By the time most Americans are in their 20s or 30s, they are anxious to take part in the “American Dream” by purchasing their own home. And unless they’ve hit the lottery, they will need a mortgage to make that happen.
Here are three important steps to take early in life to make sure you will be approved for that mortgage down the road.
1.) Apply for and use (but don’t abuse) credit cards. When you apply for a mortgage, a bank is going to look at your credit history. If you don’t have a credit history, it’s not going to be to your advantage. You don’t want a lot of cards - one to three will do - but make sure that you use them and don’t abuse them. If you ring up high debts on your cards that you will be paying back forever, that won’t help your situation. Charge what you know you will be able to pay off at the end of the month. A credit history that shows a couple of credit cards that are paid off each month will make any banker or mortgage broker smile.
2.) Have a stable job. If you jump from job to job each year (or even worse...career to career), the bank may feel a bit uneasy. Why? Well, after the bank loans you the money for your house, who’s to say that you won’t be leaving your current job soon? The bank needs to make sure that the money they are about to loan you will be paid back. There’s a higher risk for them if your employment is unstable from year to year.
3.) Save for a down payment. You don’t necessarily need to have a ton of money in the bank in order to get a mortgage loan. In fact, your job status and credit history are far more important. But, unless the bank is running a 0% down special, you will need to put some money down towards the house before they will give you a loan. 20% of the purchase price is standard, but there are often specials where you can put down as little as 10%, or even 5%. Obviously, though, the more you have saved, the better off you’ll be.
A home is probably the biggest purchase you’ll ever make. And without a bank’s help, that purchase may never happen. But if you prepare early in life and establish yourself as a “good risk,” making the “American Dream” a reality in your life should not be a problem.
http://mimi.essortment.com/mortgageapprova_rrdq.htm
Tuesday, June 26, 2007
Tips on finding a home mortgage lender company
You searched for months and have finally found the perfect home. One problem: there’s a little thing called a mortgage that stands in your way before you can pack up and move on in. For many people, the word “mortgage” sends a chill down their spines. But it does not have to. Here are a few tricks that will make the process of getting a mortgage a whole lot easier, and will get you into your dream home with a smile on your face.
The first tip is to shop around. Compare what the different lenders are offering. They are not always the same. Check the newspaper to compare interest rates and for the web savvy, check the Internet. With the Internet, the legwork is done for you. You can now compare a bunch of different lenders online, and find the one that best fits you needs.
But you do not always have to head for the lowest rate. Here is why. Most people only stay in their homes, on average, for seven years. Many banks and mortgage companies know this, and will charge you more up front, in the form of points (points are a percentage of the loan, paid up front. For example, two points on a $100,000 is $2000 that you would have to pay before you move in) and higher closing costs.
Also, you should look at a number of different kinds of loans. The traditional loan is a 30 year fixed rate loan where the interest rate will never go up and will never go down. Try looking into adjustable rates. Adjustable rates are loans where the interest rates are locked for a period of time… say five years… and then rise or fall in accordance with the market. Adjustable rates are also lower than fixed rates. So if you know that you will not be living in your house five years form now, an adjustable rate is definitely worth looking into. If you plan to stay in you home after the adjustable time period is up, you can also refinance your loan at that time. If an adjustable rate is being considered, ask the lender for the ceiling on the rate for a given year as well as over the life of the loan.
Buying a house can be a scary thing. But with a little work and research, you should be able to move in without the financial headaches.
http://tn.essortment.com/findingamort_rwse.htm
The first tip is to shop around. Compare what the different lenders are offering. They are not always the same. Check the newspaper to compare interest rates and for the web savvy, check the Internet. With the Internet, the legwork is done for you. You can now compare a bunch of different lenders online, and find the one that best fits you needs.
But you do not always have to head for the lowest rate. Here is why. Most people only stay in their homes, on average, for seven years. Many banks and mortgage companies know this, and will charge you more up front, in the form of points (points are a percentage of the loan, paid up front. For example, two points on a $100,000 is $2000 that you would have to pay before you move in) and higher closing costs.
Also, you should look at a number of different kinds of loans. The traditional loan is a 30 year fixed rate loan where the interest rate will never go up and will never go down. Try looking into adjustable rates. Adjustable rates are loans where the interest rates are locked for a period of time… say five years… and then rise or fall in accordance with the market. Adjustable rates are also lower than fixed rates. So if you know that you will not be living in your house five years form now, an adjustable rate is definitely worth looking into. If you plan to stay in you home after the adjustable time period is up, you can also refinance your loan at that time. If an adjustable rate is being considered, ask the lender for the ceiling on the rate for a given year as well as over the life of the loan.
Buying a house can be a scary thing. But with a little work and research, you should be able to move in without the financial headaches.
http://tn.essortment.com/findingamort_rwse.htm
Money tips: 5 tips for refinancing your house
Today’s refi market is hot. Falling interest rates have created a demand for home refinancing as never before. Scams and pitfall abound. Use these tips to make your refi safe and secure.
CHECK YOUR CREDIT WELL BEFORE YOU START
Before laying out any money for refinancing fees, check your credit report. The reports cost about $9 each. Get a report from each of the three main credit bureaus because information recorded varies with each provider. Contact them at Esperian 972/390-3674, TransUnion 714/447-6032 and Equifax 800/777-3329.
Once you have you credit report in hand, make a list of the negatives or errors that will have to be corrected or disputed. Errors do creep into even the most pristine credit holder. The dispute process could take months, so it’s a good idea to begin correcting errors or making corrections at least six months before you refinance your home.
Keep in mind that no short-term strategies are going to repair long-term credit hits or poor credit scores. If you’ve been habitually late paying bills, and regularly fall behind by 30, 60, 90 days or more, your score will be less than 620. If it is, then you’re in subprime territory where the costs for refinancing will be higher if you can qualify at all. A quick trip to a lender’s office will determine the type of loan you can or can’t qualify for, and what types of increased costs you can expect. Sometimes the refi net yield may be a wash depending upon how much you still owe on your original loan and increased closing costs and fees. If so, it’s better to pass rather than spend the money.
FIGURE YOUR RATE OF RETURN
Refinancing either yields a lower interest rate and better loan terms, or quick cash from your home's equity. The lure of quick cash to use as you like is strong. But a refi isn’t always the best solution. Look beyond the cash or rates and see what the actual costs will be, amortized over several months for the type of loan you want.
Rate-and-term refinancing pays off the existing loan with money from the new, using your home as collateral. It’s useful because it yields lower interest rates or shortens the time it takes to repay a loan. This refinancing offers several options, including switching from an adjustable rate mortgage (ARM) to a fixed, or from a fixed to an ARM. If you currently have an ARM about to adjust upwards, refinancing with a fixed-rate mortgage can offset the costs of the ARM’s increased interest. If you plan to move in a few years, you could refinance with an ARM at a lower rate. Or you could refinance your 30-year loan to 15.
