine the break-even point on your situation by using the Refinance Analysis . Call for a recommendation of a trusted mortgage professional.


  • Indecision May Cost More

    “More has been lost due to indecision than was ever lost to making the wrong decision.” Interest rates have as much effect on housing costs as price and when they are both trending upward, it can be very expensive to wait. 25787590cropped.jpg

    There can be some legitimate reasons for postponing a purchase such as needing to save the down payment, improve your credit or waiting to find out about a possible transfer. The problem is that prices and interest rates could, and very likely will, go up in the future.

    If the price of $250,000 home went up 5% and the interest rate went from 4.5% to 5.25%, the payments would increase by $176.42. The additional cost over a seven-year period would be close to $15,000.

    The questions that indecisive buyers need to ask themselves is “how am I going to feel knowing that if I had not waited, I could have been living in the home for less money?” and “What would I have spent the money on if I didn’t have to make the larger payment?”

    Use the Cost of Waiting to Buy calculator to find out how much indecision may be costing you.


  • Would-be to Should-be

    Some would-be buyers have emotional reasons to own a home like having a place of their own where they can raise a family, feel safe and secure and enjoy their friends’ company. Other buyers’ dominant reasons might be financial in nature such as building equity or lowering their cost of housing.52407681-250.jpg

    Regardless of what might be motivating people to want their own home, it is easy to justify that now is a good time to purchase. Let’s look at a $250,000 example using a FHA loan.

    The total payment will be about $1,835 dollars a month. If the payment is lower than the rent a person is paying, that should encourage a person to continue investigating.

    In this example, when you consider the monthly principal reduction, the monthly appreciation and the tax savings, even with money added for monthly maintenance, the net cost of housing is less than half the total house payment.

    Considering all those advantages, the would-be buyer is spending over $1,100 per month more to rent than it would be to own. In a year’s time, they would lose close to $14,000 which is more than the down payment of $8,750 required on this price home.

    Most would-be buyers understand that a home is a big investment but they may not understand the advantage of the leverage caused by the low down payment mortgage. The benefits extend beyond a return on the down payment but to the value of the home.

    In this example, the $8,750 down payment grows to an equity of $73,546 in seven years based on 2% annual appreciation and normal amortization on a 30-year loan. If you calculated that as a rate of return, you’d be challenged to find anything that could compare with it.

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    To see what your numbers might look like, check out this Rent vs. Own. If you need any help or have any questions, contact us. Part of our greatest satisfaction is helping would-be buyers understand why they should-be.


  • An Alternative to Paying Tax Today

    The cartoon character Wimpy would say that he’d gladly repay you Tuesday for a hamburger today. Some real estate investors say a similar thing to Uncle Sam to be able to hold on to their proceeds from the sale of an investment and agree to pay the tax later. exchange.png

    The benefit of a 1031 exchange is that it allows the investor to defer the tax due from the sale into the replacement property. This allows more money to be reinvested. In the example shown, the investor has 27% more to invest now by deferring the tax into the future.

    The property to be exchanged must be like-kind which means real estate for real estate.   Rental property can be exchanged for other rental or investment property.  Personal-use properties like a first or second home are not eligible for exchanges.

    There are some critical dates that restrict the validity of the exchange. The investor must identify the replacement property within 45 days of the sale of the relinquished property. The replacement property must be closed within 180 days of the sale of the relinquished property.

    • The replacement property must be equal to or greater in value, equity and debt than the one being relinquished.
    • All net proceeds must be used in acquiring the replacement property.

    There are specific rules involved in constructing a valid tax-deferred exchange. There are three professionals that should be involved: a tax advisor, a real estate professional and a qualified intermediary who will assist in the acquisition and transfer of both the relinquished property and the replacement property. Additional information can be found in IRS Publication 544.


  • Lower the Rate - Deduct the Interest

    Credit card debt in America is back to levels prior to the recession. The average credit card APR is just under 16% according to CreditCards.com Weekly Credit Card Report.  33967393-250.jpgHomeowners have an advantage over renters when it comes to getting their arms around debt issues.

    Basic money management suggests that higher rate debt be replaced with lower rate debt. Credit cards, personal cars, boats, motor vehicles and other personal property, typically have interest rates higher than that of real estate loans.

