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Larry & Kathy Reichle

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Eight Things You Need To Know Before Buying Your First Investment Property

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Although there are numerous examples of people who have earned themselves a fortune with real estate investment, real estate, like every other business, has many risks associated with it. Moreover, regardless of the type of property you are purchasing or whether you plan to rent or resell it afterward, investing in real estate requires a good amount of cash — which makes it critical to take extra measures to ensure profit on your investment or at least save yourself from a huge loss.

I’ve observed a shortage of property in good areas over the past few months. This lack of property creates an excellent opportunity for investment. However, it doesn’t mean that anybody can earn a fortunate by investing in real estate. You need to know a lot of things before buying your first investment property.

1. Don’t let your emotions play with you.

Most of the time when buying a home, people listen to their heart more than actually thinking about it logically, which is perfectly fine when it is the place where you will be living for many years of your life. But don’t let your emotions affect your decision when buying your first investment property. Think of it as purely a business investment and logically negotiate to get the best possible price.

Remember, the lower the price you get for a property, the better the odds that you will earn a higher profit from it.

2. Do your research.

Depending on the clients you are targeting, you need to do proper research before buying your first investment property. Make sure that the property is situated in a location that will attract the type of clients you hope to sell or rent to, that it will reach to the returns you are expecting and that it will appeal to the market.

Doing the proper researching and using an analytical approach logically based on the financial factors, rather than considering your personal likes and dislikes, will surely help you in purchasing the best property. After all, investment isn’t about emotions; it’s about economics.

3. Secure a down payment.

Unlike the 3% down payment on the house you are currently living in, you are going to require at least 20% down payment for buying your first investment property. This is because mortgage insurance is not applicable for investment properties. Moreover, investment properties require greater down payments than your regular building and have strict approval requirements. Keep in mind the expenses needed for the renovation before you pay your down payment.

4. Calculate expenses and profits beforehand.

As the expression goes, only the paranoid survive. OK, not always, but there is no harm in being a little paranoid and considering every detail beforehand. Start with calculating the money that you already have and what you can borrow before buying your first investment property. Next, calculate how much it would cost to purchase and renovate the house. Also, keep in mind the operation costs. Finally, estimate the price you are going to list your property for and cut out the expenses to get a rough estimate of the profit you stand to make. Honestly speaking, you may not even hit half of the estimated profit, but this calculation is necessary to keep yourself in the safe zone.

5. Select a low-cost home as your first investment property.

Even if you are ready to invest up to a million dollars in your first investment property, it is always a good idea to go for properties that lie in the lower- to mid-range price brackets. Some experts suggest the house that doesn’t cost you more than $150,000. Don’t forget, you will need to spend more money on the renovation of the house before renting or selling it.

Furthermore, since it is your first investment property, keeping your investment as low as possible will help you stay in the safe zone. Even if you don’t hit the expected profits, you won’t risk losing too much on it.

6. Pay your debts.

As a new investor buying their first investment property, you might need to consider the investment loan options — one shouldn’t be carrying debts as their investment portfolio. You must clear all of your debts, student loans, medical bills, etc., before starting out in real estate.

7. Consider investment loan options.

There are a large number of options available when it comes to collecting funds to purchase your first investment property. Choosing the right option that could make a positive difference to your financial situation requires a lot of research.

Different investment loan options come with different benefits, and the best possible option depends on your situation. However, you need to consider features such as which loan option is giving you the freedom to split the credit or if it provides you with the line-of-credit facility.

8. Choose your partners carefully.

Many people consider partnering up with their friends instead of talking an investment loan to start in the real estate business. First-time investors need to carefully consider many factors while choosing partners, such as how comfortable you are with them and the implications of a partnership agreement.

Like every other business, investing in real estate can go either way: You could earn a good chunk of money, or it might turn into a disastrous experience. If you follow smart tips and play it safe from the start, you will surely be on the winning side.

POST WRITTEN BY

DC Fawcett

Can You Use Bonus Income to Help Qualify for a Home Loan?