Cash-out refinancing provides cash after paying off your existing mortgage, closing costs, points and any liens. This is a useful option if you bought you home for a lower amount than it’s current appraised value.
DETERMINE HOW YOU WANT TO BE TOUCHED
A quick internet search reveals hundreds of lending institutions more than willing to refinance your home. You need to choose between the face-to-face contact a local mortgage bank or credit union offers, vrs internet lenders whom you may rarely talk to and never see. Some internet lenders are linked to actual brick-and-mortar financial institutions or mortgage brokers. Others are virtual banks or brokers.
A local banker offers familiarity and people you know and trust. They offer a more simplified and sometimes faster process offering everything you need under one roof. They also offer savings by providing better terms depending upon the amount of your deposited assets.
The downside is that mortgage banks only offer limited programs which may not be the best fit for you.
On the other hand, a mortgage broker may represent hundreds of loan products from different lenders. The broker gets paid a commission to match your needs with a loan at the best price. Once approved, you deal directly with the loan originator. A broker can be faster than a bank and better able to match your needs by finding a national lender that can save you money.
The downside is that brokers are not as tightly regulated as banks. Some unethical brokers try to insert hidden costs into your loan increasing their profit margins. Their focus remains on commission rather than on your needs.
Local credit union officers can give you a much more personalized service. The disadvantage is that the existing loan programs they offer may be limited.
DO YOUR HOMEWORK
Research the mortgage process and understand the various types of loans offered by different lenders. Ask friends and family members for recommendations. Check the credentials of any broker you decide to work with by contacting your state’s department of banking or division of real estate. You can find this information with an online check of the Library of Congress for an index of state and local government websites. Contact the local Better Business Bureau for any complaints on file.
SHOP AROUND AND GET IT IN WRITING
Compare offered deals on a point-per-point basis. Be wary of quoted rates during the refi boom because there are plenty of dishonest lenders willing to quote unreal rates initially to reel you in, then add fees at the last stage of the refi process hoping you won't notice. If you do, they may try to force you to accept these with fear tactics. Buyer beware.
Your lender is required to provide a document called the good faith estimates (GFE) of fees due at closing. Typical closing costs run 3-5% of the sale price, so wait until you receive the GFE before committing. It’s a good idea to obtain GFEs from several lenders, so you can compare costs and get clarification about discrepancies, and use to negotiate lender fees or for third-party fees the lender marks up.
Keep in mind that the current refi boom can work to your advantage. There are a great deal of lenders now hungering for your business, so be prepared, ask questions, ask for proof and be ready to negotiate fees that seem high to you. Also remember that before you commit, you still have the right to nix the whole deal within three days and all fees must be returned to you by law.
http://www.essortment.com/career/moneytipsref_twtz.htm
CHECK YOUR CREDIT WELL BEFORE YOU START
Before laying out any money for refinancing fees, check your credit report. The reports cost about $9 each. Get a report from each of the three main credit bureaus because information recorded varies with each provider. Contact them at Esperian 972/390-3674, TransUnion 714/447-6032 and Equifax 800/777-3329.
Once you have you credit report in hand, make a list of the negatives or errors that will have to be corrected or disputed. Errors do creep into even the most pristine credit holder. The dispute process could take months, so it’s a good idea to begin correcting errors or making corrections at least six months before you refinance your home.
Keep in mind that no short-term strategies are going to repair long-term credit hits or poor credit scores. If you’ve been habitually late paying bills, and regularly fall behind by 30, 60, 90 days or more, your score will be less than 620. If it is, then you’re in subprime territory where the costs for refinancing will be higher if you can qualify at all. A quick trip to a lender’s office will determine the type of loan you can or can’t qualify for, and what types of increased costs you can expect. Sometimes the refi net yield may be a wash depending upon how much you still owe on your original loan and increased closing costs and fees. If so, it’s better to pass rather than spend the money.
FIGURE YOUR RATE OF RETURN
Refinancing either yields a lower interest rate and better loan terms, or quick cash from your home's equity. The lure of quick cash to use as you like is strong. But a refi isn’t always the best solution. Look beyond the cash or rates and see what the actual costs will be, amortized over several months for the type of loan you want.
Rate-and-term refinancing pays off the existing loan with money from the new, using your home as collateral. It’s useful because it yields lower interest rates or shortens the time it takes to repay a loan. This refinancing offers several options, including switching from an adjustable rate mortgage (ARM) to a fixed, or from a fixed to an ARM. If you currently have an ARM about to adjust upwards, refinancing with a fixed-rate mortgage can offset the costs of the ARM’s increased interest. If you plan to move in a few years, you could refinance with an ARM at a lower rate. Or you could refinance your 30-year loan to 15.
Cash-out refinancing provides cash after paying off your existing mortgage, closing costs, points and any liens. This is a useful option if you bought you home for a lower amount than it’s current appraised value.
DETERMINE HOW YOU WANT TO BE TOUCHED
A quick internet search reveals hundreds of lending institutions more than willing to refinance your home. You need to choose between the face-to-face contact a local mortgage bank or credit union offers, vrs internet lenders whom you may rarely talk to and never see. Some internet lenders are linked to actual brick-and-mortar financial institutions or mortgage brokers. Others are virtual banks or brokers.
A local banker offers familiarity and people you know and trust. They offer a more simplified and sometimes faster process offering everything you need under one roof. They also offer savings by providing better terms depending upon the amount of your deposited assets.
The downside is that mortgage banks only offer limited programs which may not be the best fit for you.
On the other hand, a mortgage broker may represent hundreds of loan products from different lenders. The broker gets paid a commission to match your needs with a loan at the best price. Once approved, you deal directly with the loan originator. A broker can be faster than a bank and better able to match your needs by finding a national lender that can save you money.
The downside is that brokers are not as tightly regulated as banks. Some unethical brokers try to insert hidden costs into your loan increasing their profit margins. Their focus remains on commission rather than on your needs.
Local credit union officers can give you a much more personalized service. The disadvantage is that the existing loan programs they offer may be limited.
DO YOUR HOMEWORK
Research the mortgage process and understand the various types of loans offered by different lenders. Ask friends and family members for recommendations. Check the credentials of any broker you decide to work with by contacting your state’s department of banking or division of real estate. You can find this information with an online check of the Library of Congress for an index of state and local government websites. Contact the local Better Business Bureau for any complaints on file.
SHOP AROUND AND GET IT IN WRITING
Compare offered deals on a point-per-point basis. Be wary of quoted rates during the refi boom because there are plenty of dishonest lenders willing to quote unreal rates initially to reel you in, then add fees at the last stage of the refi process hoping you won't notice. If you do, they may try to force you to accept these with fear tactics. Buyer beware.
Your lender is required to provide a document called the good faith estimates (GFE) of fees due at closing. Typical closing costs run 3-5% of the sale price, so wait until you receive the GFE before committing. It’s a good idea to obtain GFEs from several lenders, so you can compare costs and get clarification about discrepancies, and use to negotiate lender fees or for third-party fees the lender marks up.