    Borrowing against a person’s home usually provides the lowest rate of financing. Refinancing a home mortgage to take cash out to retire personal debt is one option. Another would be to secure a home equity or HELOC, home equity line of credit.

    An alternative advantage of borrowing against one’s home is that the interest may be tax deductible unlike the interest on most personal debt. Qualified mortgage interest includes acquisition debt which can only be used to buy, build or improve a principal residence and up to $100,000 of home equity debt which can be used for any purpose.

    Managing money is a critical life skill that people need to master. While the goal may be to become debt-free, paying the least amount of interest possible can be a good first step. Owning a home provides an asset that allows for options not available to tenants. Seek professional advice to determine your best course of action.


  • Rentals are IDEAL

    Rental homes are the IDEAL investment because they offer a higher rate of return than other investments without the volatility of the stock market. With certificates of deposit and bonds at less than 2%, people need an alternative investment that they understand and with a reasonable amount of control.

    In this case, IDEAL is an acronym identifying the advantages of rental properties.Ideal Investment-2.png

    • Income from the monthly rent contributes to paying the expenses and a return on the investment.
    • Depreciation is a non-cash deduction that shelters income for some investors.
    • Equity buildup occurs with amortized mortgages because each payment is composed of interest owed and principal reduction to retire the loan by the end of the term.
    • Appreciation is achieved as the value of the property goes up.
    • Leverage can increase the return on investment by using borrowed funds to control a larger asset.

    These individual benefits working together make rental real estate a good investment for today’s economy. Increased rents, high rental demand, good values and low, non-owner occupied mortgage rates contribute to positive cash flows and very favorable rates of return. 

    To find out more about how rentals might complement your current investment plans, contact your real estate professional.


  • Save the Cost of Mortgage Insurance

    During the banking crisis in the Great Recession, certain types of mortgages were unavailable that are once again being offered. Fortunately, the 80-10-10 mortgage is one of those making a reappearance and it can save borrowers a considerable amount of money. 80-10-10.png

    The objective of an 80-10-10 mortgage is to avoid the expense of mortgage insurance for buyers wanting a 90% loan. A buyer can obtain an 80% first mortgage and a 10% second mortgage with a 10% down payment and not be required to have private mortgage insurance.

    For example, a buyer could put $30,000 down on a home priced at $300,000 and get an 80% first mortgage without mortgage insurance. The borrower could get a second mortgage, either through the same lender or a third party.

    In the example, the 80-10-10 would save a buyer $193.71 per month which can be a considerable amount of money over a ten-year period. The interest rate on the second loan will be higher than the first because there is more risk.

    Helping buyers make better choices is a valuable service real estate professionals can provide. Having the right tools and information can make the decisions easier to understand. Using an 80-10-10 calculator, you can see what the savings might be for your situation.


  • Important Estate Documents

    An estate plan is a collection of documents to ensure that your wishes are carried out because of death or incapacity to make decisions for yourself. Spouses, minor children, adult children, property and investments can all be factors that should motivate a person to undergo the process.12902925-250.jpg

    Will – this document specifies the way a person wants to manage and distribute his/her assets after their death. When a person dies without a will, the laws of the state where the person resided will determine the distribution of the property.

    Durable Power of Attorney – this document grants to a designated person the authority to act on behalf of the principal in in legal affairs should the principal become incapacitated. Among other things, this would allow the attorney-in-fact to buy and sell property on the behalf of the principal.

    Healthcare Proxy – this document grants that a designated person can legally make healthcare decisions on behalf of the principal when they are incapable of making and executing specific decisions stated in the proxy.

    Living Will – this document directs physicians with respect to life-prolonging medical treatments in case they become unable to communicate their decisions.

    Hippa Release – this document allows heath care providers to release your health care information to a designated person. Otherwise, they are required by federal law to protect the privacy of your health information.

    Letter of Instruction – This document contains information and instructions about a person’s wishes upon death. It is intended to offer details on whom to contact and where to find important documents about personal and financial matters.

    Requirements of these documents can vary from state to state and legal advice should be obtained. If you need a current estimate of value on real estate that may be involved, usually a price opinion from a licensed real estate professional will suffice. It would be my privilege to assist you with this at no cost or obligation.