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Yes, you can. But the bonus income needs to follow a few rules, first. Employees get paid in different ways. The most common is a regular paycheck on the 1st and the 15th of each month or maybe every other week. One of the primary responsibilities of a mortgage lender when evaluating a loan application is to make the determination the borrowers have the ability to repay the new mortgage along with any existing monthly credit obligations. The process is relatively simple. The lender compares total monthly credit obligations with gross monthly income. When calculating the mortgage payment, which includes an amount for taxes and insurance, lenders like to see this amount be somewhere near 28-33 percent of gross monthly income and closer to 41 percent when including all monthly payments.

Lenders then verify income by reviewing the most recent paycheck stubs covering a 30 day period. The stubs will show the gross income, deductions and net pay. It will also show a year-to-date amount. In addition, copies of your last two years of W2 forms will be needed. Lending guidelines require there be at least a two-year history of employment and then make the determination the income is likely to continue into the future. If someone is self-employed, then the last two years of personal and business income tax returns will be reviewed along with a year-to-date profit and loss statement.

Okay, but what about a bonus? Can that be used if needed? Guidelines for bonus income follow the same type of review as other types of income. Is there a history of receiving bonus income? There needs to be verification the bonus income has been received for two years. In addition, the bonus income needs to be regular and of a similar amount each time. Let’s say an employee gets a bonus each quarter for reaching a particular goal. The bonus amount is $1,000. The lender will need verification this amount has been received for the past two years. With this history, the lender can reasonably determine the bonus is likely to continue. Using this example, there is an additional $333 per month that can help the borrowers qualify.

If on the other hand, the bonus amounts vary in amount or frequency, it’s possible the income cannot be used, even though there is evidence the employee has received it. Or, the bonus might be an annual bonus paid at the first of every year. In this instance, the additional income can’t help, even though it’s been the same for the past two years. Why? Because a bonus paid in January probably might not be around come August or September.

One final note about bonus income- if more than 25 percent of the individual’s income comes from a bonus or as a commission, that person is then considered self-employed and will be underwritten as such. If you’re planning on using your bonus income to help qualify, it’s a good idea to speak with your loan officer first to see how you’ll need to document this additional income.

Written by: David Reed

 

 

How much house can I afford to buy?

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If you’re thinking of making the move from renter to homeowner, simply diving into home shopping is the wrong first step. What you need to do is first answer the question:

“How much house can I afford?”

The best way to determine your spending ability is to do a step-by-step calculation. While there are alternate rules of thumb for figuring out your housing budget — such as a ceiling of 2.5 times your annual salary or limiting your housing payments to a third of your gross monthly income — you should not take shortcuts on a financial decision as important as this.

Calculating ‘how much mortgage can I afford?’

Here are the major factors you will need to consider to determine how much house you can afford to buy:

Income. 

First, add up the income that will be used to qualify for the mortgage, including bonuses and commissions. Make sure you have the documentation to prove every source of income; otherwise it cannot be counted when you meet with a mortgage lender.

Debt. 

Add all the payments you make each month for car loans, credit cards, student loans and any other debt. Based on your income, there are limits on how much debt you’ll be allowed to carry, including your mortgage. These debts will limit how much mortgage you can borrow.

DTI ratio.

When a mortgage lender calculates your level of debt based upon how much money you make, it is known as your “debt-to-income (DTI) ratio.” Debt-to-income ratios are the province of mortgage calculators. One important ratio, referred to by mortgage professionals as your “front-end” or “top-end” ratio, is calculated by taking your proposed housing expense divided by your gross (before-tax) income. Many mortgage calculators set 28 percent as the desirable value for this ratio. The other ratio involves all of your loan payments – your housing expenses and your monthly debts (but not utilities or other living expenses) — divided by your gross monthly income. A home affordability calculator frequently set this number at 36 percent. This is called your “back-end” or “bottom-end” ratio.

Monthly obligations.

While your mortgage lender cares about your auto and credit card payments, they really don’t care whether you have cable TV, the latest iPhone or even that you eat on a regular basis. Those monthly expenses are up to you to include, and cable, smartphones and a few trips to the grocery store can easily add up to several hundred dollars each month.

Down payment. 

The minimum down payment for an FHA loan is 3.5 percent; for conventional loans, the minimum is 3 percent for certain buyers and 5 percent for most buyers.

Taxes.

Today, it’s easy to get an idea on a home’s property taxes by looking at the listing online. You can also get in contact with the county tax office or ask a local Realtor to investigate for you. Most homeowners will have their property taxes paid from an escrow account attached to their monthly mortgage payments. One percent in taxes is equal to $1,000 per year for a $100,000 home.

