Throughout the approval process, push yourself to maintain your credit while lenders pull it.
Navigating the purchase of a home can be overwhelming for first-time buyers. Lenders require documentation of seemingly every detail of your life before granting a loan. And of course, they will require a credit check.
A question many buyers have is whether a lender pulls your credit more than once during the purchase process. The answer is yes. Lenders pull borrowers’ credit in the beginning of the approval process, and then again just prior to closing.
Initial credit check for preapproval
In the first phase of acquiring a loan, pre-qualification, you’ll self-report financial information. Lenders want to know details such as your credit score, social security number, marital status, history of your residence, employment and income, account balances, debt payments and balances, confirmation of any foreclosures or bankruptcies in the last seven years and sourcing of a down payment. This is only a portion of the total information needed for your mortgage application.
Once you’re ready to get preapproved for a loan, lenders will verify your financial information. During this phase, lenders require documentation to confirm the information in your application and pull your credit history for the first time. You may be required to submit a letter of explanation for each credit inquiry in recent years, such as opening a new credit card, and for any derogatory information in your history, like a missed payment.
Once you find a home within budget and make an offer, additional or updated documentation may be required. Underwriters then analyze the risk of offering you a loan based on the information in your application, credit history and the property’s value.
Second credit check at closing
It can take time for your offer to be accepted, and for your loan to pass underwriting. During this period from the initial credit check to closing, new credit incidents may occur on your history. Many lenders pull borrowers’ credit a second time just prior to closing to verify your credit score remains the same, and therefore the risk to the lender hasn’t changed. If you were late on a payment and were sent to collections, it can affect your loan. Or, if you acquired any new loans or lines of credit and used those credit lines, your debt-to-income ratio would change, which can also affect your loan eligibility.
If the second credit check results match the first, closing should occur on schedule. If the new report is lower or concerning to the lender, you could lose the loan. Alternatively, the lender may send your application back through underwriting for a second review.
It’s important for buyers to be aware that most lenders run a final credit check before closing, so the home-buying window is a time to prudently mind your credit.
On Point Homevestments
Transform your standard-issue rental kitchen with these tips.
Is there some kind of law that requires rental apartments to supply no more than a single square of kitchen counter space to each unit?
Between the white walls, scarce and often outdated cabinets, and a lack of amenities, it’s rare to find a solid kitchen in the world of yearlong leases.
But no good makeover starts with a beautiful subject, right?
All you need to transform that bleak little kitchen into a well-designed, functional space is a bit of imagination, some basic home maintenance skills, and a few solid pieces.
Here’s where to begin.
Before moving into your new space, make sure to get rid of all those things you don’t need anymore.
Have you actually used that discounted bundt pan in the past year or two? If not, donate to your favorite local charity shop. Someone else might get use out of it, and you’ll be saving yourself from more clutter in your new home.
Vertical storage is a tried-and-true method of using space, and the kitchen holds some unique opportunities for making the most of it.
Hanging pot racks, magnetic knife strips, mounted dish-drying racks installed above the sink, and rods with hooks for towels, aprons, small tools and oven mitts are all excellent ways to keep clutter in its place — and keep the surfaces and lower area of the room free.
Find beautiful cleaning tools
The ugly truth is that a lot of everyday items just make sense to keep out — but that doesn’t mean they have to be such an eyesore.
Skip the plastic and get yourself a classic wooden broom, natural fiber dish brush and a glass soap dispenser. These items don’t cost much, but they add a softer look while also getting the job done.
Tap into change
Just because your place didn’t come equipped with a dishwasher doesn’t mean you have to suffer. Installing a quality faucet with a pull-down sprayer can make your chores less of a chore (and, as long as you swap it back before you move out, it shouldn’t violate your rental agreement).
Have space and the budget for something more? Portable dishwashers are a massive timesaver. From small countertop models to wheeled butcher-block-top options, there are sizes that fit into almost any space and require nothing more than your standard sink to function.
Live the island life
A kitchen island is a versatile tool for almost any space — even the tiniest micro apartments!
Whether you choose a larger center-of-the-room-style piece or a small butcher-block number, these additions create more counter space and storage, all in one piece.
Bonus: If your island has wheels, it can serve as a portable bar for your next party. (Hey, if we can call bingeing our favorite shows with a few of our closest friends a “party,” so can you.)
Light it up
Another timeless tip: Good lighting is everything.
If your kitchen is dedicated to getting things done and starting your day, invest in cool lighting — the kind that washes everything in a bright, sunlit glow. A refreshing, cooler light wakes us up and creates an invigorating feeling.
If you’re more of a romantic and enjoy taking your time in the kitchen, keep relaxing, warm lighting around so that you can let the day melt away as you sip your merlot.
For those who prefer a bit of both, app-enabled bulbs can customize the mood for any occasion, and some even use every color of the rainbow.
Think (temporarily) BIG
If there’s one common complaint about renting, it’s the stark white walls. Removable wallpaper adds a touch of personalization and won’t break the bank — or at least, it doesn’t have to.
To keep costs low, stick to one accent wall. Finding a large-scale print will make the space feel larger, and layering a sizable mirror on top will maximize the look and any light.
Curate unique displays
One of the best ways to keep an assortment of oddly shaped kitchen items is to dedicate either one section of the room (think: the top 12 inches of the walls) or one wall to showing them off.
Whether it’s your grandmother’s antique creamer collection or the jumble of cookie cutters that won’t fit into your drawers, making them into a vignette adds a layer of personalization to your space while also providing covert storage in plain sight. Easy-to-install hooks or some simple shelves are great ways to achieve this solution.
Keep it alive
Every room deserves a plant. Not only do they look good, but they also improve the quality of the air around them. If you don’t have the floor or counter space to spare, a hanging plant will do the trick.