  • Tax Benefits of Home Ownership

    U.S. taxpayers have enjoyed specific tax benefits for home ownership since personal income tax was introduced by the 16th amendment in 1913. While these benefits may not be the primary reason that motivates a person to buy a home, they are still tangible and not available to tenants.26005238-266.jpg

    The exclusion of capital gains tax on the profit made from a home is unique from other investments and provides homeowners significant savings. Single taxpayers can exclude up to $250,000 gain and married taxpayers up to $500,000 gain. During the five-year period ending on the date of sale, a taxpayer must have: owned the home for at least two years; lived in the home as their main home for at least two years; and, ownership and use do not have to be continuous nor occur at the same time.

    Gain on the sale of a principal residence in excess of the allowed exclusion are taxed at the lower long-term capital gain rate of the owner.

    A homeowner may take the standard deduction or itemized deductions in any tax year based on which will create the largest deduction. Property taxes and qualified mortgage interest are allowable itemized deductions.

    Qualified mortgage interest is acquisition debt plus home equity debt not to exceed the maximum amounts. Acquisition debt is the amount of debt incurred to buy, build or improve a first and second home up to $1,000,000. Home equity debt is limited to $100,000 over the current acquisition debt on the combination of a first and second home and may be used for any purpose.

    For more information, see your tax advisor or see IRS Publications 523, Selling Your Home and 936, Home Mortgage Interest Deduction.


  • Before You Pay Cash for a Home

    The National Association of REALTORS® reports in its 2016 Profile of Home Buyers and Sellers that 12% of all buyers paid cash for their home.50441319-250.jpg

    Before paying cash for a home, a buyer should decide if they might put a loan on the home in the near future.  It may affect the ability to deduct the interest on a mortgage placed on the home at a later date.

    Homeowners can currently deduct the interest on up to $1 million of acquisition debt which are the borrowed funds used to buy, build or improve a home. Paying cash for a home establishes acquisition debt at zero. The only deductible interest to the owner would be home equity debt which is limited to $100,000 over acquisition debt.

    Paying cash certainly seems like a simple decision but it may limit a homeowner’s ability to deduct interest on a future mortgage. You can get more information about this from IRS Publication 936 or from your tax professional.


  • Not Available for All Buyers

    Lenders regularly publish mortgage rates but they may not be available for all buyers. 59607784-250.jpg

    Imagine that the mortgage payment based on an advertised rate influenced a buyer to make an offer on a home. After negotiating a binding contract, this buyer makes a loan application and finds out that for any number of possible reasons, that rate isn’t available.

    Even if the person does financially qualify for a loan at a higher interest rate, it will not be the payment that the buyer expected when the contract was negotiated.

    Lenders evaluate several factors such as the borrower’s credit score, debt-to-income and loan-to-value ratios. These variables are used to assess the risk associated with the repayment of the loan.

    While mortgage money is a commodity, it isn’t priced the same way items are that involve cash for goods. The lender puts up the money today based on a promise from the borrower to repay over a long term, possibly up to thirty years.

    The simple solution to avoid surprises such as the one described here is to get pre-approved at the beginning of the home search process. Since pre-qualification does not mean the same thing to all lenders, call if you’d like a recommendation of a trusted mortgage professional.


  • Six Reasons to Consider Rental Homes

    Single-family homes offer an investor the ability to borrow large loan-to-value amounts at fixed interest rates for long terms on appreciating assets, tax advantages and reasonable control. Some of these characteristics are not available through other investments.rental advantages-2-250.png

    75-80% loan-to-value mortgages are available on most residential properties up to four units. Comparatively, the stock market allows you to borrow up to 50% on a stock but if the price goes down, they will require additional cash to keep the ratio at or below 50%. If it isn’t available, your stock can be sold to satisfy the loan.

    Real estate investors call getting a long-term mortgage putting an investment to bed. The fixed-rate and the 20-30 year terms are exceptions to loans for most other investments, if they’re available at all. 

    Real estate tends to go up in value over time. There can be a lot of variables that affect the price like supply and demand, condition and available mortgage money, in addition to the general economy.

    Rental real estate has several different tax advantages. The profits are taxed at lower, long-term capital gains rates for investors who have owned the property for more than 12 months. While the property is being rented, investors are given a non-cash deduction based on cost recovery of the improvements. Tax deferred exchanges can also be available if specific conditions are met which allow an investor to postpone paying the tax on the gain.