Insurance.

Lenders require homeowners insurance to cover your property. Contact an insurance company or ask a Realtor to estimate your homeowners insurance costs which will vary according to the type of property, cost and features of the home, and its location. To get a rough idea, you can ask a family member or friend what they pay for insurance (if their home is similar to the home you are interested in buying).

Homeowners association dues.

If the property you purchase includes monthly dues, don’t forget to include those fees in your monthly payments.

Mortgage insurance.

If you make a down payment of less than 20 percent on a conventional loan, you will need to pay mortgage insurance. You can utilize HSH.com’s mortgage insurance calculator to see how much this could cost each month. For FHA loans, there is an upfront and annual mortgage insurance premium.

Interest rate.

You can check today’s mortgage rates at HSH.com, but remember that your rate will depend on your credit score, the type of property you are buying, and the choices you make regarding fees and points. A lender will be able to give you a customized mortgage quote given your situation.

Loan term.

While many buyers opt for a 30-year home loan, if you can afford higher monthly payments, you may want to consider a shorter loan term. Shorter loans have lower interest rates and cost you less over the life of the loan.

As a homeowner, you need to have enough money set aside in an emergency fund — at least three months worth of expenses – in case you lose your job or have a medical emergency, and enough reserves set aside to pay for maintenance and unexpected repairs.

Considering all your financial goals and your monthly comfort level with your mortgage payment is the key to accurately calculating how much house you can afford. It’s smart never to borrow the maximum amount you can qualify for so that you leave yourself some financial breathing room.

Keith Gumbinger

A Bridge To Your New Home

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Question: My mother wants to buy a condominium, now that she is living alone and no longer needs the old four-bedroom family home. She prefers to buy a condominium first, and make the move from the house to the condo over a period of time. After she has completely settled into the new condominium, she will then put the house on the market for sale. Assuming the condominium will cost less than what the house sell for, what is the least expensive way to bridge the two sales? In other words, is it possible to obtain a mortgage for only three to six months?

Answer: Your question has raised a number of issues, which I will try to explore in this column.

First, in my opinion — and if you can afford it — it is always better to move into a new home before you sell the old one. This gives you an opportunity to do whatever renovation is needed, without having to immediately move all the furniture into the new place.

But, obviously, not everyone can afford the luxury of owning two houses, and sometimes having to pay two separate monthly mortgage and duplicate real estate tax bills.

In your mother’s case, the family home is free and clear of any mortgage obligation. She should be able to obtain a “bridge” loan from a responsible lender, to enable her to have sufficient funds to purchase the condomimium. The loan will be secured by a first deed of trust (a mortgage) on the family home, and will be paid off in full when that house is ultimately sold.

Second, you ask whether short term loans are available. The answer is not simple, insofar as mortgage lenders do not want to spend a lot of time — and money — processing a loan application, only to have it paid off within a couple of months. Thus, while you might find such a short-term bridge loan from a mortgage lender, the interest rate may not be competitive.

On the other hand, your mother may be able to get a regular bank loan for the amount she needs, secured by a deed of trust on either or both the family home or the condominium unit. Much would depend on your mother’s financial situation at the time of loan application.

However, there is another way that, in my opinion, makes the most sense. Your mother may be successful in selling the home immediately; it may also be on the market for a long period of time. She does not want to commit herself to repay a loan in just a few months time, when there is uncertainty as to when her house will sell.

Thus, she should consider obtaining a regular mortgage loan on the family home. If necessary, you could co-sign and guarantee payment of the loan. She should obtain an Adjustable Rate Morgtgage (ARM) for one year, and make sure there is no prepayment penalty. If she is lucky and sells the house quickly, she can then use the sales proceeds to pay off the new loan. If, for any reason, the house does not sell quickly, she will have a low rate of interest for a period of one year.

More importantly, however, your mother should carefully review her financial situation. If she uses all (or most of) the cash from the sale to purchase the new property, will she end up “house rich and cash poor”? Perhaps she should consider obtaining a mortgage on the condominium unit (again your help may be required), and then keep the cash when the house is sold.

