Roll the Repairs into the Mortgage   Leave a comment

It’s been said that if you can find a home that has most of what you want, you should go ahead and purchase it. Many first-time buyers are using everything they have for a down payment and closing costs and would have to “live” with the less than perfect home until they can save the money to make the changes.

The FHA 203(k) mortgage allows a borrower to purchase a home and provides additional funds for improvements to be made. These types of renovations can include kitchen and bathroom remodels, flooring, plumbing, heating and air conditioning systems, additions and other things.

The benefit to the buyer is that they have the opportunity to consider a home that needs repairs and might have been unacceptable without a program like this. Being a FHA loan, a minimal down payment is required, fair interest rates and generous qualifying requirements.

The 203(k) Streamline can be used for cosmetic improvements, appliances and minor remodeling up to $35,000 in cost.

As you can imagine, this is a specialized program and not all lenders choose to make 203(k) loans. They usually take longer to process and getting firm bids on the work to be done will be required. It is important to find out how much experience a lender has with this particular type of loan.

It will also be required that you work with a 203(k) consultant in addition to the mortgage officer.

For more information, go to Hud.gov. FNMA has a similar conventional loan program called HomeStyle Mortgage. Your real estate professional will be able to help with recommendations. Call me at (850) 202-8647.

Advertisements

Posted November 13, 2018 by Bernie Mostoller in Uncategorized

Getting the “Right” Home   Leave a comment

Finding the right home is still the biggest challenge buyers are faced with in today’s market as is shown in the latest Confidence Index Survey. Assuming the buyers find the “right” home with determination, perseverance and the help of a real estate professional, 88% of all transactions last year required financing to get the buyer’s address on the home. 93% of first-time buyers needed financing.

Pre-approval is an essential step that needs to be handled before buyers begin searching for a home. The benefits to the buyer fall into the category of confidence.

PRE-APPROVAL GIVES YOU CONFIDENCE

  • Knowing the amount you can borrow
    the mortgage amount decreases as interest rates rise
  • Looking at the right priced homes
    price, size, amenities, location
  • Comparing and identifying the best loan
    rate, term, type
  • Uncover issues early that could affect the most favorable loan terms
    time to cure possible problems
  • Bargaining power to negotiate with the seller and possibly, competing buyers
    price, terms, & timing
  • Settlement can occur sooner after contact is accepted
    verifications have already been made

Items Needed for Pre-Approval

  • Photo ID
  • Two months current pay stubs
  • Last two year’s W2s
  • Complete copies of checking and savings statements for last three months
  • Copies of statements for IRAs, 401k, savings, CDs, money market funds, etc.
  • Employment history for last two years with addresses and contacts
  • Proof of commissioned or bonus income
  • Residency history for last two years with addresses and contacts
  • Assets for down payment, closing costs, and reserves; must provide paper trail
  • If self-employed, last two years tax returns, current profit and loss statement and balance sheet; copy of partnership/corporate tax returns for last two years if owning more than 25% of company
  • FHA requires driver’s license and social security card
  • VA requires original certificate of eligibility and DD214
  • Other things may be required such as previous bankruptcy, divorce decree

Contact us at (850) 202-8647 or bernie if you’d like a recommendation of a trusted mortgage professional.

Posted November 6, 2018 by Bernie Mostoller in Uncategorized

Start Early and Live Happily Ever-after   Leave a comment

As storybooks go, the character is introduced, they meet their love interest, a villain thwarts their intentions, true love overcomes, they marry and live happily ever-after. It’s a very familiar formula.

Similarly, there is a formula that couples follow in real life. They go to college, get a good job, rent a home, fall in love, get married and buy a starter home. They start a family, move into a larger home, save for their children’s education, start planning for their retirement and if they live within their means, they invest their surplus funds.

Financial Timeline.png

An alternative to this might be to start investing in rental homes early in their adult life before their standard of living becomes so expensive that they don’t feel like they have the money to purchase rentals. There are infinite possibilities but let’s say a single person, after getting a good job, buys a small three or four-bedroom home with an owner-occupied, minimum down payment. They move into the home and possibly, rent out the bedrooms to other singles who need a place to live.

At some point, they decide to buy another home to live in with a minimum down payment and either rent out their bedroom in the first home or rent the whole home to a tenant. And they repeat the process again with the second home.

This could continue until they acquired several homes. Let’s say, that in the meantime, they have met their love interest, decide to get married and together, they buy a starter home for them to live in.

This concept advances the investment in rental homes from the latter part of their lives to the early part of their life. The early investment gives them more time for appreciation and wealth accumulation. A simple principle of investing is that sooner is better than later. By delaying gratification to own your “dream home” early, a person may be able to accumulate more net worth in the same period of time.

Buying a property initially as owner-occupied permits a lower down payment of 3.5% compared to a typical down payment for non-owner-occupied properties is 20%. By using more borrowed funds, leverage can increase the yield on the investment.

It may be too late for some people reading this article to adopt this strategy but if they have kids in college, it may be something for them to consider.

Posted October 30, 2018 by Bernie Mostoller in Uncategorized

It’s Not Just the Tax Benefits   Leave a comment

When the standard deduction for married couples filing jointly was increased from $12,700 to $24,000 for 2018, there was some speculation that the bloom was off the rose of homeownership. The thought was that if the tax benefits from being able to deduct the property taxes and interest was less than the standard deduction, that maybe, the buyer would be better off continuing to rent.

With mortgage rates as low as they have been for the past eight years, payments have been lower and so has the amount of interest that was paid. This and the fact that sales and local taxes, which include property taxes, are limited to $10,000 a year on the Itemized Deduction form have made it harder to reach the increased standard deduction.