Keep in mind that the current refi boom can work to your advantage. There are a great deal of lenders now hungering for your business, so be prepared, ask questions, ask for proof and be ready to negotiate fees that seem high to you. Also remember that before you commit, you still have the right to nix the whole deal within three days and all fees must be returned to you by law.
http://www.essortment.com/career/moneytipsref_twtz.htm
Pros and cons of adjustable rate loans
It doesn't take a rocket scientist to figure out that the majority of people in our society are interested in saving money. Department stores boast "lowest prices of the season" sales nearly every weekend. Half of Sunday's newspaper consists of sales fliers or coupons to clip. And whose mailbox isn't full of money saving opportunities nearly every day? We clip coupons, mail in rebates, and check the online auctions all in hopes of saving money whenever possible. And, this same money-saving mindset is at the forefront of our home-buying ventures as well. We select a price range that our budget will be able to accommodate, search for the most affordable option to fit our lifestyle, and hope to purchase the home for a little less than the asking price. After going to all of this effort to get the biggest bargain, it only makes sense that we would want to choose the home mortgage that will offer the best bargain as well. And, as many potential home buyers quickly discover, adjustable rate mortgages often offer the lowest interest rate available. However, it is important to carefully consider the pros and cons of such a loan prior to signing on the dotted line.
One of the biggest, and most obvious, advantages of an adjustable rate mortgage is the fact that the lowest interest rates are generally associated with such loans. In fact, the interest rate on adjustable rate mortgages can be significantly more desirable. And, simply put, a lower interest rate equates to a lower mortgage payment each month. Not only does this save the homeowner money with each monthly payment, it will offer a significant savings over the life of the loan. This savings often means the difference between being able to afford a new home, and being able to afford the home of your dreams.
Let’s consider the difference a lower interest rate can make. If we were to take out a 30-year mortgage for $200,000 at 5% interest, the monthly payments on principal and interest only would be approximately $1074. Over the life of the loan, we would repay a total of $186,513 in interest alone. If we were to borrow the same $200,000 for 30 years at 7.5% interest, our monthly payments on principal and interest only would be $1398. That’s an increase of $325 each month, simply due to a higher interest rate. Over the 30-year life of the loan, we would repay $303,434 in interest alone. The higher interest rate would cost us an extra $116,921 over the life of the loan. There’s no doubt about it, a lower interest rate is important.
So, if an adjustable rate mortgage offers a lower interest rate, then why isn’t this the best option for everyone? Because all good things must come to an end. Adjustable rate mortgages fluctuate, and the lower rate may not last forever. Accepting the terms of such a mortgage means you are willing to take the risk of the interest rate increasing significantly while you own your home. The interest rates on an adjustable mortgage will increase or decrease based on the economy. And, in time, what began as a very low, desirable rate, may become significantly higher than the fixed rate you were able to obtain at the time the home was purchased. If your budget is not able to accommodate an increased interest rate and higher payments, an adjustable mortgage might not be the best option. A fixed rate mortgage may start out a few points higher, but you are guaranteed that rate will remain constant throughout the life of the loan.
There are definitely options available. For instance, you might choose to take advantage of an adjustable rate mortgage’s lower interest rates at the time the home is purchased, with the intention of refinancing and obtaining a fixed mortgage if the rates begin to rise. Or, you might determine that the initial rate is desirable enough that you could afford the increased interest when and if the rates begin to climb. Often there will be a cap on how much the interest rate is able to increase, and how often the rates can change. Be sure to find out all of this information before making a decision on which loan will best suit your needs.
Another consideration is the fact that adjustable mortgages usually offer a certain period of time during which the low rate is locked in. Each loan will offer different terms, and it is imperative that you find this information. Assuming that this period during which the rate is locked-in is five years, and you do not plan to own the home that long, you will not have to deal with an increased interest rate. You will be selling the home before the increased interest rate impacts you financially.
In other situations, homeowners may anticipate that their income will increase enough during this locked-in period that they will be able to afford a potentially higher interest rate, the initial savings may be well worth the risk. For example, homeowners at the beginning of their careers, completing advanced degrees, or anticipating promotions can expect that their incomes five years from now will be able to handle an increase in their mortgage payment if the interest rates rise. Those preparing for retirement, getting ready to begin a family, or expecting their children to enter college within the next few years might not be willing to take this gamble.
There are obviously many pros and cons associated with adjustable rate mortgages. Each potential homeowner must carefully consider his unique situation and determine whether and adjustable rate is right for him.
http://www.essortment.com/career/moneytipspros_tuac.htm
One of the biggest, and most obvious, advantages of an adjustable rate mortgage is the fact that the lowest interest rates are generally associated with such loans. In fact, the interest rate on adjustable rate mortgages can be significantly more desirable. And, simply put, a lower interest rate equates to a lower mortgage payment each month. Not only does this save the homeowner money with each monthly payment, it will offer a significant savings over the life of the loan. This savings often means the difference between being able to afford a new home, and being able to afford the home of your dreams.
Let’s consider the difference a lower interest rate can make. If we were to take out a 30-year mortgage for $200,000 at 5% interest, the monthly payments on principal and interest only would be approximately $1074. Over the life of the loan, we would repay a total of $186,513 in interest alone. If we were to borrow the same $200,000 for 30 years at 7.5% interest, our monthly payments on principal and interest only would be $1398. That’s an increase of $325 each month, simply due to a higher interest rate. Over the 30-year life of the loan, we would repay $303,434 in interest alone. The higher interest rate would cost us an extra $116,921 over the life of the loan. There’s no doubt about it, a lower interest rate is important.
So, if an adjustable rate mortgage offers a lower interest rate, then why isn’t this the best option for everyone? Because all good things must come to an end. Adjustable rate mortgages fluctuate, and the lower rate may not last forever. Accepting the terms of such a mortgage means you are willing to take the risk of the interest rate increasing significantly while you own your home. The interest rates on an adjustable mortgage will increase or decrease based on the economy. And, in time, what began as a very low, desirable rate, may become significantly higher than the fixed rate you were able to obtain at the time the home was purchased. If your budget is not able to accommodate an increased interest rate and higher payments, an adjustable mortgage might not be the best option. A fixed rate mortgage may start out a few points higher, but you are guaranteed that rate will remain constant throughout the life of the loan.
There are definitely options available. For instance, you might choose to take advantage of an adjustable rate mortgage’s lower interest rates at the time the home is purchased, with the intention of refinancing and obtaining a fixed mortgage if the rates begin to rise. Or, you might determine that the initial rate is desirable enough that you could afford the increased interest when and if the rates begin to climb. Often there will be a cap on how much the interest rate is able to increase, and how often the rates can change. Be sure to find out all of this information before making a decision on which loan will best suit your needs.
Another consideration is the fact that adjustable mortgages usually offer a certain period of time during which the low rate is locked in. Each loan will offer different terms, and it is imperative that you find this information. Assuming that this period during which the rate is locked-in is five years, and you do not plan to own the home that long, you will not have to deal with an increased interest rate. You will be selling the home before the increased interest rate impacts you financially.