No natural light in your kitchen? Or perhaps you’re better at killing plants than keeping them green? No matter — there are plenty of realistic artificial plants these days, which means everyone can benefit from the organic shapes of ferns, succulents and the ever-popular fiddle-leaf figs.
Have pets? Make sure to check the toxicity of your plants before choosing their placement.
No matter how uniquely challenging your space might be, there are solutions waiting for you to find them.
On Point Homevestments
Home buying hurdles exist — but research, creativity and flexibility will help you clear them.
Home buyers today face tough challenges — housing prices have soared, a dollar doesn’t go as far as it once did and rent is more expensive than the past.
How are people today making such a large purchase despite these hurdles? With more flexibility and a bit of financing creativity, today’s buyers are finding ways to achieve homeownership.
Know your options (and credit score)
To even begin the home buying process, it’s important to know what resources are available.
According to a 2017 Fannie Mae working paper, many Americans don’t have a strong, or even basic, understanding of what it takes financially to buy a home, nor if they meet the criteria.
The first step to knowing if you can afford a home is figuring out what financing options are available to you, including what mortgages you’re eligible for and how much you need/can afford to put down upfront.
Fannie Mae discovered that most buyers don’t know the minimum FICO score required by lenders and that 49 percent of buyers don’t even know what their credit score is.
Home shoppers also aren’t sure how much they have to put down on a home, and about 40 percent are unsure of the lender-required minimum down payment. Plus, three-quarters of buyers don’t know about programs available to help with down payments, like FHA loans.
Before buyers even start thinking about saving for a home, they should know what their financial resources are and if they’re eligible to buy.
Make enough money to save
With fewer resources to pull from than their older, wealthier counterparts, renters wanting to buy face tough financial headwinds.
According to the Consumer Housing Trends Report 2017, renter households typically earn a median income of $37,500 annually, which is $50,000 less than the median household income netted by households who recently bought a home (of whom the median household income is $87,500 annually).
While there are ways to enter into homeownership without making $87,500 in household income, it’s hard to afford to buy if you make significantly less. “If you’re making $37,500 per year, it’s probably not feasible for you to buy in almost any market,” says Chief Economist Dr. Svenja Gudell.
Only 29 percent of Americans make $87,500 or more, per U.S. Census Bureau data. For perspective, only one of the top 10 most common jobs in the United States carries a salary above $37,500, meaning the jobs that the majority of Americans hold bring in less money than the median renter household.
While households purchasing homes are more likely to have two incomes than renter households (and thus a higher median household income combined), even two-income households struggle to afford to buy in competitive markets.
Save enough cash (but not as much as you think)
One of the most daunting parts of home buying? The down payment. In fact, two-thirds of renters cite saving for a down payment as the biggest hurdle to buying a home, according to the Housing Aspirations Report.
Per findings from the Consumer Housing Trends Report 2017, almost one-third (29 percent) of buyers active in the market express difficulty saving for the down payment.
For people buying the national median home valued at $201,900, with the traditional 20 percent down payment, that’s $40,380 upfront — just to move in.
“The down payment remains a hurdle for a lot of people,” says Gudell. “But they should know they don’t have to put 20 percent down.”
Although putting down less than 20 percent means additional considerations, such as the cost for private mortgage insurance (PMI), some find it worth the hassle. In fact, only one-quarter of buyers (24 percent) put 20 percent down, and just over half of buyers (55 percent) put less than the traditional 20 percent down.
Buyers are also getting creative about piecing together a down payment from multiple sources. According to the report findings, nearly 1 in 4 buyers (24 percent) build a down payment from two or more sources, including saving, gifts, loans, the sale of a previous home, stocks, retirement funds and other resources.
Know your deal breakers, but be flexible
To get into a home — even if it’s not the home of their dreams — some of today’s buyers are considering homes and locations outside of their initial wish list and getting increasingly flexible when it comes to neighborhood, house condition and even home type.
Although single-family homes remain a dream for most home seekers, buyers today consider and buy condos and townhouses to secure a home in their ideal location. Buyers with household incomes under $50,000 are more likely to consider homes outside of the traditional single-family residence (40 percent), compared to those with incomes of $50,000 or above (24 percent).
“I do think people get discouraged when they look in their target neighborhood and they see homes around $170,000 when they’re looking for a $110,000 home,” Gudell says.
Affordably priced homes do, in fact, exist. But in popular areas, where people most often want to live, it’s going to be harder to find that cheaper home, Gudell says.
“If you’re willing to take a longer commute and make a couple trade-offs, you might be able to find a home that is farther out that might be cheaper,” Gudell explains. “You have to leave the paved path before you can find cheaper choices.”
On Point Homevestments
Thought that all-white kitchen was timeless? Think again.
Home design trends come and go — and this year, one look that’s on its way out could actually cause your home to sell for less.
Here’s a look at five design trends you’ll be seeing more of in 2018, and three it’s time to kiss goodbye (especially if one of your New Year’s resolutions is to sell your home).
Trending in 2018
Interior design experts predict floral prints in bold, contrasting colors will make a big comeback in this year, particularly on large billowing fabrics, like drapery, as well as chairs and throw pillows.
Forget statement walls — this year will be about statement floors. From bold colored geometric tiles to soft herringbone-style hardwoods, expect to see fab floors everywhere, especially in bathrooms and laundry rooms. They’re a great way to make a small room pop, without adding clutter.
Light wood cabinets
Homeowners are gravitating toward medium and light wood cabinets, particularly with flat fronts and clean lines. The warmth, texture and natural element wood cabinets add help make the space feel more inviting.
From warm reds to caramel browns to soft beige, moodier color palettes, both on walls and in artwork, will be popular.
Matte metal hardware
What kind of drawer pulls and light fixtures do you want with those wood cabinets? Matte metal! Homeowners are moving away from shiny silver- or gold-accented kitchen hardware — they can make the space feel cold.
2017 fads to forget
This look has been popular for a while, but it’s on the way out, according to the Home Trend Forecast.