The reality of the situation is tax benefits are only one of the components that make a home an excellent investment and it probably contributes the least of the top three benefits. Principal reduction and appreciation build an owner’s equity in an automatic way that is like a forced savings account.

In today’s market, it is common for the total house payment to be lower than the rent a first-time home buyer is currently paying. As a homeowner, the buyer would have additional expenses like maintenance and possibly, a HOA.

To illustrate the net effect, let’s look at a purchase price of $275,000 with 3.5% down payment on a 4.75% 30-year FHA loan. We’ll assume the home appreciates at 3% annually and the buyer is currently paying $2,000 a month rent.

newsletter 102218.png

The total payment is $2,115.44 including principal, interest, property taxes, property and mortgage insurance. However, when you consider the monthly principal reduction, appreciation, maintenance and HOA, the net cost of housing is $1,205.72. It costs $794.28 more a month to rent than to own. In a year’s time, it would cost $9,531.36 more to rent than to own which is more than the down payment required to buy the home.

In seven-years, the $9,625 down payment would grow to over $101,000 in equity. The equity build-up far exceeds the tax benefits which some people would have as an additional incentive. Use this Rent vs. Own to see what the net cost of housing would be using a home in your price range or call me at (850) 202-8647 and I’ll do it for you.

Posted October 23, 2018 by Bernie Mostoller in Uncategorized

HELOCs Becoming More Expensive   Leave a comment

In September, the Federal Reserve raised interest rates for the third time in 2018 and they’re expected to go up one more time this year and three times next year. If you have a Home Equity Line of Credit, HELOC, you’re paying more to use that money and it is going to become more expensive.

It may make sense to refinance your home and consolidate the balance of your HELOC to lock in a lower mortgage rate. Most lenders require that the combination of these loans should not exceed 80% of the home’s fair market value and that you have good credit and adequate income to support the payment.

A HELOC is a first or second mortgage that allows the borrower to withdraw money as needed, up to the line of credit provided by the lender. A draw period is established where the borrower is only required to pay interest.

Since all HELOC loans are variable rate mortgages, during periods of rising rates, the cost of the funds increase. However, unlike adjustable rate mortgages that have specified adjustment periods and caps, a HELOC adjusts when the prime interest changes.

The formula for determining available funds on a refinance are to take 80% of the fair market value, which will probably have to be verified by appraisal, less the existing first mortgage and the costs to refinance. The balance would need to cover the cost of replacing the HELOC. Any remaining balance may be available for cash to be taken out.

Now is a great time for a mortgage review.In many cases, the equity you have in your home may allow you to eliminate mortgage insurance and substantially lower your monthly payment.As with all tax matters, always consult with a tax professional before making any decisions.Call us at (850) 202-8647 for a recommendation of a trusted mortgage professional.

Posted October 16, 2018 by Bernie Mostoller in Uncategorized

Fast Track Rental Property   Leave a comment

FHA allows owner-occupants to purchase up to a four-unit property with a minimum 3.5% down payment. The rent collected on three units could be used to make the payment and the owners’ pro-rata share would be less than ¼ of the payment itself.

The owner-occupied unit would be considered their principal residence. The other three units are treated as rental property and eligible for cost recovery, a non-cash deduction plus all the normal business expenses. The rental income of the three remaining units is calculated as income and assists the buyer in qualifying.

A homeowner could buy a four-unit, live in one for two years, buy another four-unit with a minimum down payment, move into one unit, rent the other three as well as the previous unit in the first property. Then, after another two years, repeat the same process over again.

The fifth year, the homeowner/investor would have a total of 11 rental units plus the one that they are occupying. An acquisition strategy like this might be difficult for a family with children and a single person or couple might find it easier to move more frequently.

As the equity increases in these properties, due to appreciation and amortization, the money could be pulled out through refinancing to purchase additional income properties. Another objective might be to pay the mortgage off as soon as possible and any cash flow after tax could be applied directly to the principal.

FHA has a nationwide mortgage limit for a four-unit of $521,250 but some high-cost areas have been designated with increased limits. There are also loan programs for two and three-unit properties with limits of $347,000 and $419,425 with similar exceptions for high-cost areas.

The low mortgage rate and minimal down payments for owner-occupied FHA mortgages makes this strategy attractive because it gives investors an opportunity to highly leverage their investment. Most non-owner-occupied (investor) mortgages would require 20-25% down payment and have a slightly higher interest rate than for an owner-occupant.

To learn more about this opportunity, call (850) 202-8647 and we can give you information on specifics in a variety of areas.

Posted October 9, 2018 by Bernie Mostoller in Uncategorized

Mortgage Free   Leave a comment

It may be an all too common belief that a person will have a house payment and a car payment for the rest of their lives. However, with a plan and some determination, you can be mortgage free.

Planning for retirement is obviously important and many times, an activity plagued by procrastination. Some homeowners’ goal is to have their home paid for by retirement, so they won’t have payments. It makes sense to eliminate a sizable recurring expense before they quit working.

By making regular principal contributions in addition to the payments, the debt can be eliminated by the target retirement date.

Assume a homeowner refinanced their $300,000 mortgage at 4% last year for 30 years with the first payment due on May 1, 2017. With normal amortization, the home will be paid for at the end of the term.

Additional principal contributions with each payment will save interest, build equity and of course, accelerate the payoff on the home. An extra $250.00 a month would pay off the mortgage 7.5 years sooner. $786.81 extra with each payment would pay off the loan in 15 years.

Having a home paid for at retirement has the apparent benefit of no house payment. A debt-free home is also a substantial asset that could be borrowed against or sold if unanticipated events should occur.

To make some projections to pay off your own mortgage, use this use the Equity Accelerator calculator.

Posted October 2, 2018 by Bernie Mostoller in Uncategorized