In other situations, homeowners may anticipate that their income will increase enough during this locked-in period that they will be able to afford a potentially higher interest rate, the initial savings may be well worth the risk. For example, homeowners at the beginning of their careers, completing advanced degrees, or anticipating promotions can expect that their incomes five years from now will be able to handle an increase in their mortgage payment if the interest rates rise. Those preparing for retirement, getting ready to begin a family, or expecting their children to enter college within the next few years might not be willing to take this gamble.
There are obviously many pros and cons associated with adjustable rate mortgages. Each potential homeowner must carefully consider his unique situation and determine whether and adjustable rate is right for him.
http://www.essortment.com/career/moneytipspros_tuac.htm
5 tips for avoiding foreclosure
Foreclosure laws were enacted in order to protect homeowners and to give them every opportunity to keep their homes. The key to avoiding foreclosure is to act as quickly as possible. The sooner you act, the more options there are available to you. Also, keep in mind that, as long as the home is in foreclosure, additional fees and costs will continue to be added to the amount you owe. So, the sooner you can bring the loan current and stop the foreclosure, the better off you will be.
If your home loan is in default and your lender initiates a foreclosure, the most obvious solution it so to work out a reinstatement plan. Once your lender starts a foreclosure, you will have a period of several months before your home is sold at a foreclosure sale. During this time, you can work out a reinstatement plan with your lender. Under a reinstatement plan, you will make regular monthly payments in an amount that will cover the usual monthly payments on the loan, a portion of the amount you are in arrears on the loan, and a portion of the foreclosure fees.
The foreclosure will proceed until you have completed the reinstatement plan. Once you make all payments under the reinstatement plan, your loan will again be current and the foreclosure will stop. Everything will go back to normal, and you will then continue to make your regular monthly payments on the loan.
If you are unable to work out a reinstatement plan with your lender, or if that is simply not an option for you, here are five tips to help you avoid foreclosure:
1. Take out a personal loan.
One problem with reinstatement plans is that they require you to make very large monthly payments during the reinstatement period, generally several hundred dollars more than your regular payment. Assuming that you were having problems making payments before the foreclosure, making even larger payments during a reinstatement plan period may be difficult or impossible. A better option might be to take out a personal loan which you can repay over a longer period of time and with smaller monthly payments. Consider taking out a personal loan from a friend or family member in an amount sufficient to bring your home loan current, pay the foreclosure fees and stop the foreclosure. Another option is to take out a personal loan through a lender. If you have poor credit, you may be required to put up collateral for the loan, such as your automobile or other property.
Another alternative, if you have a 401(k) plan or another pension or retirement plan, may be to borrow from your retirement plan in order to bring your home loan current and save your home. Many retirement plans have provisions for emergency loans. Check with your retirement advisor and see if this may be an option for you. If so, you will be able to borrow the money necessary to save your home and then repay the funds back into your retirement plan from your paychecks over a period of time.
2. Take out a home equity loan or refinance your mortgage.
If you have sufficient equity in your home, you may be able to take out a home equity loan in order to bring your loan current and stop the foreclosure. There are a couple of drawbacks to this option. First of all, while the home is in foreclosure, it may be difficult to find a lender who is willing to make a home equity loan on the property. Second, the interest rate on such a loan may be high, so, again, your combined monthly payments on the mortgage and home equity loan may be more than you can afford. In order to minimize these problems, take the loan out only for the amount necessary to bring the mortgage current and to put you in a position to begin making the monthly mortgage payments on time. You may also be able to find a lender who will allow you to make interest only payments until such time as you can refinance your mortgage and repay the loan in full. Whatever you do, do not let a lender talk you into taking out a home equity for more than you need to accomplish the purpose of stopping the foreclosure.
Although it may be difficult to find a lender willing to do so while the home is in foreclosure, it is also possible that you may be able to refinance your current loan. This is especially true if you have a good credit and payment history, but have been suffering temporary, short-term financial problems. If you have been in the home for a sufficient period of time, have a good employment history and income, and up until now, have a decent credit history, you may be able to find a lender who will refinance the mortgage. In this way, the first mortgage will be paid off in full, you will have a completely fresh start, and you may even come away with a few extra dollars in your pocket.
3. Generate extra income.
Once your home is in foreclosure, you will probably need to come up with two or three months payments to cover the arrearages on the loan, as well as steep foreclosure fees and expenses. This may amount to several thousands of dollars. The best and fastest way to pay this balance and bring your loan current may be to liquidate another of your assets. If you have a second car that you can do without until you get back on your feet, consider selling the car in order to stop the foreclosure and save your home. If you have a time share, a vacation property or valuable jewelry or collectibles, it may be worth selling them in order to bring your home loan current without putting yourself further into debt.
Another alternative is to take a temporary second job for a short period of time, perhaps several months. In this way, you can bring the loan current before the foreclosure sale, either under the terms of a reinstatement plan, or outside a reinstatement plan. You may be able to claim exemption from having taxes taken out of your second paycheck and use all of the funds from your second job toward paying the arrearages and foreclosure fees so that your loan is current before the date of the foreclosure sale rolls around.
4. File for bankruptcy protection.
Depending on your financial circumstances, you may wish to file for bankruptcy protection. Bankruptcy laws, like foreclosure laws, were enacted in order to protect consumers. If you are going through a difficult time financially, are unable to work something out with your mortgage lender and see no other alternatives, bankruptcy may be available in order to protect your home and give you a fresh start. Once you file for bankruptcy, your lender will not be permitted to proceed with the foreclosure without first petitioning the United States Bankruptcy Court for permission to do so. The Bankruptcy Court will make every attempt to help you work things out with your lender so that you can keep your home, unless it determines that, under your financial circumstances, it would be impossible to do so.
5. Sell the property.
If you have a family member who is financially able, who is creditworthy and who is willing to help, you might consider selling the home to the family member for the amount necessary to pay off the existing loan. You can agree in advance with the family member that you will rent the property from him or her for a specified period of time, perhaps two years, while you get back on your feet financially. Your family member will obtain a new loan on the property which will pay off the existing loan. You can then lease the property back, with an option to buy, for a monthly rent sufficient to cover the new loan payments. At some point in the future, once you have had an opportunity to get on your feet and re-establish creditworthiness, you can purchase the home back from your family member for an amount agreed upon in advance. This will be an investment for your family member as well. You can agree in advance on a purchase amount which will allow your family member a specified amount or a share of the home's equity at the time of the sale back to you.