    It isn’t necessary to have a partner with most rental homes if the investor can qualify for the mortgage. This allows investor control to make all the decisions that an owner is entitled such as setting the rent, making improvements and determining when to sell.

    Rental real estate can earn a much higher rate of return than other available investments while providing income during the holding period. It certainly is worth investigating the possibility with a real estate professional who understands and works with rental properties.


  • What Would You Give?

    Yogi Berra said he’d give his right arm to be ambidextrous. While most first-time home buyers are not going to that extreme, it is interesting to see what sacrifices are being made according to the National Association of REALTORS® 2016 Profile of Home Buyers and Sellers.42271463-250.jpg

    • 43% - cut spending on luxury or non-essential items
    • 34% - cut spending on entertainment
    • 27% - cut spending on clothes
    • 14% - canceled vacation plans
      9% - earned extra income through a second job
    • 7% - sold or decided not to purchase a vehicle
    • 44% - did not need to make any sacrifices

    Forty-percent of first-time buyers experienced some difficulty during the mortgage application and approval process. Single, male buyers expressed a higher incidence of difficulty than single females and married or unmarried couples.

    Pre-approval from a qualified mortgage lender before the home search process begins is still considered the best advice for all buyers who will purchase with a mortgage. Your real estate professional can make recommendations for a loan officer that could help you avoid unnecessary aggravations.


  • Mortgage Loans from Relatives

    Occasionally, when dealing with close relatives who might also become heirs, signing a note and handling the paperwork properly may seem like a needless effort but it could mean the difference in being able to take a legitimate interest deduction.35442708-250.jpg

    Home mortgage interest is deductible only if the loan is a secured debt which involves the buyer signing an instrument like a mortgage or deed of trust that makes the ownership of the home security for the debt. That instrument must then be recorded or otherwise perfected according to state or local law and the home, in case of default, must be able to satisfy the debt.

    In a family situation, a parent, grandparent or other relative may decide to loan a buyer the money to purchase a home because they have it available and it isn’t earning much in certificates of deposit. They offer to loan it for a rate equal to what a conventional lender is charging but without the fees.

    While it may appear to be a win-win situation, there could be problems if things are not done correctly. Even if the borrower makes the payments, they are not entitled to an interest deduction unless three criteria are met: 1) sign a debt instrument specifying the terms 2) securing and record the debt properly and 3) the home is sufficient collateral for the loan.

    It would be prudent to consult with an attorney before you sign the final settlement papers to be comfortable that both buyer and the lender-relative are complying with IRS regulations. For more information, see IRS Publication 936 – Home Mortgage Interest.


  • Proof of Purchase

    People who experience a property loss are usually asked by their insurance company for proof of purchase which can come in the form of a receipt or current inventory of their personal belongings.receipts or inventory.png

    Even the most organized people might find it challenging to find receipts for all the valuables in their home. If the inventory isn’t up-to-date, a homeowner might forget to add some items to the claim and may not recognize the omission for long after the claim is settled.

    The inventory can serve as a guide to make sure a homeowner gets compensated for all the loss.

    Photographs and videos can be adequate proof that the items belonged to the insured. A series of pictures of the different rooms, closets, cabinets and drawers are helpful. When video is used, consider commenting as it is shot and be sure to go slow enough and close enough to things becoming recorded.

    For your convenience, download a Home Inventory, complete it, and save a copy off premise. Good places for your inventory could be a safety deposit box or digitally, in the cloud if you have server-based storage available like Dropbox.


  • Boomers Are Staying In-Place

    There seems to have been an accepted progression for homeowners going from starter home, to gradually moving into one’s dream home, then, downsizing after becoming an empty nester and finally, into a retirement home. However, Marianne Cusato’s 2016 Aging-in-Place Report indicates that many older Americans don’t plan on following that pattern.46668033-250.jpg

    61% of homeowners above the age of 55 intend on staying in their homes indefinitely. 2/3 of them believe that the home’s layout will serve their needs without having to make aging-related improvements.

    Some of the reasons being cited for staying in place are:

    • 66% say their home is conveniently located
    • 38% say they live close to their family
    • 68% say they feel independent in their home
    • 54% say they are familiar with their neighborhood
    • 66% say the feel safe in their home

    Typical renovations that might be considered for their current home are things like grab bars in the tub or shower, shower seats, taller toilets, handheld showerheads and additional handrails on stairways.