Expect to see more color in kitchens next year, especially if the homeowner is planning to sell. Data shows homes with blue kitchens sell for $1,800 more than homes with white kitchens.
Adding color and texture in the kitchen can help make the space feel more inviting. “While homes with all-white kitchens can be beautiful in photos, they are hard to keep clean and they may sell for less money,” says home design expert Kerrie Kelly.
You’ll see designers and bloggers painting their kitchen islands navy blue or deep red (maybe even purple!) or using white countertops to contrast with medium or light wood cabinets.
While perfectly staged bar carts look beautiful, most people don’t use theirs every day. Instead, the carts take up space and collect dust.
But don’t get rid of your cart just yet! Experts predict a shift toward coffee carts, which can be equally trendy, but far more practical.
Succulents are easy to care for and relatively affordable, but so many other vibrant indoor plant options are out there. Nobody’s saying to toss out your beloved Haworthia, but do consider incorporating other plant varieties into your home — perhaps a palm or hearty fiddle-leaf fig.
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Does your home offer any of the perks some buyers will pay more for?
To understand how much your home is worth, you have to know what affects its value. The Zestimate home value is Zillow’s tool for extrapolating the real market value of your home, based on existing home-related data and actual sales prices in your area.
Thousands of data points correlate with home values and sale prices — some of which are obvious (like the condition of the home) and some that aren’t.
Here are several surprising things that can affect either the existing value of your home or the price someone is willing to pay for it, all based on data.
1. Proximity to a Starbucks
How far do you have to drive to get a Frappuccino? If the answer is “not that far,” you’re in luck.
A 2015 Zillow report found that, between 1997 and 2014, homes within a quarter-mile of a Starbucks increased in value by 96 percent, on average, compared to 65 percent for all U.S. homes, based on a comparison of Zillow Home Value Index data with a database of Starbucks locations.
To evaluate if this effect is isolated to Starbucks, the research team looked at another coffee hot spot (one with particular pull on the East Coast): Dunkin’ Donuts.
The data showed that homes near Dunkin’ Donuts locations appreciated 80 percent, on average, during the same 17-year period — not quite as high as homes near a Starbucks, but still significantly above the 65 percent increase in value for all U.S. homes.
2. Blue kitchens and blue bathrooms
Beyond America’s obsession with curb appeal, what’s inside your house counts a lot too — especially the colors you paint the rooms (particularly the kitchen).
According to Zillow’s 2017 Paint Color Analysis, which examined more than 32,000 photos from sold homes around the country, homes with blue kitchens sold for a $1,809 premium, compared to similar homes with white kitchens.
Blue is also a popular bathroom shade. The same analysis found that homes with pale blue to soft periwinkle-blue bathrooms sold for $5,440 more.
Walls painted in cool neutrals, like blue or gray, can signal that the home is well cared for or has other desirable features.
3. Trendy features
Joanna Gaines’ aesthetic is permeating more than just your YouTube search history. Zillow listings mentioning the shiplap queen’s favorite features — like barn doors and farmhouse sinks — sell faster and for a premium, according to a 2016 Zillow analysis of descriptions of more than 2 million homes sold nationwide.
Listings with “barn door” in the description sold for 13.4 percent more than expected — and 57 days faster than comparable homes without the keyword. Meanwhile, listings touting “farmhouse sink” led to a nearly 8 percent sales premium.
Sellers can use the listing descriptions to highlight trendy details and features that might not be noticeable in the photos.
4. How close you are to a city
If you own a home in a major American metropolitan area, you’re most likely sitting on a significant (and rapidly appreciating) financial asset. Case in point: Home values in the New York, NY, metro area are worth $2.6 trillion, per a recent analysis.
The average urban home is now worth 35 percent more than the average suburban home. Since 2012, the median home value in urban areas has increased by 54 percent, while the median home value in suburban areas is up just 38 percent.
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Staging, curb appeal updates, and closing costs add up.
Selling a home not only takes time, but also costs money. To help with budgeting, Zillow and Thumbtack identified several common — but often overlooked — seller expenses.
From closing costs to home prep projects like carpet cleaning, U.S. homeowners can expect to spend more than $15,000 on these extra or hidden costs to sell the median home, according to Zillow and Thumbtack’s Hidden Costs of Selling Analysis.
The two largest closing costs are agent commissions and, in most states, sales or transfer taxes.
Nationally, sellers spend $12,532 for both closing costs on the median home. Sellers should also prepare for a variety of other smaller closing costs, including title insurance and escrow fees.
Home prep costs
Most sellers will complete at least one home improvement project before listing.
While some sellers prefer to complete these projects themselves, those who outsource can expect to spend more than $2,650 nationally to cover staging, carpet cleaning, interior painting, lawn care and house cleaning — five of the most popular seller home prep projects.
Location, location, location
As with all things real estate, these extra costs can vary significantly by region.
In San Francisco, homeowners can pay more than $55,000 on the median home to cover these combined closing costs and maintenance expenses — the highest among the markets analyzed.
Compare that to Cleveland, OH where home sellers pay just over $10,000 for the same costs.
Even though selling a home costs money, most (73 percent) of sellers are still satisfied with the transaction, according to the Zillow Group Report on Consumer Housing Trends.
To estimate potential profit, sellers who have claimed their home on Zillow can use Zillow’s Sale Proceeds Calculator. It factors in the home’s sale price, mortgage balance and agent commissions, along with other common seller fees.
On Point Homevestments
Being a first time home buyer is as much of a skill as it is a privilege. Not unlike every other skill you have managed to acquire up to this point, buying your first home should be met with an acute attention to detail and a mind for due diligence. If for nothing else, home buying skills can be honed to the point that the scales will tip in favor of those that are the most prepared. That said, there are absolutely things you can do and learn to make the home buying process a positive one. If that sounds like something you could get behind, here are some first time home buyer tips you can’t afford to ignore.