Another option may be to sell the home outright and move on with your life. Our society places a high value on home ownership as the American dream. However, home ownership is not for everyone. Owning a home is very expensive. In addition to monthly mortgage payments, homeowners are responsible for paying property taxes and homeowner's insurance. Additionally, when the roof leaks or there are plumbing problems or termites, homeowners do not have the luxury of asking a landlord to make repairs. The homeowner is responsible for making and paying for all such repairs. When you are having trouble making your monthly mortgage payments, chances are the funds are not available to make necessary repairs or improvements or even to perform routine home maintenance. This can create a very stressful situation. Finally, home ownership takes away a certain amount of freedom and mobility. If you decide you want to move to a new area, or your company transfers you to a new city or state, it is not always so easy to sell your home and make a move. Also, if you decide you want to downsize or simplify your life and pay less for a dwelling, you have to first sell your home. You cannot simply give thirty days notice and find a less expensive place to live.
Depending on your circumstances, the best option might be to sell your home before the foreclosure sale. This way, you can get a better price for the home than a foreclosure sale would bring. By selling the home yourself, you may be able to keep your equity, walk away from the sale with a few extra dollars in your pocket and regain your sense of freedom.
http://www.essortment.com/career/tipsavoiding_twrw.htm
If your home loan is in default and your lender initiates a foreclosure, the most obvious solution it so to work out a reinstatement plan. Once your lender starts a foreclosure, you will have a period of several months before your home is sold at a foreclosure sale. During this time, you can work out a reinstatement plan with your lender. Under a reinstatement plan, you will make regular monthly payments in an amount that will cover the usual monthly payments on the loan, a portion of the amount you are in arrears on the loan, and a portion of the foreclosure fees.
The foreclosure will proceed until you have completed the reinstatement plan. Once you make all payments under the reinstatement plan, your loan will again be current and the foreclosure will stop. Everything will go back to normal, and you will then continue to make your regular monthly payments on the loan.
If you are unable to work out a reinstatement plan with your lender, or if that is simply not an option for you, here are five tips to help you avoid foreclosure:
1. Take out a personal loan.
One problem with reinstatement plans is that they require you to make very large monthly payments during the reinstatement period, generally several hundred dollars more than your regular payment. Assuming that you were having problems making payments before the foreclosure, making even larger payments during a reinstatement plan period may be difficult or impossible. A better option might be to take out a personal loan which you can repay over a longer period of time and with smaller monthly payments. Consider taking out a personal loan from a friend or family member in an amount sufficient to bring your home loan current, pay the foreclosure fees and stop the foreclosure. Another option is to take out a personal loan through a lender. If you have poor credit, you may be required to put up collateral for the loan, such as your automobile or other property.
Another alternative, if you have a 401(k) plan or another pension or retirement plan, may be to borrow from your retirement plan in order to bring your home loan current and save your home. Many retirement plans have provisions for emergency loans. Check with your retirement advisor and see if this may be an option for you. If so, you will be able to borrow the money necessary to save your home and then repay the funds back into your retirement plan from your paychecks over a period of time.
2. Take out a home equity loan or refinance your mortgage.
If you have sufficient equity in your home, you may be able to take out a home equity loan in order to bring your loan current and stop the foreclosure. There are a couple of drawbacks to this option. First of all, while the home is in foreclosure, it may be difficult to find a lender who is willing to make a home equity loan on the property. Second, the interest rate on such a loan may be high, so, again, your combined monthly payments on the mortgage and home equity loan may be more than you can afford. In order to minimize these problems, take the loan out only for the amount necessary to bring the mortgage current and to put you in a position to begin making the monthly mortgage payments on time. You may also be able to find a lender who will allow you to make interest only payments until such time as you can refinance your mortgage and repay the loan in full. Whatever you do, do not let a lender talk you into taking out a home equity for more than you need to accomplish the purpose of stopping the foreclosure.
Although it may be difficult to find a lender willing to do so while the home is in foreclosure, it is also possible that you may be able to refinance your current loan. This is especially true if you have a good credit and payment history, but have been suffering temporary, short-term financial problems. If you have been in the home for a sufficient period of time, have a good employment history and income, and up until now, have a decent credit history, you may be able to find a lender who will refinance the mortgage. In this way, the first mortgage will be paid off in full, you will have a completely fresh start, and you may even come away with a few extra dollars in your pocket.
3. Generate extra income.
Once your home is in foreclosure, you will probably need to come up with two or three months payments to cover the arrearages on the loan, as well as steep foreclosure fees and expenses. This may amount to several thousands of dollars. The best and fastest way to pay this balance and bring your loan current may be to liquidate another of your assets. If you have a second car that you can do without until you get back on your feet, consider selling the car in order to stop the foreclosure and save your home. If you have a time share, a vacation property or valuable jewelry or collectibles, it may be worth selling them in order to bring your home loan current without putting yourself further into debt.
Another alternative is to take a temporary second job for a short period of time, perhaps several months. In this way, you can bring the loan current before the foreclosure sale, either under the terms of a reinstatement plan, or outside a reinstatement plan. You may be able to claim exemption from having taxes taken out of your second paycheck and use all of the funds from your second job toward paying the arrearages and foreclosure fees so that your loan is current before the date of the foreclosure sale rolls around.
4. File for bankruptcy protection.
Depending on your financial circumstances, you may wish to file for bankruptcy protection. Bankruptcy laws, like foreclosure laws, were enacted in order to protect consumers. If you are going through a difficult time financially, are unable to work something out with your mortgage lender and see no other alternatives, bankruptcy may be available in order to protect your home and give you a fresh start. Once you file for bankruptcy, your lender will not be permitted to proceed with the foreclosure without first petitioning the United States Bankruptcy Court for permission to do so. The Bankruptcy Court will make every attempt to help you work things out with your lender so that you can keep your home, unless it determines that, under your financial circumstances, it would be impossible to do so.
5. Sell the property.
If you have a family member who is financially able, who is creditworthy and who is willing to help, you might consider selling the home to the family member for the amount necessary to pay off the existing loan. You can agree in advance with the family member that you will rent the property from him or her for a specified period of time, perhaps two years, while you get back on your feet financially. Your family member will obtain a new loan on the property which will pay off the existing loan. You can then lease the property back, with an option to buy, for a monthly rent sufficient to cover the new loan payments. At some point in the future, once you have had an opportunity to get on your feet and re-establish creditworthiness, you can purchase the home back from your family member for an amount agreed upon in advance. This will be an investment for your family member as well. You can agree in advance on a purchase amount which will allow your family member a specified amount or a share of the home's equity at the time of the sale back to you.
Another option may be to sell the home outright and move on with your life. Our society places a high value on home ownership as the American dream. However, home ownership is not for everyone. Owning a home is very expensive. In addition to monthly mortgage payments, homeowners are responsible for paying property taxes and homeowner's insurance. Additionally, when the roof leaks or there are plumbing problems or termites, homeowners do not have the luxury of asking a landlord to make repairs. The homeowner is responsible for making and paying for all such repairs. When you are having trouble making your monthly mortgage payments, chances are the funds are not available to make necessary repairs or improvements or even to perform routine home maintenance. This can create a very stressful situation. Finally, home ownership takes away a certain amount of freedom and mobility. If you decide you want to move to a new area, or your company transfers you to a new city or state, it is not always so easy to sell your home and make a move. Also, if you decide you want to downsize or simplify your life and pay less for a dwelling, you have to first sell your home. You cannot simply give thirty days notice and find a less expensive place to live.
