5 Reasons to Beef Up Your Down Payment
Nowadays, there are options for homeowners to put a minimal down payment towards the purchase of a property. Amounts as little as 5%, 3.5%, and even zero percent have been pretty popular, particularly with first-timers who are trying to break into the housing market for the first time and don’t have the funds from a previous property to put towards another purchase.
But while small down payments are definitely an option, they’re not the best choice if you want to be free of mortgage payments sooner rather than later.
Here are 5 reasons why you should strive to beef up the amount you put towards a down payment on your next home purchase.
1. Boost the Odds of Mortgage Approval
Lenders are a lot more eager to loan money for relatively small mortgage amounts compared to bigger ones, simply because they’re at a much lower risk of being stuck with a mortgage on default. The higher the loan-to-value ratio (LTV), the riskier the mortgage, so anything you can do to reduce the amount of your loan would greatly enhance your chances of your lender approving the loan you apply for.
By offering up a larger down payment and decreasing the loan amount, lenders will stand a better chance of selling the property for more than the amount of the loan if a foreclosure occurs. In addition, the lender will see that you’ve got more incentive to keep up with your mortgage payments if you risk losing your down payment.
2. Save Money on Mortgage Insurance
Mortgage lenders require that Private Mortgage Insurance (PMI) be added to your monthly payments if you put less than 20% down towards a home purchase. That’s because lenders need to protect themselves from the risk of a potential default on the mortgage, which is more likely to happen when loan amounts increase. And depending on the exact loan amount that you take out, you could be looking at quite a hike in payments.
Let’s say you put down 5% towards the purchase of a home. The insurance rate on the subsequent 95% loan amount is .90% for 30% coverage – and that’s only if you’ve got a credit score of at least 760. The percent increases as your credit score decreases. In this scenario, you’d be paying an extra $2,700 per year – or $225 per month – on a $300,000 loan. If you can come up with at least a 20% down payment, you can save that extra cash and keep your payments much lower.
3. Pay Less Interest Overall
The more you borrow against your mortgage, the more overall interest you’ll be stuck paying by the end of the amortization period. Interest payments can add up to hundreds of thousands of dollars in the long haul, which can really have a major effect on your long-term finances.
Let’s say you agreed to buy a home for $300,000 with a 3.5% down payment, or $10,500. That means you’ll be required to take out a mortgage loan for $289,500. If you take out a 30-year, fixed-rate loan with a 3.5% interest rate, you would be obligated to pay about $211,609 in interest over the life of the loan if your monthly payments are $1,200 per month. But with the same terms and a $240,000 loan (after a $60,000 down payment, or 20%), you would pay only about $120,718 – that’s more than $90,000 in savings.
4. Be a More Competitive Buyer
Sellers only want to deal with buyers who are serious about making a hassle-free purchase. The skimpier your down payment, the less favorably you’ll be viewed by the sellers, which will take away from your negotiating powers when it comes time to wheel and deal. And if you’re competing with other interested buyers, your presence will likely be overshadowed by those who come prepared with a beefy down payment.
Bringing a larger down payment amount to the table when putting in an offer will make you a more competitive buyer, which can come in especially handy if you find yourself in a multiple bid situation. The sellers will love it if you can show that you’ve got the funds to make up a really good deal.
5. Protect Against Negative Equity
Plenty of homeowners found out the hard way during the recession eight years ago what a minimal down payment and massive loan amount can do to their equity. While home values in many markets are incredibly strong, that doesn’t mean that they won’t dip from time to time. By having a larger percentage of your property paid off before even getting the keys, you can effectively reduce the odds of getting into a disastrous negative equity situation should the economy or the local market take a temporary downturn.
Of course, it can be a real challenge to come up with a larger amount for a down payment, especially in markets where housing prices are through the roof. But with a little hard work, self-discipline, and some creative tactics that your financial advisor may be able to help you with, you just might be capable of gathering a higher amount more easily than you think.
How Soon After Foreclosure Can You Buy Again?
After the financial crisis hit the nation back in 2008, hundreds of thousands of families lost their homes to foreclosure. In fact, foreclosure filings skyrocketed over 81% that year compared to the year before.
Getting approved for a mortgage is tough enough these days for any borrower, but it can be a lot more challenging with a foreclosure on the record.
But all is not lost. Becoming a homeowner again after suffering through a foreclosure is possible, though a number of hurdles need to be overcome first in order to obtain another mortgage and get back into the market.
And the length of time that you’ll need to wait to put your name back on title will depend on the precise loan that you’re after.
Preparing For Homeownership
Before you plan on applying for another mortgage, there are a few tasks that need to be ticked off your checklist first. It should be noted that a minimum three-year waiting period will need to elapse following a foreclosure. The clock starts from the actual date that the foreclosure was completed, not when you were notified that you had to vacate your home.