First Time Home Buyer Tips You’d Be Foolish To Ignore
Here are some of our favorite first time home buyer tips we feel everyone would be better off sticking to:
We want to make it abundantly clear: first time home buyer tips can range from the utterly useless to the invaluable. Those we hit on above lean towards the latter, but they are far from the only tips you should take to heart. Buying a home is a complex process that is made easier by understanding as much as you can. So in addition to what I spoke of above, do your best to educate yourself on the process.
Common First Time Home Buyer Mistakes To Avoid
Here are some of the most common first time home buyer mistakes, and how to avoid making them yourself:
First Time Home Buyer Qualifications
First Time Home Buyer Credit Score
The first time home buyer credit score is one of the most important indicators lenders use to gauge a borrower’s trustworthiness. It is the credit score, after all, that best defines a person’s history with borrowing. That said, it’s in the best interest of first time home buyers to have a credit score that meets the minimum requirements of today’s lenders.
First time home buyers should have a credit score of at least 620 if they hope to receive a conventional loan, and a minimum credit score of 500 if they intend to qualify for an FHA loan.
First Time Home Buyer Down Payment
The first time home buyer down payment will depend largely on the type of loan in question. FHA loans, for example, require a down payment of at least 3.5% for those with a credit score of 580 or higher. If, however, you apply for an FHA loan with a credit score between 500 and 579, you will be required to pay at least 10% down. Conventional loans, on the other hand, will require a downpayment somewhere in the neighborhood of 5% and 20%, as long as you meet the minimum credit score requirement: 620. It is worth noting, however, that most lenders will require borrowers that pay less than 20% down to pay what is known as private mortgage insurance (PMI) — it’s the lender’s method of protecting themselves from defaulting borrowers. According to BankRate, “PMI fees vary from around 0.3 percent to about 1.5 percent of the original loan amount per year, depending on the size of the down payment and the borrower’s credit score.”
First Time Home Buyer Loans And Grants
Here are some of the most common first time home buyer loans and grants:
Not surprisingly, these are a few of the most common loans made available to today’s first time buyers. That said, there are more loans out there if you don’t see the one you like.
First Time Home Buyer Mortgage Calculator
Mortgage rates are constantly changing, which makes calculating your future mortgage a bit more challenging. Fortunately, there are several dependable sites that provide their own first time home buyer mortgage calculator for your convenience. Zillow, for example, has a simple, easy to use first time home buyer mortgage calculator that will help you identify your own payments. Of course, it’s worth pointing out that Zillow’s mortgage calculator (and all others) should only be used by those looking for a ballpark estimate. For a better idea of what you could expect your own mortgage to be, you should consult the bank you intend to borrow from. Only they will be able to give you the exact number you are looking for.
On Point Homevestments
A conventional mortgage is reserved for today’s “best” borrowers, or those traditional lending institutions view as less of a risk to default on a loan. It is worth noting, however, that conventional mortgages exist to help their originators as much as the borrowers, if not more so. You see, conventional mortgages are inherently risky for banks to approve, so it only makes sense that they’d only accept the best applicants, but what’s that mean for everyone else? It is about time you learn the ins and outs of a conventional mortgage, and exactly what it means for you.
The Basics: What Is A Conventional Mortgage?
Conventional mortgages are typically reserved for those borrowers with more than encouraging financial profiles. They are best suited for prospective borrowers with no blemishes on their credit reports and scores of at least 680. In other words, conventional mortgages are intended to service the least risky population of borrowers, and for good reason: conventional mortgages actually pose the most risk to lenders, as they aren’t backed by the government. Unlike their Federal Housing Administration (FHA) loan counterparts, conventional mortgages aren’t insured by the government, so lenders offering conventional mortgages are less inclined to take unnecessary risks.
In addition to being reserved for those borrowers that represent the least risk, conventional mortgages will typically require a down payment somewhere in the neighborhood of three to 20% depending on the product being offered. It is worth noting, however, that those who don’t put down at least 20% will be required to pay what those in the business call private mortgage insurance (PMI). In attempt to make their investment even less risky, PMI will help offset the risk of so-called “safe” borrowers from defaulting on their loans.
To be perfectly clear, a conventional mortgage is a risky move for most lenders because their “products” are not insured by the government. However, the risk of offering a loan that isn’t backed by the government is offset by strict underwriting; namely, higher credit scores, larger down payments and private mortgage insurance. Therefore, if you hope to qualify for a conventional mortgage, you should expect to be required to meet relatively strict requirements.
As we already alluded to, a conventional mortgage is a home loan that’s not insured by the government. Whereas FHA loans are insured by the federal government, conventional mortgages are not. More specifically, “the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments,” according to Zillow. Conventional mortgages, on the other hand, are not awarded the same luxury. Banks offering conventional mortgages are going to take more precautions when lending to borrowers since their loans aren’t insured.
A conventional mortgage is essentially a way for banks to offset the risk associated with offering loans that aren’t backed by the government. “Conventional mortgages present the most risk for lenders since they are not insured by the federal government,” according to Investopedia. As a result, conventional mortgages are reserved for today’s best borrowers; those least likely to default on their mortgages.
Conventional Mortgage Calculator
While a conventional mortgage calculator can certainly be useful to those with all the required information, those without the supplemental data will find their calculations falling short. In other words, a good conventional mortgage calculator will account for everything from private mortgage insurance, property taxes, homeowners insurance, HOA dues, and other costs. Only once you have every variable will a mortgage calculation be helpful. That said, The Mortgage Reports has a conventional mortgage calculator that will account for everything you need to know now, and in the future.
