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    5 Ways You Didn’t Know You Could Save for a Down Payment

    11/28/2016

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    Buying your first home conjures up all kinds of warm and fuzzy emotions: pride, joy, contentment. But before you get to the good stuff, you’ve got to cobble together a down payment, a daunting sum if you follow the textbook advice to squirrel away 20% of a home’s cost.

    Here are five creative ways to build your down-payment nest egg faster than you may have ever imagined.

    1. Crowdsource Your Dream Home
    You may have heard of people using sites like Kickstarter to fund creative projects like short films and concert tours. Well, who says you can’t crowdsource your first home? Forget the traditional registry, the fine china, and the 16-speed blender. Use sites like Feather the Nest and Hatch My House to raise your down payment. Hatch My House says it’s helped Americans raise more than $2 million for down payments.

    2. Ask the Seller to Help (Really!)
    When sellers want to a get a deal done quickly, they might be willing to assist buyers with the closing costs. Fewer closing costs = more money you can apply toward your deposit.
    “They’re called seller concessions,” says Ray Rodriguez, regional mortgage sales manager for the New York metro area at TD Bank. Talk with your real estate agent. She might help you negotiate for something like 2% of the overall sales price in concessions to help with the closing costs.

    There are limits on concessions depending on the type of mortgage you get. For FHA mortgages, the cap is 6% of the sale price. For Fannie Mae-guaranteed loans, the caps vary between 3% and 9%, depending on the ratio between how much you put down and the amount you finance. Individual banks have varying caps on concessions. No matter where they net out, concessions must be part of the purchase contract.

    3. Look into Government Options
    The U.S. Department of Housing and Urban Development, or HUD, offers a number of homeownership programs, including assistance with down payment and closing costs. These are typically available for people who meet particular income or location requirements. HUD has a list of links by state that direct you to the appropriate page for information about your state.
    HUD offers help based on profession as well.

    If you’re a law enforcement officer, firefighter, teacher, or EMT, you may be eligible under its Good Neighbor Next Door Sales Program for a 50% discount on a house’s HUD-appraised value in “revitalization areas.” Those areas are designated by Congress for  homeownership opportunities. And if you qualify for an FHA-insured mortgage under this program, the down payment is only $100; you can even finance the closing costs.

    For veterans, the VA will guarantee part of a home loan through commercial lenders. Often, there’s no down payment or private mortgage insurance required, and the program helps borrowers secure a competitive interest rate.

    Some cities also offer homeownership help. “The city of Hartford has the HouseHartford Program that gives down payment assistance and closing cost assistance,” says Matthew Carbray, a certified financial planner with Ridgeline Financial Partners and Carbray Staunton Financial Planners in Avon, Conn. The program partners with lenders, real estate attorneys, and homebuyer counseling agencies and has helped 1,200 low-income families.

    4. Check with Your Employer
    Employer Assisted Housing (EAH) programs help connect low- to moderate-income workers with down payment assistance through their employer. In Pennsylvania, if you work for a participating EAH employer, you can apply for a loan of up to $8,000 for down payment and closing cost assistance. The loan is interest-free and borrowers have 10 years to pay it back.

    Washington University in St. Louis offers forgivable loans to qualified employees who want to purchase housing in specific city neighborhoods. University employees receive the lesser of 5% of the purchase price or $6,000 toward down payment or closing costs.
    Ask the human resources or benefits personnel at your employer if the company is part of an EAH program.

    5. Take Advantage of Special Lender Programs
    Finally, many lenders offer programs to help people buy a home with a small down payment. “I would say that the biggest misconception [of home buying] is that you need 20% for the down payment of a house,” says Rodriguez. “There are a lot of programs out there that need a total of 3% or 3.5% down.”

    FHA mortgages, for example, can require as little as 3.5%. But bear in mind that there are both upfront and monthly mortgage insurance payments. “The mortgage insurance could add another $300 to your monthly mortgage payment,” Rodriguez says.

    Some lender programs go even further. TD Bank, for example, offers a 3% down payment with no mortgage insurance program, and other banks may have similar offerings. “Check with your regional bank,” Rodriguez says. “Maybe they have their own first-time buyer program.”

    Not so daunting after all, is it? There’s actually a lot of help available to many first-time buyers who want to achieve their homeownership dreams. All you need to do is a little research — and start peeking at those home listings!

    Curated from: HouseLogic

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    How You Make Money in Real Estate

    11/22/2016

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    ​Whether you're curious about the investment potential of real estate or simply sick of infomercials promising millions of dollars in returns from a new and obscure way of investing in real estate, it is worth learning how wealth is created through real estate.


    We're not looking at strategies for how to profit from real estate. Instead, this article will focus on the basic ways that money is made through real estate. And, fortunately for us, these haven't changed in centuries, no matter what kind of gloss the gurus of the moment try to put on it.