    It seems that the report’s conclusion is that regardless of a homeowner’s age, they want to thrive in their home. The same emotional reasons that causes a person to want to buy a home are the things that cause them to hold onto them if is practical.


  • Attracting Buyers

    There is a common body of knowledge among real estate professionals that indicates that the longer a home is on the market, the lower the price will be. Many sellers discount this belief in the beginning because they feel confident their home will sell quickly.incentives - article.png

    Lowering the price is the most obvious thing that can be done to encourage buyers but it might be good to look at what builders do. Builders offer a variety of incentives such as upgrades, seller-paid closing costs, interest rate buy downs, washers, dryers, refrigerators or big screen TVs.

    Interestingly, much of the resale market doesn’t employ these techniques. According to the latest NAR Home Buyers and Sellers Profile, 64% of sellers did not offer any incentives at all.

    21% of sellers offer a home warranty. 16% of sellers offered assistance with closing costs and 6% offered credit toward remodeling or repairs. 

    The attached chart indicates that while 80% of sellers were not willing to offer incentives in the beginning of their marketing period, as weeks passes and their home hasn’t sold, closer to half did add incentives.

    The ideal outcome is to maximize proceeds in the shortest time possible with the fewest unexpected issues. This involves having a firm understanding of current, local market conditions and crafting a marketing plan that will insure results.

    There is so much at stake, the value of a trusted real estate professional is essential.


  • Rent or Buy - You Pay for the House You Occupy

    The ironic thing about people who think they can’t afford to buy a home for themselves, end up buying the home for their landlord. There are several facts that support this notion.Home is Leveraged Investment-300.png

    Mortgages, whether held by an owner-occupant or an investor, are usually amortized so that each payment reduces the principal amount owed so that the loan will be repaid totally over the term. A tenant is inadvertently retiring the landlord’s mortgage with his monthly rent.

    In most cases, the mortgage payment including taxes and insurance will be lower than the rent tenants are paying. Some experts are saying that we may never again experience the incredibly low mortgage interest rates currently available.

    Renting precludes a person from enjoying the advantage a home has as a leveraged investment. When the borrowed funds cost less than the investment is returning, the rate of return on the down payment grows much faster. As you can see from the chart, a 2% appreciation on a home could result in big returns on the down payment. In most cases, there are very few or no alternative investments that offer homeowners similar returns.

    Even if a buyer agrees with all of these things but doesn’t have the down payment or cannot qualify for a loan, they still need to investigate further. To find out exactly what types of loans are available and the specific down payment required which can be a whole lot less than 20%, they need to consult with an experienced, trusted loan professional (an Internet lender or a “BIG” bank may not be the best choice.) Call for a recommendation.


  • Facts or Myths
    • “It’s impossible to get low down payment loans.” – MYTH!
      FHA down payments are 3.5% and VA is 0%. In some areas, there may be some 0% down payment USDA loans available. FNMA and Freddie Mac have 3% down payment programs.

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    • “It takes perfect credit to get a loan.” - MYTH!
      There is a relationship of better rates to better credit but many issues on a credit report can be explained or corrected. The way to know for sure is to speak to a reliable lender.
       
    • “If I’ve had a bankruptcy or foreclosure, I can’t qualify.” - MYTH!
      Credit history following a bankruptcy or foreclosure is very important and there can be extenuating circumstances. It only takes a few moments with a reliable lending professional to find out if your individual situation will allow you to qualify for a new mortgage.

    • “Getting pre-approved is expensive.” - MTYH!
      Usually, the only expense to getting pre-approved is the cost of the credit report which could be around $35. The advantage is that you will know that you qualify for a particular mortgage amount.

    • “I should wait to qualify until I find a home.” - MYTH!
      It can take weeks to qualify for a mortgage especially if there are issues that need to be corrected. The best interest rates are only available for the highest credit scores. It is to your advantage to start the qualifying process early in your home search.

    • “All lenders are the same.” - MYTH!
      Reliable lending professionals will explain the entire process before collecting fees, quote fees up-front, have competitive products, do what is necessary to get the loan approved and close at the locked rate and terms. Ask for recommendations from recent borrowers.