She should also review the tax situation before she sells. Will she have a large capital gain to pay? Is she eligible for the up-to-$500,000 (or $250,000) exclusion of profits? When did your dad die?

From a tax point of view, it makes no difference whether or not she uses any or all of the sales proceeds to purchase the condominium unit. She is either eligible for the exclusion or she is not.

There are two other alternatives which should be considered.

First, can she obtain a home equity loan on her current house and use these proceeds to purchase the condominium? Even under the new tax laws, so long as the money obtained from the loan is used to buy a new home or improve your present one, your mother will be able to deduct the interest she has to pay.

Second, are you in the financial position to lend her the money to purchase the condominium? If so, your mother can borrow directly from you, at a reasonable interest rate, and the loan will be secured by the new property. She can pay you interest only on a monthly basis, and you can decide at a later date if you want to gift her back a portion of the loan on a yearly basis, tax free.

Under no circumstances, however, should you consider going on title with her on the condominium unless you have fully explored all of the legal and tax ramification of such a move. There are significant negative aspects of putting your name on the deed, and obviously you want to maximize the tax benefits as much as possible.

Children often want to do right for their parents, and this of course is commendable. However, there are serious IRS repurcussions if the wrong steps are taken (even for the right reasons), and you must explore the situation with your own tax advisors before signing any legal papers. Also, we all have to carefully analyze the impact of the new tax law.

Bottom line: your mother should first talk with a financial adviser to explore all of the options.

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Suze Orman: First thing to do now if you want to buy a home soon

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If you’re planning to buy a home this year, you’ve hopefully saved up more than you think you’ll need for a down payment. But stockpiling money isn’t the only thing that should be on your financial checklist before becoming a homeowner.

First and foremost, you should check in on your credit score, that’s because, the higher your credit score, the better rate you’ll be able to get on a mortgage. And that matters because even a fraction of a percent can dramatically alter the total you’ll pay over time.

Your goal should be to get the best possible loan. The better your financial profile is, the lower the interest rate you will be offered. Even a small interest rate difference can add up to tens of thousands of dollars in savings over the life of a loan.

FICO credit scores range from 300 to 850 and signify your trustworthiness to financial institutions. While anything over 650 is considered decent, Orman recommends aiming for a score of 740 or higher before applying for a loan.

If your score is lower than 740, please focus on boosting it as much as possible over the next few months. Every 10 or 20 point increase can help your cause. A 700 score might earn you a better offer than a 680 score.

That’s because a high score tells lenders that you have a proven track record of being responsible with your money.  It means we’re more likely to want to give you a loan, because we know you’re going to pay us back.

If your score is less than ideal, Orman recommends taking three immediate actions to improve it: pay down credit card balances, pay down other debt, such as student loans, and stop buying anything that isn’t completely necessary.

You want to improve your credit utilization ratio, which is calculated by dividing your balance by your credit limit. Ideally, you’ll never hold a balance of more than 30 percent of your limit. So If you have a card limit of $10,000, you never want your balance to exceed $3,000.

As you get ready to consider putting in an offer on a home, you want to pay down as much debt as possible and refrain from splurging.

The best advice is to charge as little as possible in the months leading up to a home purchase.

You’ll also want to have excess cash on hand that can prove to lenders that you’ll be covered even in the event of an emergency. “Though there is no hard-and-fast rule, lenders want to know that if you get laid off, or sick, you can cover the mortgage for at least a few months,” Orman says.

Be sure to do your own research on how to boost your credit score to before buying a house and read up on the four things you should be doingif you’re aiming for a perfect credit score.

Emmie Martin, CNBC

What First-Time Home Buyers Need To Know

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My team and I regularly come in contact with first-time homebuyers looking for some guidance.  The prospect of buying your first home can be an anxiety-inducing one, especially if you don’t know where to start.  I’ve spent my career helping thousands of people find the perfect home so I’m happy to shed some light on the subject for those new to the process.

Patience is key.

Even after you spend hours searching through listings and going to showings, your journey is far from over. Getting a mortgage, having the home inspected and going through the closing process all take time. General wisdom suggests that the process could last from 30-90 days, but that depends on a lot of extenuating factors. Know going into the buying process that you’ll need to practice patience if you want to find the perfect match.

The neighborhood you choose is important.