Depending on your circumstances, the best option might be to sell your home before the foreclosure sale. This way, you can get a better price for the home than a foreclosure sale would bring. By selling the home yourself, you may be able to keep your equity, walk away from the sale with a few extra dollars in your pocket and regain your sense of freedom.
http://www.essortment.com/career/tipsavoiding_twrw.htm
Mortgage options for home buyers
When choosing the best type of mortgage loan there are many options available to homebuyers. The most popular mortgages can be divided into two main categories to help simplify the choices. Mortgages that offer fixed interest rates and a fixed monthly payment, and some mortgages offer plans where either or both of those factors are adjustable.
FIXED RATE/FIXED PAYMENT
These loans are more traditional and remain the most common financing method. The advantages are obvious - you always know what amount your mortgage payment will be and you will always have the exact same interest rate until the mortgage is paid off regardless of inflation rates.
There are "30 year fixed rate" mortgages and "15 year fixed rate" industry options refer to the number of years the loan is to be paid back. Both offer considerable tax benefits but the 30-year plan has a slower equity build-up.
FLEXIBLE RATE MORTGAGES
Mortgages that have a flexible rate and/or flexible payments are popular during periods of high interest rates or rapidly growing prices.
Real estate specialists will refer to one mortgage option as the "ARM" or Adjustable Rate Mortgage. The ARM offers lower-than-market initial interest rates and payments can decrease or increase over time. Rates are generally determined according to terms specified by the lender according to short-term Treasury bill rates.
This mortgage option can be ideal for buyers whose income is going to increase substantially each year.
FHA/VA MORTGAGE LOANS
Government insured or guaranteed mortgages can make purchases more affordable than conventional loans. Little or no down payment is required and there are marginally better interest rates than the conventional 30-year mortgages. One drawback to a FHA or VA loan is that there is a lower limit on the amount of money that can be borrowed and the VA requires current or past military service.
BALLOON MORTGAGE
Generally used with a short-term loan, balloon mortgages are usually a fixed rate mortgage that is paid back in equal monthly payments with a final "balloon" payment for the remaining balance of the loan. This option offers buyers a lower monthly payment with full tax benefits but there is little or no equity buildup. Monthly payments are often comprised of interest only. Buyers often find that a balloon payment can only be met by refinancing or selling the house. This mortgage option can work well for buyers who plan on moving in a short amount of time or are confident of the short-term property appreciation.
SHARED APPRECIATION MORTGAGE
SAM is not a common mortgage but is an option for parents or other family members who wish to help a relative purchase a home. Ultimately the buyer is indebted to two parties and conventional financing may be easier to qualify for. In this method an arrangement is made in which a third party investor provides a percentage of the down payment. The third party also retains the same percentage of ownership and appreciation of the home. The occupant or buyer can buy out the third party at a later date, allowing them home-ownership with less cash down.
CONVENTIONAL MORTGAGES
Conventional mortgages require a minimum of 20% down but If you can't afford a 20% down payment ask your lender about PMI, or private mortgage insurance. Designed to protect the lender against borrower default, PMI allows you to obtain traditional financing with a lower down payment sometimes as low as 5%.
As with an FHA insured loan, you must pay premiums for PMI coverage. This coverage is determined by the type and amount of your loan. The maximum loan amount is determined by your lender and can be included in your monthly loan payment if you wish.
OTHER BUYING OPTIONS
We have only touched briefly on the most basic mortgages. There are excellent home buying options for first time home buyers including CHAMP but be aware that all mortgage companies in your area may not be authorized to write a CHAMP loan.
You can also check into options where buyers can save money by performing sweat-equity. There are also mortgages available where homeowners can receive government subsidy to purchase an existing home or even build a new home in a rural area. There are many requirements that must be met for this rural housing program and the other alternative options mentioned so check with your local real estate agent to see if they are a good option for you.
FIXED RATE/FIXED PAYMENT
These loans are more traditional and remain the most common financing method. The advantages are obvious - you always know what amount your mortgage payment will be and you will always have the exact same interest rate until the mortgage is paid off regardless of inflation rates.
There are "30 year fixed rate" mortgages and "15 year fixed rate" industry options refer to the number of years the loan is to be paid back. Both offer considerable tax benefits but the 30-year plan has a slower equity build-up.
FLEXIBLE RATE MORTGAGES
Mortgages that have a flexible rate and/or flexible payments are popular during periods of high interest rates or rapidly growing prices.
Real estate specialists will refer to one mortgage option as the "ARM" or Adjustable Rate Mortgage. The ARM offers lower-than-market initial interest rates and payments can decrease or increase over time. Rates are generally determined according to terms specified by the lender according to short-term Treasury bill rates.
This mortgage option can be ideal for buyers whose income is going to increase substantially each year.
FHA/VA MORTGAGE LOANS
Government insured or guaranteed mortgages can make purchases more affordable than conventional loans. Little or no down payment is required and there are marginally better interest rates than the conventional 30-year mortgages. One drawback to a FHA or VA loan is that there is a lower limit on the amount of money that can be borrowed and the VA requires current or past military service.
BALLOON MORTGAGE
Generally used with a short-term loan, balloon mortgages are usually a fixed rate mortgage that is paid back in equal monthly payments with a final "balloon" payment for the remaining balance of the loan. This option offers buyers a lower monthly payment with full tax benefits but there is little or no equity buildup. Monthly payments are often comprised of interest only. Buyers often find that a balloon payment can only be met by refinancing or selling the house. This mortgage option can work well for buyers who plan on moving in a short amount of time or are confident of the short-term property appreciation.
SHARED APPRECIATION MORTGAGE
SAM is not a common mortgage but is an option for parents or other family members who wish to help a relative purchase a home. Ultimately the buyer is indebted to two parties and conventional financing may be easier to qualify for. In this method an arrangement is made in which a third party investor provides a percentage of the down payment. The third party also retains the same percentage of ownership and appreciation of the home. The occupant or buyer can buy out the third party at a later date, allowing them home-ownership with less cash down.
CONVENTIONAL MORTGAGES
Conventional mortgages require a minimum of 20% down but If you can't afford a 20% down payment ask your lender about PMI, or private mortgage insurance. Designed to protect the lender against borrower default, PMI allows you to obtain traditional financing with a lower down payment sometimes as low as 5%.
As with an FHA insured loan, you must pay premiums for PMI coverage. This coverage is determined by the type and amount of your loan. The maximum loan amount is determined by your lender and can be included in your monthly loan payment if you wish.
OTHER BUYING OPTIONS
We have only touched briefly on the most basic mortgages. There are excellent home buying options for first time home buyers including CHAMP but be aware that all mortgage companies in your area may not be authorized to write a CHAMP loan.