Conventional Mortgage Down Payment
Due, in large part, to their “riskier” nature, conventional mortgages typically coincide with a larger down payment. It is not uncommon for the down payment on a conventional mortgage to rest somewhere between three and 20%
It is worth noting, however, that the downpayment for a conventional mortgage comes with a significant caveat: whereas most people put down anywhere between three and 20%, those that don’t manage to put down at least 20% will be required to pay private mortgage insurance. That’s because the less a borrower puts down, the more of a risk they pose to the lender. Therefore, PMI is levied on anyone that doesn’t put down enough money at the start of a mortgage. The private mortgage insurance, as you may have already guessed, is intended to lessen the risk of borrowers that may default. Borrowers required to pay private mortgage insurance will continue to do so until their loan-to-value ratio reaches 80%.
Conventional Loan Rates
Conventional loan rates are far from universal, and tend to vary depending on three important factors: the amount put down, the loan originator and the market’s current conditions. According to Bankrate, however, “the average 30-year fixed mortgage rate is 4.70%, up from 4.64% last week. 15-year fixed mortgage rates increased to 4.16% from 4.07% this week.”
A conventional mortgage is a great option for borrowers with a pristine credit history, but there’s a lot more to these traditional loans than most people realize. Traditional loans, most notably, represent a risk to lenders, but they target the best borrowers to offset said risks. Perhaps even more importantly, those that qualify for them stand to receive great terms.
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Should I rent or buy? A simple question, but nonetheless one that nearly everyone will ponder at one point or another. The rent vs buy debate wouldn’t be much of a debate if the question wasn’t so divisive, right? The only real way to develop your own objective opinion, for that matter, is to listen to the facts as they present themselves in the form of real world data. The real answer to the rent vs buy question is entirely dependent on each person’s unique situation.
Before you jump to any conclusions, be sure to take everything you are about to read into consideration. With any luck, your own rent vs buy debate will correspond with a definitive answer by the time you are done reading this.
Rent Vs Buy Analysis From A Pro
The rent vs buy debate rages on to this day, and for good reason: each side has made some compelling arguments of their own that, at the very least, warrant your consideration. Owners, for example, will quickly point out the single greatest benefit of ownership: equity. Those that actually make purchases of their own build equity in a property with each and every payment made. That way, when it comes time to sell, there are profits to be made. It is worth noting, however, that the same equity argument posed by owners comes with a caveat: you must be willing to live in a property long enough for it to build equity, and even then, equity isn’t guaranteed. Proponents of renting are, therefore, quick to point out the disadvantage of living in the same home for a prolonged period of time. What’s more, there are some renters that think paying down a mortgage is a fool’s errand, in that a large percentage of owners never actually finish paying off their mortgage.
To be perfectly clear, there are obvious advantages to each, and drawbacks, for that matter. As I already alluded to, homeownership awards owners the ability to build an equitable share in a valuable asset. In fact, equity is both an asset and considered to contribute to one’s own net worth. That said, equity isn’t a liquid asset. According to Investopedia, “it cannot quickly be converted into cash.” Moreover, “value fluctuates over time as payments are made on the mortgage and market forces play on the current value of that property.”
We are a huge proponent of homeownership, but that doesn’t mean it’s for everyone. Of course, there’s the cost. While equity is great, it comes at a price. Homeownership isn’t cheap and usually requires a large down payment; one a lot of people can’t afford earlier in their lives. That, and the commitment that follows. Homeownership isn’t the result of a fleeting feeling; it’s a conscious decision to settle down and stay in the same place for what will most likely be a prolonged period of time. And while the idea of living in the same place suits a lot of people, there is a large contingent that hates the idea of being stuck in the same place for too long.
Many of the same renters that covet the idea of being able to move at the end of a lease are strongly in favor of the price of renting. Renting, for example, doesn’t coincide with the same down payment as buying. Therefore, renting is more “accessible” to more people.
In the end, the rent vs buy debate can only be settled once you take into account each person’s personal situation. Sometimes buying makes more sense for people, and sometimes renting makes more sense. It may not be the answer you wanted to hear, but it’s nonetheless an answer. The fact remains: whether or not you will benefit from buying or renting will depend entirely on your own situation.
Rent Vs Buy Calculator
There’s no simple answer to this simple question. As NerdWallet points out, “This is a decision with many moving parts, and things change: Your down payment savings grow, you consider moving to a cheaper or more expensive area, you’re curious what happens if you spend less on a home, or more.”
As it turns out, those “moving parts” are as follows:
Using these indicators, you can roughly estimate which decision is right for your situation, but if you would rather plug the numbers into a rent vs buy calculator, NerdWallet has something you might be interested in.
Renting A Home Pros
Again, there is a large contingent of people that are convinced renting is better than buying. The reasons many of them use to support their claim are primarily founded in the four bullet points above, and for good reason: there’s no doubt they represent poignant issues in favor of renting. For starters, the barrier to entry is considerably lower than homeownership. Whereas those looking to buy will need to put down 20% in order to avoid paying private mortgage insurance (PMI), most renters will only need a security deposit and maybe the first months rent in advance. A 20% down payment on a $300,000 home will set buyers back $60,000 right off the bat. There’s no question about it: it’s a lot more affordable to start renting than buying a home. Of course, those numbers start to change once you have been renting for a prolonged period of time, but we’ll get into that later.
More importantly, it’s not just the money that redirects most people away from homeownership towards renting, but the underwriting as well. You see, owning a home coincides with receiving loan approval — not something everyone can get. There are a lot of underwriting regulations that must be addressed in order to even qualify for a mortgage. With that in mind, there’s a lot of people that not only don’t want to own, but also that can’t own. Renting is literally the only option they can choose.
In addition to the initial cost, most rental proponents will be quick to point out the benefits of variable lease options. Renters are typically allowed to choose how long they intend to rent for, granting a degree of flexibility made unavailable to homeowners. Renters are, therefore, not locked into 15- or 30-year mortgages like their owner counterparts. As a result, most renters have the freedom to pick up and move more frequently. You would be surprised at how high renters value their freedom to switch homes at the end of a lease.