We believe the neighborhood you live in is just as important as the home you live in. When you make a purchase based solely on the number of bedrooms and bathrooms or square footage, you’re missing out on the lifestyle component of your new home. Where you live will determine not only obvious factors like where your children go to school and how much you pay in taxes, but it also determines more nuanced factors, like how you spend your weekends. Spend time in an area before deciding to buy there, and see if you can really imagine yourself living there on a day-to-day basis.

Have your documentation ready.

Keeping everything digitally organized — rather than trying to keep track of a stack of papers — will help immensely. Have pay stub statements, proof of assets and any loan or credit card debt documentation readily available. Expect to present more paperwork than you might think they need to see. Like a Boy Scout, the key here is to always be prepared!

Be flexible.

One sentiment that almost all of the homeowners we asked expressed is just that: the importance of being flexible. You may have a list of features that make up your perfect home but ultimately discover that you are unable to find all of those features within your budget. Know which “must-haves” you’re willing to compromise on and which ones you really need. If a short commute is most important to you, you may be willing to sacrifice an extra bathroom or granite countertops to be closer to work.

Follow guidelines.

In other words, don’t buy beyond your means. Deferring principal payments in order to get into a bigger home is often a risky proposition that can lead to financial strain. Work out a budget that’s realistic, and then stick to it. Not sure how much house you can actually afford? NerdWallet provides a calculator to help you determine that based on location.

Shop around.

Like any other major purchase, it’s important when buying a home to weigh your mortgage options. Different banks may offer different rates, so getting a wide range of offers can save you money. Planning ahead is your friend in this scenario — as soon as you think you may be interested in buying a home, start the mortgage process. This will also help you determine how much you can feasibly afford.

Don’t let fear stop you.

There’s no doubt that the home-buying process can be daunting — and for first-time buyers, the uncertainty can lead to dread. You will experience a range of emotions in the pursuit of finding your perfect home, but it will be worthwhile when you finally settle in.

At the end of the day, buying your first home will be an intensive process, but it doesn’t need to be a scary one. If you go in with a strong plan and know your facts, you’ll avoid making the wrong choice or missing out on a great deal. Take the wisdom of homebuyers before you and let it guide the way.

POST WRITTEN BY

Bill Ness

How to Adopt a Frugal Lifestyle

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While many people associate frugality with an austere lifestyle, the opposite couldn’t be more true. Being frugal actually allows consumers to spend money on what they truly value while saving on the things they don’t.

“Frugality gives you freedom because you see how spending in some areas is keeping you from what you want in other areas,” says John Schmoll, founder of FrugalRules.com. “Frugality isn’t about deprivation. It’s about being purposeful with your spending, and about finding balance and spending on what you value.”

Consumers who seek to be more frugal have to set their priorities and learn to live without certain things to be able to afford others. Although it isn’t a difficult concept to grasp, making any changes can be challenging without a guide. To begin adopting a frugal lifestyle, follow these steps.

Identify your end goal. Adopting a frugal lifestyle isn’t something that will happen overnight. It’s a journey that will have bumps along the way. In order to maintain it for the long-term and reap the benefits, experts recommend outlining your goals.

“Writing down your goals and tracking progress will help you stay motivated when things get challenging,” says Jessi Fearon, personal finance coach at JessiFearon.com. “Although you may have a few instant wins, you won’t see results overnight and tracking your goals and progress will make it easier to stick to it.”

Consumers can list goals on a piece of paper or on an Excel chart, depending on their preference. Some may even find an app such as Mint helpful for tracking their various spending and saving habits.

Assess your spending and make a budget. Learning how to live without certain items, so you can spend money on what you value most, is the center of what it means to be frugal. In order to make this a reality, however, the most crucial step is setting a budget.

“The most important frugal habit you should adopt is to create and use a monthly budget,” says Gina Lincicum, founder of MoneyWiseMoms.com. “None of the little things you do to save, such as using coupons or buying clothes on sale, will have as much of an impact if you’re overspending in other areas.”

Begin by reviewing your checking and saving accounts from the last few months to assess your financial situation and identify potential expenses and purchases you can live without. Create a plan to reduce or eliminate these items, so there’s extra money to go toward goals and other more important expenses.