You can also check into options where buyers can save money by performing sweat-equity. There are also mortgages available where homeowners can receive government subsidy to purchase an existing home or even build a new home in a rural area. There are many requirements that must be met for this rural housing program and the other alternative options mentioned so check with your local real estate agent to see if they are a good option for you.
Tips on saving money on your mortgage
You're about to buy your first home -- and to sign your first mortgage. Before doing so, look at these tips on saving money on your mortgage!
It’s the American dream and it’s about to come true for you and your family – you’re buying your very first home. Or perhaps you’re saving for the house you will buy someday.
Whether it’s one bedroom or four, attached garage or detached, in the city or in the country, chances are you’ll need a mortgage to make your dream come true – whether it’s now or two years from now. There are very few people who can put down cold, hard cash to make such a big purchase these days.
And like most new homebuyers, you’re probably living on a pretty tight budget. So when you look at your mortgage loan options and notice the payment is lower for a 30-year mortgage than a 10- or 20-year mortgage, you might be tempted to opt for the lowest payment.
But before you sign on the dotted line, stop for a minute. Take a look at the difference between the amount of those payments and calculate how much that extra 10 or 20 years is going to cost you. You’ll be horrified.
Let’s look at an example. Say you need to finance $80,000 at 7% interest. The payments on a 30-year mortgage would be about $532.25 per month. That same mortgage at that same interest rate would carry monthly payments of approximately $620.24 if the loan were for a 20-year term. And that same exact $80,000 mortgage at the same 7% interest rate would cost you $928.87 per month over a period of 10 years. While it’s tempting to grab the lowest monthly payment and run, don’t.
Let’s look a little further – and do the math. What will the loan – principal and interest included – really cost you over the entire term of the loan? Over 30 years, that $80,000 mortgage is really going to cost you a total of $191,610. In a 20-year period, an $80,000 mortgage will actually cost you $148,857.60. But if you take out a 10-year mortgage instead – even if you have to skimp a little each month for those first 10 years to pay the higher amount – that same $80,000 loan will only cost you a total of $111,464.40. That’s high enough considering you’ll be paying $31,464.40 in interest alone! Why would you want to pay even more in interest just to stretch your payments out over a few more years?
Look at the difference! By financing your mortgage for 20 years instead of 30, you could save $42,752.40! If you finance your mortgage for 10 years instead of 20, you could save $37,393.20! And if you could finance your $80,000 mortgage at 7% interest for 10 years instead of 30 – you’d save a whopping $80,145.60 – nearly enough to buy another entire house!
Is stretching those payments out 10 and 20 more years respectively really worth the extra expense? Not likely.
Whenever possible, opt for the very shortest possible mortgage period you can afford. You’ll be amazed at all the money you can save just by adjusting the length of your loan!
http://tntn.essortment.com/tipsonsavingm_rgtk.htm
It’s the American dream and it’s about to come true for you and your family – you’re buying your very first home. Or perhaps you’re saving for the house you will buy someday.
Whether it’s one bedroom or four, attached garage or detached, in the city or in the country, chances are you’ll need a mortgage to make your dream come true – whether it’s now or two years from now. There are very few people who can put down cold, hard cash to make such a big purchase these days.
And like most new homebuyers, you’re probably living on a pretty tight budget. So when you look at your mortgage loan options and notice the payment is lower for a 30-year mortgage than a 10- or 20-year mortgage, you might be tempted to opt for the lowest payment.
But before you sign on the dotted line, stop for a minute. Take a look at the difference between the amount of those payments and calculate how much that extra 10 or 20 years is going to cost you. You’ll be horrified.
Let’s look at an example. Say you need to finance $80,000 at 7% interest. The payments on a 30-year mortgage would be about $532.25 per month. That same mortgage at that same interest rate would carry monthly payments of approximately $620.24 if the loan were for a 20-year term. And that same exact $80,000 mortgage at the same 7% interest rate would cost you $928.87 per month over a period of 10 years. While it’s tempting to grab the lowest monthly payment and run, don’t.
Let’s look a little further – and do the math. What will the loan – principal and interest included – really cost you over the entire term of the loan? Over 30 years, that $80,000 mortgage is really going to cost you a total of $191,610. In a 20-year period, an $80,000 mortgage will actually cost you $148,857.60. But if you take out a 10-year mortgage instead – even if you have to skimp a little each month for those first 10 years to pay the higher amount – that same $80,000 loan will only cost you a total of $111,464.40. That’s high enough considering you’ll be paying $31,464.40 in interest alone! Why would you want to pay even more in interest just to stretch your payments out over a few more years?
Look at the difference! By financing your mortgage for 20 years instead of 30, you could save $42,752.40! If you finance your mortgage for 10 years instead of 20, you could save $37,393.20! And if you could finance your $80,000 mortgage at 7% interest for 10 years instead of 30 – you’d save a whopping $80,145.60 – nearly enough to buy another entire house!
Is stretching those payments out 10 and 20 more years respectively really worth the extra expense? Not likely.
Whenever possible, opt for the very shortest possible mortgage period you can afford. You’ll be amazed at all the money you can save just by adjusting the length of your loan!
http://tntn.essortment.com/tipsonsavingm_rgtk.htm
Investing tips: rental real estate
Investing in rental real estate can take many different forms and yield a wide range of profits and losses. Some investors purchase large apartment buildings or commercial properties which they rent to numerous tenants, while other investors purchase single homes to rent to individuals or families. Rental real estate can often produce long terms profits, because property will usually increase in value, even while it is being rented. Rental real estate can also subject the land owner to a great deal of liability as well. The property must be adequately maintained during the rental period, and this can sometimes lead to short terms losses for the investor. The property might also be vacant for an extended period of time, often leaving the investor to pay the mortgage on the property entirely from personal funds. Tenants might also become delinquent in paying rent, forcing the landlord to pursue eviction procedures, which often multiplies the time and expense required to manage the rental investment. The investor can often minimize liability and maximize profits received from the rental property by carefully considering several factors prior to the purchase of the property.
The first consideration the investor should contemplate is the total cost of the investment and the expected return of the investment. The investor should consider several factors in calculating the total cost of the property. The down payment for the property will typically be the most costly component. Most banks require a down payment of 10% when purchasing an investment home or commercial property. The closing costs for the purchase should also be factored into the total cost of the property. The investor should also consider estimates for property repair and upkeep when evaluating the total cost. This will probably average between $50 and $100 per month for a single family home, depending on the condition of the home at the time of purchase. If the property will need immediate repairs to become rentable, these costs should also be considered. Once all of the initial costs of the investment have been calculated and estimated, the prospective purchaser should consider the monthly mortgage payments for the property. The total of these numbers gives the investor an estimate of his out of pocket expense in purchasing the property, and his monthly liability for the property. For example, an investor might consider purchasing a house for $40,000. The closing costs are $1,500 and the house needs $2,000 in repair and improvement to become a suitable rental property. The traditional investor will therefore need to have $7,500 available to purchase and repair the property.