    Appreciation
    The most common source for real estate profit is the appreciation - the increase in the value - of the property in question. This is achieved in different ways for different types of real estate. And, most importantly, it is only realized through selling or refinancing. 
    Raw Land
    The most obvious source of appreciation for undeveloped land is, of course, developing it. As cities expand, land outside the limits becomes more and more valuable because of the potential for it to be purchased by developers. Then developers build houses that raise that value even further.
    Appreciation in land can also come from discoveries of valuable minerals or materials, provided that the buyer holds the rights. An extreme example of this would be striking oil, but appreciation can also come from gravel deposits, trees and so on.
    Residential Property
    When looking at residential properties, location is often the biggest factor in appreciation. As the neighborhood around a home evolves, adding transit routes, schools, shopping centers, playgrounds and so on, the value climbs. Of course, this trend can also work in reverse, with home values falling as a neighborhood decays.
    Home improvements can also spur appreciation, and this is something a property owner can directly control. Putting in a new bathroom, upgrading to a heated garage and remodeling to an open concept kitchen are just some of the ways a property owner may try to increase the value of a home. Many of these techniques have been refined to high-return fixes by property flippers who specialize in adding value to a home in a short time.
    Commercial Property
    Commercial property gains value for the exact same reasons as the previous two types: location, development and improvements. The best commercial properties are in demand, and that drives the price up on them. 

    The Role of Inflation in Appreciation
    Of course, there is one major factor we skipped in our summary - the economic impact of inflation. A 10% inflation of the dollar means that your dollar can only buy about 90% of the same good the following year, and that includes property. If a piece of land was worth $100,000 in 1970, and it sat dormant, undeveloped and unloved, it would still be worth many times more today. Because of runaway inflation throughout the '70s and a steady pace since, it would likely take over $560,000 to purchase that land today - assuming $100,000 was fair market value at the time and all other factors remained constant.
    So, inflation alone can cause appreciation in real estate, but it is a bit of a Pyrrhic victory. Even though you may get five times the money due to inflation, many other goods cost five times as much to buy now. 
    Income
    Generally referred to as rent, income - or regular payments - from real estate can come in many forms.
    Raw Land Income
    Depending on your rights to the land, companies may pay you royalties for any discoveries or regular payments for any structures they add. These include pump jacks, pipelines, gravel pits, access roads, cell towers and so on. Raw land can also be rented for production, usually agricultural production.
    Residential Property Income
    Although it is possible that you may earn income from the installation of a cell tower or other structure, the vast majority of residential property income comes in the form of basic rent. Your tenants pay a fixed amount per month - and this will go up with inflation and demand - and you take out your costs from it and claim the remaining portion as rental income. While it is true that you will get an insurance payout if your tenants burn down the place, the payout only covers the cost of replacing what is lost and is not income in a real sense.
    Commercial Property Income
    Commercial properties can produce income from the aforementioned sources - with basic rent again being the most common - but can also add one more in the form of option income. Many commercial tenants will pay fees for contractual options like the right of first refusal on the office next door. These are essentially options that tenants pay a premium to hold, whether they exercise them or not. Options income is sometimes used for raw land and even residential property, but they are far from common.
    What About REITs or MICs?
    Real estate investment trusts (REIT) and Mortgage Investment Corporations (MIC) are generally considered to be great ways of getting income from real estate. This is true, but only in the sense that real estate is the underlying security. With a REIT, the owner of multiple commercial properties sells shares to investors - usually to fund the purchase of more properties - and then passes on the rental income in the form of distribution. The REIT is the landlord for the tenants (who pay rent), but the owners of the REIT get the income once the expenses of running the buildings and the REIT are taken out.

    MICs are even a further step removed, as they invest in private mortgages rather than the underlying properties. MICs are different from MBSs in that they hold entire mortgages and pass on the interest from payments to investors, rather than securitizing the interest streams independent of the original mortgage. Still, they are not so much real estate investments as they are debt investments, and thus outside of our area of interest. 
    Smoke and Mirrors
    Similar to securities with real estate underlying the investment, most of the alternative "blow your mind with super fantastic return" methods are merely a layer on top of these two basic steams of income.
    For example, there are informal residential real estate options where you pay a fee to have the right to buy a house at a given time, say after a month, for an agreed upon price. Then, you find investors who will pay more than your option price for the property. In this case, the premium you get is essentially a finder's fee for matching a person looking for an investment with a person looking to sell - no different than a real estate agent. Although this is income, it doesn't come from buying (i.e. holding the deed to) a piece of real estate.
    Similarly, no money down or OPM deals are simply the financing aspect of the deal - it doesn't change how the buyer is planning to make money in the long run.
    The Bottom Line
    If someone is trying to sell you on a new way to make money in real estate other than buying low and selling high or collecting rent, they're probably trying to sell you on the process of real estate investing rather than a new mechanism for making profits. Whether the process is worth it or not is up to you, but know that it doesn't change how money will be made (or lost) in the end.