Change one behavior at a time. “Starting small is the best way to start living a more frugal lifestyle,” Schmoll says. “I always recommend to individuals that they try one thing to build confidence. Once they see they can make a change and do well, they will feel more motivated to make other changes.”

As an example, Schmoll suggests that those who want to cut back on dining outshould choose one or two meals to make at home at first. “Seeing how much money can be saved over the course of a few weeks is a great way to see how frugality can help with long-term savings,” Schmoll says.

Identify spending triggers. In a world where people are bombarded by ads and deals everywhere they turn, giving into the consumerist mindset is hard to avoid. In order to take control over impulsive and excessive spending, you must understand what triggers it in the first place. Spending triggers are anything that cause mindless spending.

“Knowing your triggers gives you power,” Schmoll says. “It allows you to know your area of weakness and make a plan to avoid the particular situation.”

Avoiding spending triggers is relatively easy. For instance, if you tend to overspend at a certain store, limit the number of trips you make to that retailer. If you’re constantly indulging in deals promoted on a shopping app, remove it from your phone. And if you’re feeling bored, find another activity to keep you busy, such as taking a walk or calling a friend.

[See: 8 Big Budgeting Blunders – and How to Fix Them.]

Set a “use it up” mindset. Being less wasteful is a basic principal of frugality and this is easy to accomplish by shifting your mindset to think about using up everything you have before spending money to replace it. Think outside the box and let your creativity guide you to be more resourceful with what you already have.

“You don’t have to take things to the extreme,” Fearon says. “Start with creating new dishes out of leftovers, reuse worn-out shirts as cleaning rags and repurpose as many things as you can.”

Enjoy free activities. Being frugal doesn’t mean missing out on fun and adventure. It means looking for ways to enjoy life on less, and there are plenty of free activities available. These include hikes, picnics, watching the sunset, playing in the park, camping, hosting family game night and scheduling free days at local museums.

Lincicum suggests taking advantage of the local library for free family activities, such as arts and crafts, movie night and book and movie rentals at no cost.

Stash away cash for emergencies. The biggest challenges many people face when it comes to reaching any financial goal are those unexpected life circumstances that derail progress. A car accident, home repair or medical emergency can easily wipe out savings or add a tremendous amount of debt. Lincicum recommends setting aside cash in a separate savings fund to help weather these short-term financial storms and avoid high-interest debt.

Prioritize this emergency fund by creating a line item within your budget and fund it faster by automating a transfer between your checking and savings account every time you get paid.

Focus on lowering major expenses. While hacking away at small expenses by clipping coupons and buying used items will help boost savings over time, consumers can gain bigger financial rewards faster by reducing larger budgetary items, says Lily He-Prudhomme, founder of TheFrugalGene.com. Look at the expenses that take a bigger bite out of your monthly budget and think about how you can reduce these costs.