The investor must next consider the difference in the monthly rental value of the home and the monthly liability for the home to determine if the investment will generate monthly revenue. If the mortgage for the property, including taxes and property insurance, is $250 and the expected monthly repair expense is $50, the investor can then assume that the property will have to rent for at least $300 per month for his investment to break even. The exact monthly rental price cannot be calculated, but the investor can develop a target price for which to rent the property. If the investor wants the rental property to generate a minimum of $100 per month, he knows that he will have to rent the previously mentioned property for at least $400 per month. The prospective purchaser can easily determine if this is a feasible rental amount for the property by studying other comparable homes being rented in the same area.
The rental real estate investor must also consider the mortgage on the property in light of his personal financial situation. The investor will usually be required to pay a large amount up front to purchase the property, and he then becomes liable for the mortgage on the property. The mortgage is not an issue if the property rents easily, but the investor should determine his ability to pay the mortgage in the event that the property does not rent for several months. If the mortgage for the property is $250, the investor may wish to have $1000 to $2000 reserved to make the payments if the property does not rent for several months.
There are several other considerations regarding the management of rental property. The two primary concerns are extended vacancy and nonpayment of rent by property occupants. If the property is vacant for an extended period of time, the rental price is probably too high. The owner should probably attempt to lower the rental price or offer incentives if the property remains vacant for an extended period of time. This might often cut into the owner’s desired return on the property, but some rent is often better than no rent. The prospective purchaser can reduce the likelihood that the property will remain vacant for an extended period of time by determining rental amounts for similar properties in the area before purchasing the investment property. This can be achieved by reviewing newspaper ads or speaking to local tenants and landlords.
The rental property owner might also be faced with tenants who become delinquent in rent payments. The landowner is forced to attempt to remove the tenants from the property. Laws in most states prevent the landlord from forcibly evicting the tenant from the property. The property owner therefore cannot move the tenant out himself. The owner must go through the legal eviction process to remove delinquent tenants. The best method of reducing the time and expense of eviction is prevention. The rental owner can greatly reduce the likelihood of non-paying tenants by taking several steps before the tenant moves into the property. The tenant should be qualified before he is allowed to move into the property. Prospective purchasers should make a list of tenant qualifications prior to purchasing a rental property. These qualifications might include items such as satisfactory credit reports, criminal history checks, and verification of employment. The more stringent the standards for tenant qualification, the more protection the landlord will receive. However, stringent qualification standards reduce the number of potential tenants for the rental property, and increase the likelihood that the property will remain vacant for an extended period of time.
Rental properties can provide an excellent source of income and appreciation for an investor. The investor also assumes a substantial amount of liability in purchasing and renting properties. The best method of minimizing the risks and maximizing the profits associated with purchasing investment real estate is by diligently researching the variables associated with the property in light of the investor’s personal financial situation. This will allow the investor to consider and plan for the risks associated with the purchase and determine if the investment is worth the associated risk.
http://www.essortment.com/career/realestateinve_symj.htm
The first consideration the investor should contemplate is the total cost of the investment and the expected return of the investment. The investor should consider several factors in calculating the total cost of the property. The down payment for the property will typically be the most costly component. Most banks require a down payment of 10% when purchasing an investment home or commercial property. The closing costs for the purchase should also be factored into the total cost of the property. The investor should also consider estimates for property repair and upkeep when evaluating the total cost. This will probably average between $50 and $100 per month for a single family home, depending on the condition of the home at the time of purchase. If the property will need immediate repairs to become rentable, these costs should also be considered. Once all of the initial costs of the investment have been calculated and estimated, the prospective purchaser should consider the monthly mortgage payments for the property. The total of these numbers gives the investor an estimate of his out of pocket expense in purchasing the property, and his monthly liability for the property. For example, an investor might consider purchasing a house for $40,000. The closing costs are $1,500 and the house needs $2,000 in repair and improvement to become a suitable rental property. The traditional investor will therefore need to have $7,500 available to purchase and repair the property.
The investor must next consider the difference in the monthly rental value of the home and the monthly liability for the home to determine if the investment will generate monthly revenue. If the mortgage for the property, including taxes and property insurance, is $250 and the expected monthly repair expense is $50, the investor can then assume that the property will have to rent for at least $300 per month for his investment to break even. The exact monthly rental price cannot be calculated, but the investor can develop a target price for which to rent the property. If the investor wants the rental property to generate a minimum of $100 per month, he knows that he will have to rent the previously mentioned property for at least $400 per month. The prospective purchaser can easily determine if this is a feasible rental amount for the property by studying other comparable homes being rented in the same area.
The rental real estate investor must also consider the mortgage on the property in light of his personal financial situation. The investor will usually be required to pay a large amount up front to purchase the property, and he then becomes liable for the mortgage on the property. The mortgage is not an issue if the property rents easily, but the investor should determine his ability to pay the mortgage in the event that the property does not rent for several months. If the mortgage for the property is $250, the investor may wish to have $1000 to $2000 reserved to make the payments if the property does not rent for several months.
There are several other considerations regarding the management of rental property. The two primary concerns are extended vacancy and nonpayment of rent by property occupants. If the property is vacant for an extended period of time, the rental price is probably too high. The owner should probably attempt to lower the rental price or offer incentives if the property remains vacant for an extended period of time. This might often cut into the owner’s desired return on the property, but some rent is often better than no rent. The prospective purchaser can reduce the likelihood that the property will remain vacant for an extended period of time by determining rental amounts for similar properties in the area before purchasing the investment property. This can be achieved by reviewing newspaper ads or speaking to local tenants and landlords.
The rental property owner might also be faced with tenants who become delinquent in rent payments. The landowner is forced to attempt to remove the tenants from the property. Laws in most states prevent the landlord from forcibly evicting the tenant from the property. The property owner therefore cannot move the tenant out himself. The owner must go through the legal eviction process to remove delinquent tenants. The best method of reducing the time and expense of eviction is prevention. The rental owner can greatly reduce the likelihood of non-paying tenants by taking several steps before the tenant moves into the property. The tenant should be qualified before he is allowed to move into the property. Prospective purchasers should make a list of tenant qualifications prior to purchasing a rental property. These qualifications might include items such as satisfactory credit reports, criminal history checks, and verification of employment. The more stringent the standards for tenant qualification, the more protection the landlord will receive. However, stringent qualification standards reduce the number of potential tenants for the rental property, and increase the likelihood that the property will remain vacant for an extended period of time.
Rental properties can provide an excellent source of income and appreciation for an investor. The investor also assumes a substantial amount of liability in purchasing and renting properties. The best method of minimizing the risks and maximizing the profits associated with purchasing investment real estate is by diligently researching the variables associated with the property in light of the investor’s personal financial situation. This will allow the investor to consider and plan for the risks associated with the purchase and determine if the investment is worth the associated risk.
http://www.essortment.com/career/realestateinve_symj.htm
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