Renting A Home Cons
There are two sides to every coin, and renting a home is no exception. That said, there are plenty of drawbacks that coincide with renting. Namely, the largest qualm most owners have with renting is the inability to build equity in a home you are simply renting. As a renter, your monthly rent checks are given directly to the respective owner. As a result, the person that owns the home is making money off of the renter’s payments, whereas the renter is simply trading money for a place to live — their money isn’t doing anything for them beyond that. Homeowners, on the other hand, build equity with each payment — renters will never see their cash again.
What’s more, the amount renters are expected to pay can fluctuate from lease to lease. It is within the rights of landlords to raise rents, as long as they aren’t in a rent controlled zone. That means it’s entirely possible for rent to be increased at the end every lease. Leases can vary significantly in length; they can last from a single month to several years. Those with shorter leases, therefore, run the risk of their rents increasing more frequently.
Finally, those inclined to rent limit the amount they can personalize their living space. Most lease agreements will prevent tenants from making changes to the property, even if it’s something as simple as painting a wall. If you are someone that appreciates a more personal touch, renting may not be the best option.
Buying A Home Pros
Of all the potential options awarded to those looking for a place to live, I maintain that homeownership is the best way to go. There’s one simple reason I covet homeownership more than renting: equity. As I already alluded to, renters can’t build equity in a property; their money is traded for a place to live. However, the money homeowners pay towards their mortgage builds an equitable interest in a tangible asset. In other words, equity is both an asset and considered to contribute to one’s own net worth. The more an owner is able to pay down their mortgage, the more equity they can build. Once the principal is paid off, along with the interest, a homeowner will own the home free and clear. That means they will be able to live in the home without making payments to their mortgage provider. Of course, there are other costs, like maintenance and property taxes, but the mortgage is no longer detracting from their ability to save. In addition to that, the homeowner now has a valuable asset in their corner.
If that wasn’t enough, the tax benefits that coincide with homeownership are equally as impressive. Most notably, homeowners are able to deduct the amount they pay in mortgage interest each year from their taxable income — that’s no small amount of change. Considering interest rates for the average 30-year fixed-rate mortgage are somewhere in the neighborhood of 4.5%, the interest one could expect to pay on a home could be significant. The tax deductions alone could trump the cost of renting for some.
It is worth pointing out, however, that while the upfront cost of homeownership is a lot higher than renting, the scale starts to tip in favor of buying eventually. If for nothing else, there is usually a point when buying actually becomes cheaper than renting in the long run.
Buying A Home Cons
While I am in favor of owning a home, buying a property is not without significant caveats; namely, the barrier to entry. First and foremost, buying a home is not cheap. There’s a good chance buying a house is the single most expensive cost most people will encounter over the course of their entire lives. The down payment alone can be enough to keep people from transitioning to homeownership, and that doesn’t even include the rest of the purchase price or interest on the loan. Put simply, owning a home has become synonymous with a much more expensive upfront cost. Again, owning can turn out to be cheaper in the long-run, but certainly not at the time of purchase.
If the upfront cost wasn’t enough, there are also rules and regulations one must abide by to make the dream of homeownership a reality. Unfortunately, however, there are those that don’t qualify for a loan. Whether it’s a low credit score or a lack of available funds, there are several obstacles standing in the way of many prospective buyers that have no other choice but to rent.
The rent vs buy debate continues to rage on, and for good reason: both sides have valid arguments. Truth be told, however, there is no universal answer. Whether or not you should rent vs buy is completely dependent on your own situation and what you want out of a property. It is worth noting, however, that owning a home has come synonymous with significant benefits, not the least of which renting could hold a candle to. Homeowners are awarded the opportunity to build equity and reduce their taxable obligations. Perhaps even more importantly, home ownership could eventually become cheaper than renting in the long term. Long story short: buying a home is worth it for those that can afford to do so, but not everyone can take the leap.
On Point Homevestments
The last thing potential buyers want to hear is that we are currently in the midst of a seller’s market. However, we'd argue that there’s no cause for concern. There is absolutely a viable exit strategy in any market, regardless of whether or not it favors homeowners. The key is to maintain a level head and analyze the data in front of you. If for nothing else, it’s entirely possible to run a lucrative real estate investing career in a market that appears to favor only sellers; you just need to know how to work with what you are given.
Seller’s Market Definition
A seller’s market is the direct result of economic indicators that benefit homeowners more than the buyers they intend to work with. In its simplest form, however, a seller’s market is exactly what it sounds like: a real estate market whose scales are tipped in favor of those who currently own property. Perhaps even more specifically, a seller’s market is nothing less than a best case scenario for homeowners, which begs the question: Outside of the actual condition of a marketplace, what are the specific characteristics of a seller’s market? What factors actually give the edge to homeowners? Better yet, what’s it all mean for the whole of the real estate landscape?
The vast majority of people understand the concept of a seller’s market (it’s relatively simple), but fewer have an intimate knowledge of why a particular market would benefit sellers over buyers. Fortunately, the fundamental concept behind a seller’s market isn’t all that difficult to grasp either; it can be broken down into one important principle: supply and demand. If for nothing else, a seller’s market is “a market condition characterized by a shortage of goods available for sale, resulting in pricing power for the seller. A seller’s market is a term commonly applied to the property market when low supply meets high demand,” according to Investopedia.
When demand meets a shortage of inventory, the homes that are available for sale become inherently more valuable. In other words, when more buyers are competing over fewer properties, it’s likely that the homeowners are at a distinct advantage. The competition simultaneously allows owners to increase asking prices without risking the loss of interest. Therefore, it’s safe to assume a seller’s market coincides with everything buyers would rather avoid: higher prices, more competition and a much faster pace.