By Andrea Woroch

How to Save Enough for a Down Payment

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There comes a point for many first-time homebuyers when nearly everything you do becomes focused on saving for that purchase. Even when you’ve been putting money away regularly for years, you find yourself willing to cut out that beach vacation you had been planning, eating in more and even considering a part-time job to help close the gap between you and homeownership.
But even when you’re levelheaded about what you can afford and will qualify for in terms of monthly mortgage payments, the down payment remains a hurdle most first-time buyers struggle with.
As housing inventories remain low in major markets across the U.S. and home prices continue to rise, the difficulty of saving enough money for a down payment only grows.
A Zillow report released in November found homebuyers have to continuously save more for a down payment to keep up with the rising price of property throughout the U.S. The median home price is expected to be $6,275 more in a year, the report says, which means buyers will need to save an additional $105 per month simply to make up for the difference in a 20 percent down payment between now and then.
You’re Not Doomed
There is, of course, some respite for first-time homebuyers when it comes to borrowing options, with the growth of low down payment mortgage programs. Mortgage options requiring less than 20 percent down – with loans through the Department of Veterans Affairs, the Federal Housing Administration, the Department of Agriculture or the purchase of private mortgage insurance – allow homebuyers to get financing with as little as 3 percent (or even zero percent) down.
These options are becoming an “underlying trend within the first-time homebuyer,” says Tian Liu, chief economist for Genworth Mortgage Insurance. Genworth recently released its third-quarter 2017 report, which notes 601,000 first-time buyers purchased single-family homes between July and September. Of those purchases, 467,000 of them were financed with low down payment mortgages, which is up 5 percent from the same time period a year ago.
The growth in low down payment programs is a turnaround from the recession, when lenders wouldn’t move on many deals without perfect credit and 20 percent down. But Liu says the need for a more attainable option has always been necessary to help first-time homebuyers get in the door, not just in the current climate of rising home values.
“It’s really a life cycle story, that you have very little saving to begin with, and as you get into the labor force you start to earn some money, and you earn more than you spend, and therefore you have savings as you go on,” Liu says. “For your first home, you will have very little in assets – typically our borrowers have very small amount of assets, liquid assets in particular – to afford a 20 percent down payment.”
With a 3 percent down payment for a $300,000 house or condo, you’ll need just $9,000 in cash instead of $60,000 required for the standard 20 percent down payment, which gets you much closer to obtaining your goal. The mortgage insurance required with most types of low down payment programs increase your monthly payment, but they still make saving up easier. However, a smart homebuyer will need to save even more to make up for potential increases in value as you move toward homeownership, as well as account for any type of emergencies you may have. The last thing you want is to move into a house with no money in the bank only to sustain roof damage in a storm three weeks later.
Consider What You’re Willing to Go Without
What are your saving options? For the most part, they’re the same standard options people opt for when they need extra cash for any other reason: taking a bag lunch to the office instead of eating out every day, cutting out cable or online subscriptions and canceling a gym membership.
Forty-one percent of respondents to the Open Listings survey noted they would get a second job to save up for their home purchase. Thirty-four percent reported being willing to give up a vacation, 19 percent would bring in a roommate to reduce current living costs and 15 percent opted to go even further and move back in with their parents.
As you save for the home you want, also keep in mind that not everyone qualifies for the same mortgage program. It would be upsetting to save up for a 3 percent down payment on a townhouse in a specific neighborhood, only to find out you don’t qualify for a 3 percent down payment program when you’re ready to start seriously shopping. Speaking with a financial advisor or housing counselor can help you determine the best possible route for you while you’re still saving. The U.S. Department of Housing and Urban Development has a list of approved housing counseling agencies that offer free services to residents.
For that reason, it’s also important to keep an open mind about the type of house you’d like to buy. Consider adjacent neighborhoods, fixer-uppers or fewer bedrooms to make it more affordable. Offsetting the cost of owning a home after you purchase is where Schoenholtz says “the creativity steps in.” Rather than buying a single-family home, he sees younger buyers looking for a property with an apartment that can be rented out, or a garage studio where a hairdressing business can operate.
“It’s not their forever home, it’s their five- to seven-year home, so we see millennials not just hacking the savings, but also where they’re targeting to actually purchase,” Schoenholtz says.By Devon Thorsby

Pay Attention in 2018!

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We may have a tricky year ahead of us, so what’s the best and easiest strategy for consistent success in 2018?

Pay Attention!

Start the year with or without New Year’s Resolutions, but commit to success this year by paying attention:

#1. To how well informed you and information sources you rely on are

#2. To what’s really going on around you — real and fake, and

#3. To how you react to what’s going on around you — online and off.

Whether you are a real estate owner or a wanna-be… whether you intend to buy or sell in 2018, so much is shifting in real estate, in the economy, and everywhere else that nothing should be taken for granted or assumed in 2018. Concentrate on getting the facts not just someone else’s bias view of where advantages lie for you.

#1. A lot changed in 2017 and the full implications of those changes will continue to emerge in 2018.

Pay attention to ramifications and compromises, subtle and otherwise, attached to changes in everything from tax law and net neutrality to technology’s continued re-write and disruption of much we’ve take for granted:

  • Real estate ownership will be impacted by changes to tax law, estate planning, resulting neighborhood development, and interactions between these and many more elements. Where will advantages lie for you?
  • Changes in the business world may directly or indirectly influence job or retirement security for your family. This in turn may impact qualification for financing, mortgage renewal, and real estate affordability. Projected reductions in funding and donations for social and community support programs and organizations may have widespread impact in neighborhoods, community development, and in education. These shifts may reduce location benefits which, in turn, can affect real estate value. How will your location be affected in 2018?

#2. Whoever or whatever you blamed for distractions in 2017 will be with you in 2018 and might even be worse.