    • “Adjustable Rate Mortgages are more expensive than fixed rate mortgages.” - MYTH!
      Adjustable Rate Mortgages can be less expensive than fixed rate mortgages if the buyer’s circumstances warrant it. If a buyer is only going to be in a home for a few years before selling, it can be determined if an ARM loan will result in the lowest way to finance the property. There are many variables and you need to be aware of them before deciding which type of loan to finance your home purchase.

    Buyers and Sellers need solid information to make good decisions. Call us with your questions or to get a recommendation of a reliable lender who can give you the real facts.


  • "This is going to be the year"

    Every year, it seems like the same things are on the list but this could be the year you really do invest in a rental home.Resolutions.png

    Rents are climbing, values are solid and mortgage rates are still low for non-owner occupied properties. A $150,000 home with 20% down payments can easily have a $300 to $500 monthly cash flow after paying all of the expenses.

    There are lots of strategies that can be successful but a tried and true formula is to invest in below average price range homes in predominantly owner-occupied neighborhoods. These properties will appeal to the broadest range of tenants and buyers when you’re ready to sell.

    Single family homes offer an opportunity to borrow high loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control.

    This can be the year to make some real progress on your resolutions. The first step may be to invest some time learning about rental properties by attending a FREE webinar on January 4th at 7:00 PM Central time zone by national real estate speaker Pat Zaby. Click here to register. If you can’t attend live, by registering you’ll be sent the link to watch at your convenience.


  • Can 0.5% Really Equal 5%?

    Since the election, rates have started going up and it will have a direct effect on the cost of housing. There is a rule of thumb that a ½% change in interest is approximately equal to 5% change in price. 14439217-250.jpg

    As the interest rates go up, it will cost you more to live in the very same home or to keep the payment the same, you’ll have to buy a lower priced home.

    Before rates rise too much, it may be the best time to buy a home whether you’re going to use it for your principal residence or a rental property. Low interest rates and lower prices make housing more affordable.

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  • Time May Be Running Out

    During the Great Recession, some homeowners elected to rent their home rather than sell it for less than it was worth.

    IRS tax code allows for a temporary rental of a principal residence without losing the exclusion of capital gain based on some specific time limits. During the five year period ending on the date of the sale, the taxpayer must have:14095450-250.jpg

    • Owned the home for at least two years
    • Lived in the home as their main home for at least two years
    • Ownership and use do not have to be continuous nor occur at the same time

    If a home has been rented for more than three years, the owner  will not have lived in it for two of the last five years. So the challenge for homeowners with gain in a rented principal residence that they don’t want to have to recognize is to sell and close the transaction prior to the crucial date.

    Assume a person was selling a property which had been rented for 2 ½ years but had previously been their home for over two years. To qualify for the exclusion of capital gain, the home needs to be ready to sell, priced correctly, sold and closed within six months.

    All of the gain may not qualify for the exclusion if depreciation has been taken for the period that it was rented. Depreciation is recaptured at a 25% tax rate.

    A $200,000 gain in a home could have a $30,000 tax liability. Minimizing or eliminating unnecessary taxes is a legitimate concern and timing is important.

    Selling a home for the most money is one thing; maximizing your proceeds is another. For more information, see IRS publication 523 and an example on the IRS website and consult a tax professional. 


  • It Isn't Final Until It's Funded

    Mortgage approval isn’t final until it’s funded.  Things can change prior to the loan being closed that can affect a pre-approval such as changes in the borrowers’ financial situation or possibly, factors beyond their control like interest rate changes.40783733-250.jpg

    Good advice to buyers is to do nothing that can affect your credit report until the loan closes. Opening new credit cards, taking on new debt for a car or furniture or changing jobs could affect the lender’s decision if they believe you may no longer be able to repay the loan.

    The benefits of buyer’s pre-approval are definitive: it saves time, money and removes the uncertainty of knowing whether the buyer is qualified. The direct benefits include:

    • Amount the buyer can borrow - decreases as interest rates rise
    • Looking at “Right” homes - price, size, amenities, location
    • Find the best loan - rate, term, type
    • Uncover credit issues early - time to cure possible problems 
    • Bargaining power - price, terms, & timing 
    • Close quicker - verifications have been made

    It is a very common practice for mortgage lenders to require income and bank verifications and to re-run the borrowers’ credit one final time just prior to closing. Mortgage approval isn’t final until it’s funded.