Since you’ll likely be required to put a minimum 10% down payment towards any new purchase you make, now’s the time to start saving every penny possible. This is typically the most challenging thing for homeowner hopefuls to do, especially when mounting debt is present that requires attention. Lenders will want to be certain that you won’t default on your loan again, so the more money you can put towards the purchase – and ultimately reduce the loan amount – the better.
Your credit score plays a key role in your ability to get approved for a loan, so do what needs to be done to improve it. Get a hold of your credit report to see if there are any errors that are bringing your score down. If so, request an investigation to get those mistakes wiped off your report. In the meantime, make sure any debt payments you’re responsible for are made in time and in full each month, and don’t take out any additional loans for large purchases.
Make a trip to your mortgage lender to discuss your options, and apply for a mortgage pre-approval. This will help you narrow down the price range of homes that meet your specific budget, which will help save you and your real estate agent in the home searching process. Your loan specialist will let you know at that time if there are any other things you need to do to boost your chances of mortgage approval.
Conventional Mortgages
If you intend on applying for a conventional mortgage, the wait time following a foreclosure will vary from one lender to the next. You can expect to have to wait any time between two to eight years, or even longer in some situations. Some lenders may slash the waiting period, as long as they are confident that you have a considerable down payment saved up (often 25% or more). They’ll also likely tack on a higher interest rate, and subject you to more stringent credit and debt-to-income criteria.
FHA Mortgages
Unlike conventional mortgages, FHA loans – those that are backed by the Federal Housing Authority – are the most lenient of loan programs for those who have undergone foreclosure in the past. A minimum of three years must pass following foreclosure before being eligible for these types of loan, which begins when the foreclosure case ended. However, if the foreclosure involved an FHA loan, the waiting period begins on the date that the FHA paid off the previous mortgage lender on the claim.
While the traditional wait period before being able to apply for an FHA loan has been three years, recent changes in the agency’s regulations have made it possible for FHA loans to be approved as early as one year after the completion of foreclosure. The caveat is that you’ll ned to prove that a financial situation outside of your control led to the foreclosure. This would include a medical problem or job loss that slashed your income by at least 20% over a six-month period.
Fannie Mae & Freddie Mac Mortgages
Before applying for a Fannie Mae or Freddie Mac loan, a minimum of seven years needs to pass following the completion of foreclosure. However, like FHA loans, there are exceptions. You might be able to cut back the waiting period down to three years if certain requirements are met.
For starters, if you can prove that the foreclosure was caused by circumstances outside of your control, you may be able to shorten the wait period. This may also be possible if you can show that the maximum loan-to-value ratio of your new mortgage is 90%, or is the LTV ratio specified on Fannie Mae’s loan eligibility matrix – whichever of the two is higher.
The Bottom Line
Climbing out of the financial distress of foreclosure may be tough, but it’s still possible to become a homeowner once again. Depending in the type of loan you are considering, the wait times will vary. Your best bet is to hunker down and get your financial life in order, sit down with a mortgage specialist, and determine which loan type is ideal for your particular financial situation.
Are Foreign Investors Upping the Competition With American Buyers?
Not only is there a serious lack of inventory in many parts of the US, there’s also a housing affordability issue at play. And depending on where you live, both of these matters combined spell trouble for the average American who is looking to get into the real estate market but can’t find the right property at the right price.
How much do foreign investors have to do with this scenario?
In 2015, Chinese buyers represented the biggest group of foreign home purchasers in the US. And while the foreign funds pouring into housing markets from overseas may be helping strengthen the economy in some areas of the US – including the midwest – they’re wreaking havoc on housing affordability and availability in dense areas like Manhattan and San Francisco. Demand is far outweighing supply in centers such as these, as are prices. Bidding wars are happening like crazy, making the situation an ugly one.
Chinese home buyers spent $28.6 billion on properties in the US from March 2014 to March 2015 – over twice the amount from just two years earlier. Local Chinese newspapers are even publishing an increasing number of American real estate listings placed directly by US-based agents.
Of course, foreign buyers such as those from China don’t make up the majority of real estate purchases in the US, but they do have a huge portion of the luxury real estate pie. In fact, one in 14 properties listed for $1 million or more is being bought by Chinese buyers.
According to a survey conducted by the National Association of Realtors (NAR), the average amount that Chinese buyers spend on a US home is $831,800 – that’s over three times the amount that Americans spend. And the fact all-cash deals are highly popular among this group is even more alarming. Specifically, 69 percent of home purchases by Chinese buyers are made entirely in cash.
How can the average American compete?
For the average domestic home buyer who typically needs a mortgage, the inrush of Chinese capital makes it that much more challenging in our current market. Even wealthy tech entrepreneurs that line Silicon Valley are being beaten out by millionaire Chinese buyers.
What’s Driving the Chinese to Snatch Up American Real Estate?
Many Chinese are buying properties in the US solely for investment purposes, and banking on the skyrocketing rents that are part and parcel of many of the country’s more densely populated city centers. Others are buying close to universities and colleges for their children, while some are buying real estate as a stepping stone to obtain green cards.
And others still are attempting to hedge their capital from the Chinese government.