The Differences Between A Buyer’s And Seller’s Market
Anytime supply can’t keep up with demand, sellers will reap the rewards, inevitably resulting in a seller’s market. The more inventory levels are depleted, the more buyers will be willing to pay when they find a house that meets their criteria. Consequently, a buyer’s market occurs when there are more than enough homes to satiate demand. The ratio of buyers to available inventory will actually work in favor of buyers in a buyer’s market. When inventory levels are comparatively high to the amount of people looking to purchase a house, history suggests sellers will compete over shoppers that are awarded several options. Therein lies the single most important differences between a buyer’s and seller’s market: supply and demand.
It is worth noting, however, that the housing market is nothing, if not self-aware. The same pendulum that can swing in favor of sellers will eventually course correct to offset the resulting imbalance and, in turn, over-correct to the point in which a buyer’s market is eventually realized. The housing market is, after all cyclical. Each seller’s market will eventually be replaced by a buyer’s market (and vice versa), with the middle ground representing the balance a healthy market covets. As a real estate investor, you would be wise to remember that. For every buyer’s market, there is a sellers market; for every seller’s market, there’s a buyer’s market. The two have become synonymous with each other, and those that can tell the differences between the two stand to gain an edge over the competition.
Are We Currently In A Buyer’s Or Seller’s Market?
We are currently in the midst of a seller’s market, but I digress. The fundamental indicators supporting today’s housing market are anything but normal. It is true: everything suggests 2018 is a seller’s market. Inventory levels can’t keep up with demand. As a result, we have seen home prices increase almost exponentially. It is important to note, however, that we haven’t seen as many homeowners participate in the market as we would like. Despite being a seller’s market, owners don’t appear ready to sell for one simple reason: the moment they sell, they will be forced to join the ranks of buyers competing over the little inventory that has made itself available. As it turns out, most homeowners are content living with their equity for the time being. It is, therefore, safe to assume we will continue to see a seller’s market until more inventory makes its way to the market.
Tips For Buying In A Seller’s Market
We maintain there is no market that can’t be taken advantage of by savvy real estate investors. More importantly, there’s an exit strategy for just about every scenario, no matter how expensive or cheap the market finds itself. That said, there’s no reason to be discouraged by a seller’s market if you are looking to acquire your next deal, but rather invigorated. Take solace in the fact that it is still possible to invest in a seller’s market if you exercise the right exit strategies.
Due, in large part, to the absence of significant profit margins in a seller’s market, markets like the one we are seeing today tend to favor long-term strategies. Of course, it’s entirely possible to find a deal to rehab and flip in a matter of months, but the data suggests now may be a good time to look at acquiring rental properties.
Rental property acquisitions won’t come with a smaller price tag, but they will award investors the opportunity to offset the higher costs with a few years of rental income. In other words, it could potentially pay off to buy a rental property in a seller’s market. You will certainly pay more upfront, but the passive income potential could easily make up for the initial cost. In some cases, it may only take a few years to make up for the added costs. At that point, investors may choose to continue collecting rental income or, if the market is right and the numbers work, rehab the property and sell it at a later date. The returns may not be immediate, but the idea of buying a rental property could pay off in the long run.
Now, as for the process of buying a property in a seller’s market, there are a few things that could ease the high acquisition costs:
Selling A House? Here’s How To Thrive In A Seller’s Market
Despite a seller’s market inherently favoring homeowners, there’s still a few things you can do to maximize your profits, not the least of which include:
We are currently in the midst of a seller’s market, but the doesn’t mean homeowners can sit back and rest on their laurels. Complacency could significantly reduce your opportunity to maximize profits. Instead, take the time to learn the ins-and-outs of a seller’s market, and what it takes to work in one. Only those comfortable working in any condition will find success easier to come by.
On Point Homevestments
The concept of the FHA loan was introduced in the 1930s when the United States was reeling from what would turn out to be the worst depression in American history. As the stock market crashed and the economy took a turn for the worst, defaults and foreclosures ran rampant. In response, the powers that be (the federal government) saw fit to provide lenders with peace of mind by insuring subsequent home loans. The resulting Federal Housing Administration (FHA) loans did their best to reduce lender risk and stimulate a struggling housing market, and their legacy lives on today. Not surprisingly, FHA loans are designed to promote homeownership amidst low-to-moderate income borrowers. And while we may not be facing the same financial crisis we were in the 30s, or even just a decade ago, borrowers should take solace in the fact that FHA loans are here to help.
What Is An FHA Loan?
The name says it all: an FHA loan is a mortgage issued by federally qualified lenders. Perhaps even more importantly, however, FHA loans are subsequently backed by the department of Housing and Urban Development (HUD). In other words, FHA loans are insured by the government, which begs the question: What does that really mean? Why is the federal government intent on insuring more loans?
According to Investopedia, “the government created federally insured loans that gave mortgage lenders peace of mind, reduced lender risk and stimulated the housing market.” More specifically, government backed loans awarded lenders the ability to underwrite more mortgages for buyers that were previously ignored by lenders because of the risk of default they posed. You see, once the government decided to insure FHA loans, low-to-moderate income borrowers (or those with a less than attractive financial profile) could finally get the loan they needed to buy a home without making a significant down payment. More people could transition to homeownership and, in turn, help stimulate the economy.
It is important to note, however, that FHA loans are insured for the lender, not the borrower. That’s an important distinction to make, as the FHA will assume responsibility for protecting the lender if the borrower neglects to keep their mortgage payments current. In the event a borrower does default on their mortgage, they are still at risk of a foreclosure, but the lender can rest assured, knowing full-well that the loan was insured by the government.
FHA Loan Requirements
FHA loan requirements stray from those of their conventional counterparts because they are insured by the federal government. As a result, FHA loans a specifically tailored to help those with less than perfect financial profiles. That said, FHA loan requirements are not as strict as those that have become synonymous with conventional loans. Credit scores, for example, don’t need to be perfect to qualify for an FHA loan, but instead can be as low as 500. Of course, a borrower’s credit score will impact the amount they are expected to “put down” at the signing. Those with a credit score between 500-579 can obtain an FHA loan with a down payment of 10%. Those with a slightly better score (at least 580) could get away with a down payment as little as 3.5%. In addition to credit scores and down payments, FHA loan borrowers will need to demonstrate some level of financial competency; namely, that they are at least a couple of years removed from bankruptcy and three years removed from any foreclosures.