    ​Curated from: Investopedia


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    5 Tips for Buying Your First Home

    11/17/2016

    2 Comments

     
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    One of the dreams of a newly married couple is to purchase a home together. Often, this will be a first time experience for the both of them. It is also one of the most expensive purchases that they will ever make. As a result, it is important to be cautious and make all the right moves when preparing for, searching for, and buying a home. In doing so they will be more likely to make wise decisions and hopefully avoid purchasing a house that is wrong for them or more than they can afford. To help couples safely and cautiously move toward buying a home, there are certain steps that they should follow.

    Prioritize
    Unlike a car or a washer machine, getting the wrong home or a home in the wrong neighborhood is a decision that will plague a family for years or even decades. Therefore, the first step in shopping for a home is to determine what one's priorities are. The size and design of a home is a very common and very important priority for home buyers. Those expecting a big family will want a large multi-family home, while single people or couples with no kids will want a smaller home.

    Equally as important, however, is the kind of neighborhood in which the home is located. For some people it is a neighborhood with short commutes to great jobs or good schools. Others are looking for areas with low property taxes, while some prefer houses with a set number of bedrooms and bathrooms. Another concern is finding areas where crime rates are low. Eco-conscious home buyers might be looking for homes with solar energy or sufficient yard space for gardens. Regardless of one's priorities, it will be necessary for shoppers to make a list of what is important to them, and narrow their search accordingly.


    Do Your Research
    Once a home buyer has decided on his or her preferences on a home, the next step is to do in-depth research on which homes fit their requirements. The age of the Internet makes this task much easier than it used to be. There are various real estate listing sites that collect information on properties for viewing online. This information includes pictures of the property in question and statistics on the amount of yard space and internal floor layout and space, as well as the potential price of the home.

    In addition, many include crime statistics, ratings on local schools, unemployment ratings, all pertaining to the neighborhood where the home is located. Shoppers should also seek out information on traffic conditions in the area, as well as whether the property is under a homeowners association. After this, the prospective buyer should visit the area to take a look at the house and to check out the community first hand. Speaking to potential neighbors and acquiring information that is off the record is critically important to making a sound decision as to which property to purchase.

    Most importantly it is necessary for a buyer to check the maintenance and construction history of the house. Purchasing a house only to find that it is infested with termites is one of the worst nightmares for home buyers.


    Find A Good Real Estate Agent
    In addition to researching the ideal home, a prospective buyer should hire a real estate agent to help with their search. Real estate agents are professionals who know how to get in-depth information about properties and steer customers toward the right home.

    Real estate agents may have knowledge about the area that the customer doesn't, including information that enables them to negotiate a price that's tens of thousands of dollars cheaper than what it is listed for on the market. This includes local market conditions and previous attempts to sell the house in question. They also serve as a firewall between shoppers and eager home sellers who would otherwise pester shoppers who unwittingly give them their contact information. Real estate agents can also discover legal burdens upon the house. This includes tax liens or other issues that could complicate the sale of a home.

    One major convenience of hiring a real estate agent is the fact that they also handle a lot of the paperwork involved in purchasing a home. The key to working with a real estate agent is to find an experienced agent with a reputation for competency. It is also wise to meet with more than one in order to see which agent is easiest to work with.

    ​
    Financial Security
    In order to finance the purchase of a home, buyers have two main choices. One is to purchase the home outright, and the other is to obtain a loan. Those who can't buy a home with cash will typically need to come up with a down payment for a home loan, also known as a mortgage.

    Traditionally, lenders desire a down payment of twenty percent of the cost of the home. In some cases, however, home buyers with good credit can get away with a down payment of three percent. Of course, the higher the down payment, the more likely that a lender will actually finance the purchase of the home. A person's income is another critically important factor in whether they will be accepted for a loan.

    Typically a monthly mortgage payment should be a little over a quarter of one's take-home pay. This means if a buyer's yearly income is $60,000 a year, their monthly income is $5,000 a month, and they can qualify for, at best, a mortgage with a $1,250 a month payment. The buyer should also factor in insurance, closing costs, and if the loan is a subprime loan, balloon payments as well.

     Compare fixed, adjustable & interest-only mortgages side by side. 

    More Financial Security Advice
    • Finance Tips from Flint Foley Real Estate
    • NBCNews: Top Ten Tips for Buying Your First Home

    Get Pre-Qualified Or Pre-Approved For A Loan
    ​Before choosing a home, potential home buyers may consider getting pre-qualified or pre-approved for their loan. Both will tell a potential home buyer how much he or she can afford when buying a home. When pre-qualified, the lender has determined an estimate of how much the borrower would be eligible for given their income and debt level. It does not, however, mean that he or she is actually approved for the loan. Pre-approval of a mortgage loan means that the lender has authorized the loan 
    according to the information provided. Often the pre-approval is valid for a set period.

    Curated from: Mortgage Calculator

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