There are only so many hours in the day and only so many dollars in your pay check. Distractions that erode concentration on your needs and goals, and distractions that feed impulse spending will be expensive in many ways. Pay attention to what takes you off point, off track, and off goal to ensure you stay in control. You may blame others for distracting you, but it’s your powers of concentration that should be continually honed and improved to keep you ahead of the pack.

  • Saving for a down payment, home renovation, or to pay down an existing mortgage requires a written budget strategy to guide you toward clearly-defined results.
  • Paying monthly condominium fees, mortgage payments, or heating bills is exhausting when approached as month-to-month catch-up. Shift your focus to cutting costs and increasing income long-term and you’ll move beyond a monthly survival perspective to establish a constructive, long-term frame of reference for success.
  • Steady, dramatic increases in online shopping over the 2017 holiday season mean many households may be combining the impulse spending facilitated by credit cards and click-here shopping carts to undermine their budgets even more dramatically than ever. As the volume of online shoppers increases, convenience, cost saving, and product satisfaction may be compromised, so it’s only the novelty of online shopping that addicts. What’s all this got to do with achieving your core real estate ownership goals?

#3. Significant amounts of what you believed you knew in 2017 about real estate, finance, insurance, home security, mortgages, work, and the internet will be out of date in 2018.

Pay attention to which laws, regulations, services, and real estate expenses have actually changed not just been endlessly, sensationally rehashed in the media and online. Accurate information and clever strategies are gold.

  • Tweets, posts, and other online content arrive in increasingly-overwhelming rates and volumes. This leaves less and less time to uncover facts and realities and to actually learn and think about relevance to you. From shopping or applying for a mortgage to searching for a new home or viewing property, virtual video and online content bring these and other real estate activities onto your laptop and your mobile phone. Is this distance-learning leaving you better informed and smarter real estate-wise than face-to-face meetings with real estate experts and hands-on location and property investigations?
  • Searching out professionals who keep up with change within their profession is a challenge. Time pressures leave some professionals parroting what they hear and see in media and online instead of carrying out thorough research themselves. How do you make sure you receive the professional advice you need to interpret changes from your real estate point of view?

Let’s meet the challenges and opportunities of 2018 head on!

 

How to actually keep your new year’s debt resolutions

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Paying off debt in the new year is a common resolution. But resolving to do something and actually doing it are two different things.

Taking a smart approach to building good habits, however, can help you master your debt in the coming year.

Jon Bailey, professor emeritus in the psychology department at Florida State University, suggests applying some principles of behavioral psychology to help you create sustainable habits.

“Our general approach is really from the angle of self-management,” Bailey says. “You have to know yourself and your environment so you can put some things in place … (to) make the behavior, in this case paying off debt, more likely to occur.”

With this in mind, here are tactics to help you follow through on your debt resolution:

1. Know what you owe

Create an inventory of your debts, including their totals and interest rates. Add them up to see exactly how much you have to pay down.

Defining your goal can help you focus your payoff journey and see what being debt-free would look like, says Weslia Echols, an accredited financial counselor in Michigan. “Seeing that picture clearly and knowing the value of not having that debt can motivate you to stay the course.”

2. Break it down into smaller tasks

Focus on the day-to-day steps needed to achieve your goal.

►Figure out how much you can put toward your debt each month.

►Choose how you’ll approach paying off debt. Consider using the debt snowball method, in which you pay off smaller debts first to secure early victories that will keep you motivated.

►Trim expenses to find more money for debt paydown.

When making budget cuts, Bailey sees moderation as key to success. “If you go out to eat four nights a week, see what you’d save by only going out three nights a week. The extreme — cutting out going out entirely — isn’t going to last.”

3. Keep yourself accountable

Track your progress and create a backstop to help you stay focused, such as updating a friend about your progress each month. Think about using an app to help you cement your new habits.

Consider imposing a penalty if you don’t stay on track. For example, make a deal with your accountability partner that if you skip a payment, you’ll have to clean their apartment.

4. Treat yourself

Build in rewards as you make progress. Each $100 you pay off, for example, give yourself some small treat to celebrate. This can keep you encouraged and on track toward paying off your debt in the new year.

Sean Pyles is a personal finance writer at NerdWallet. Email: spyles@nerdwallet.com

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