These aren’t the only requirements to meet if you want to qualify for an FHA loan. For more information, please refer to the U.S. Department of Housing and Urban Development’s page on FHA loans.
How To Apply For An FHA Loan
What First-Time Buyers Need To Know About Their FHA Loan
An FHA loan is the perfect solution for buyers with less than perfect financial profiles. More importantly, an FHA home loan awards prospective buyers the ability to make the transition to ownership, as they significantly lessen the burden of the dreaded down payment. That said, nobody is simply going to give you an FHA loan; you need to do the work yourself and make things happen. If you are interested in applying for an FHA loan, mind due diligence and learn everything you can about them; only then can I recommend moving forward.
On Point Homevestments
Few things are more polarizing in the real estate landscape than the idea of a rent increase. Landlords are typically ecstatic over the possibility of increasing their income, whereas tenants are, well, less than enthused. The said, a good rental property owner needs to know how to navigate the waters of a proper rent increase with finesse and ease, at least if they want to maximize their profits.
How To Notify Tenants Of A Rent Increase
To be perfectly clear, the process for notifying a tenant of a rate increase will vary by state, so be sure to check with the proper authorities before moving forward with an increase of your own. That said, most states will require landlords to give “proper notice.” Again, the length of time is different from state to state, bust most seem to follow a 30 day rule, meaning landlords need to tell tenants they intend to initiate a rent increase at least 30 days before doing so. The notice must be in writing, and some states even require the notice to be sent through certified mail.
Determining Your Rent Increase
There is only one thing more important to tenants regarding a rent increase than the reason why prices are rising: how much they are rising. I highly advise against increasing the rent arbitrarily; don’t simply throw out a number without any reason to back it up. Not unlike making an offer on a property, you are free to throw out any number you wish, as long as you can cite a reason for doing so. In other words, don’t simply increase the rent because you can. Instead, determine why you are increasing the rent, and base your new price on the resulting data.
With the exception of rent controlled living spaces, homeowners and landlords have a legal right to raise their rent if it doesn’t conflict with a current lease. More specifically, landlords can’t carry out a rent increase in the middle of a lease, regardless of whether it’s year to year or month to month.
Landlords can raise the rent as long as they give proper notice, “which in most states is 30 days,” according to NOLO. As a result, most landlords will be able to raise their tenant’s rent as long as they tell them at least 30 days before their current lease ends. Of course, each state will coincide with different laws, so check to make sure you are in compliance with the laws in your area.
There is also no limit to the amount a landlord can increase their rent, but not so fast. It can be quite easy to want to increase the rent as much as possible, but I’d most likely advise against it. While a significant rent increase cane look attractive to landlords at first, you need to think of the repercussions; namely, those that involve your current tenant leaving at the end of their lease.
Instead of increasing the rent as much as possible, first land on a reason why you are increasing it in the first place, as it’ll act as your starting point. If for nothing else, the rent increase should be justified and proportionate to the reason why. If, for example, you are intent on increasing rent to compensate for a higher cost of living, the increase in rent should be just enough to cover it — nothing more, nothing less.
Rent Increase Laws
Let’s make one thing abundantly clear: rent increase laws will vary depending on whether or not the building is zoned in a rent-controlled area. More specifically, rent-controlled and rent-stabilized areas are subject to the rules set forth by local municipalities. The local governing bodies in charge of regulating rent-controlled homes are responsible for deciding how often and how much rents may be increased. That said, rent-controlled homes and apartments are basically the exception, and not the rule.
In reality, the majority of homes are not governed by a rent-controlled body, meaning the rules pertaining to rent increases aren’t exactly set in stone. In fact, you could argue that rent increases are subject to whatever the market will handle without actually breaking. Landlords are within their right to raise rents as much as they see fit. In fact, the loose laws around rent increases are what gave rise to rent-controlled zones in the first place.
While there aren’t too many restrictions on how much a landlord can raise rent, there are some on the amount of time they must give tenants. Most notably, landlords can’t raise rents without warning; they must abide by the rules set forth by their own state. More often than not, tenants must be given at least 30 days notice before the rent increases. According to NOLO, “the rent increase notice must be in writing; in some states, certified mail is required. Oral notices are ineffective in most states and, unless you specifically agree to the rent increase, you are not obligated to pay it.”
Perhaps even more importantly, rent increases can’t be enacted over the course of a current lease. Landlords have no choice but to abide by the rules laid out in the signed lease, and can’t increase rent until the lease is over.
How To Justify A Rent Increase
It is never a good idea to propose a rent increase without the proper justification. You had better have a good reason for increasing the rent you expect your tenants to pay, or you could find yourself with a problem down the road. And while you certainly have every right to increase your rent, some reasons are less likely to anger tenants than others. Here’s a few of the most accepted reasons for a subsequent increase:
Justifying a rent increase has more to do with providing a reason the tenant can understand, and maybe even sympathize with. That way, they are more likely to accept the new rate, provided it isn’t absurd. Conversely, landlords that can’t justify a rent increase will most likely find their request met with more opposition than they would have appreciated. The idea here is to identify a cause an effect: circumstances changed, so you need to raise the rent — it’s as simple as that.
Rent Increase Summary
Rent increases are nothing less than a touchy subject for everyone involved. On the one hand, renters are never going to be happy about having to pay more for a place they are already living in. On the other hand, drafting a rent increase letter addressed to your tenants is a process that must be met with empathy and justification. If for nothing else, there’s a way to increase rent, and there’s a way that’ll cause more problems. To see to it that your efforts side with the former, make sure you take the appropriate steps when it does come time to carry out a rent increase.
On Point Homevestments