While housing prices in many parts of the US are certainly expensive, they’re not even close to some of the price points Chinese residents see in places like Beijing, where the average price of a 900 square foot apartment is over US$560,000. And with the Chinese economy currently unstable, and the stock market experiencing dangerous volatility, it’s no wonder that those with cash are looking past their borders to buy.
With an increasingly global economy, perhaps it should come as no surprise that buyers are coming in from all ends of the planet. While foreign buyers from China might be making it more challenging for domestic buyers to make a play at US housing, you’d have to wonder how long will this ’trend’ will last.
The economic turmoil in China can’t last forever, and the economy and labor market here in the US are only gaining in strength. Hopefully, the issue of housing affordability and shortage in many areas throughout the US will fizzle out sooner rather than later.
Why Are Millennials Still on the Fence About Getting Into the Housing Market?
Millennials now make up the largest proportion of the population in the US at over 80 million. With so many of these 20- and 30-somethings, one could only assume that they’d simultaneously make up a large part of the real estate market.
But that’s not necessarily the case.
Millennials are taking their time testing the waters of the housing market, for a variety of reasons.
A number of studies have shown that a large portion of millennials – also referred to ‘Generation Y’ – have plans to buy a home some time in the near future, but they’re not quite ready to take the plunge. Whether they’re currently renting or still living with Mom and Dad, the pace at which they’re entering the market is a lot slower compared to their parents’ generation.
So why is this demographic hesitant to jump into the world of homeownership?
They Don’t Have Sufficient Savings
Getting a mortgage to finance a property is pretty tough when your savings account is scraping the bottom and your student debt is sky high. That’s precisely where many millennials are finding themselves.
Most of the country’s $1.3 trillion student debt burden lies on the shoulders of younger Americans. And not only are Generation Yers working hard to pay down their debt, they’re not exactly having much luck finding a place that meets their budget.
With the current housing affordability crisis that’s plaguing many parts of the nation, being financially capable of affording a home is becoming increasingly difficult, especially for first-time buyers. Half of all millennials have less than $1,000 in savings, putting them in no position to be able to put a half-decent down payment on a home.
Lenders are a lot more strict with their lending criteria than they were before the financial crisis of 2008. And considering these young Americans have more debt and less income than prior generations, their debt-to-income ratios tend to be a lot higher than lenders expect.
Plenty of millennials graduated from school facing a tough job market, and even when they manage to land a good job, they haven’t experienced the income growth that would provide them with enough money to pay down student debt and save for a down payment.
There’s a Ton of Competition
Along with an affordability issue also comes a supply issue, especially in certain pockets of the country like San Francisco and Seattle. And as inventory fails to keep up with demand, prices jump. It’s tough for millennials who are just getting into the real estate market for the first time to find their way in, especially when more and more of the competition is waiving financing contingencies and even going so far as to pay all-cash.
In fact, over 38 percent of single-family home and condo sales as of November 2015 are all-cash transactions. That’s a tough one for any buyer to compete with, let alone a young buyer within minimal savings and a ton of debt yet to pay off. Even with a good credit score and an adequate down payment, it might not be enough when competing with people with cash.
They’re Getting Married and Starting Families Later
Unlike their parents’ generation and those before them, millennials are waiting a lot longer to tie the knot and start families. From the change in culture to the volatile economy, this demographic just doesn’t have the same pressing desire to make such important commitments.
Younger people today are extremely cautious about entering relationships because they’ve seen so much divorce – they’ve been born into and grown up around it. Postponing commitment is becoming more popular, so bad relationships are more likely to end before marriage.
According to research from Pew Research Center, 26 percent of Americans between the ages of 18 to 33 are currently married. That’s much lower than the 48 percent of Baby Boomers and 65 percent of the Silent Generation who were married within the same age range.
And with fewer millennials making the leap into married life, they’re less likely to get into home ownership so soon. According to TD Bank, millennials are less likely to buy a home without a partner or spouse compared to first-time homebuyers from generations past.
The Bottom Line
There’s no doubt that millennials are getting a delayed start to entering the housing market. With mounting student debt, minimal savings, and lack of financial experience, there’s certainly some work that needs to be done. But with the right plan of action guided by a seasoned financial advisor, there’s no reason why millennials can’t put themselves in a stronger financial position and prime themselves to become homeowners sooner rather than later.
What’s Driving California Housing Prices Up?
Nine out of 10 of the most expensive cities in the US are located in California. The median home price in California currently sits at $468,330, compared to $213,800 nationwide.
Housing prices in California have long been higher than most other states in the US, and the gap just seems to be getting bigger. Unfortunately, that’s driving many blue-collar and middle-class residents out of the state.
Californians are more likely to spend a bigger chunk of their income on housing compared to any other state in the US.
We all know that the Golden State is a desirable place to live. The climate and physical landscape are enough to attract anyone. But other states lure residents for similar reasons. What exactly is causing housing prices in California to spike and remain as high as they are?
Lack of Supply
The housing market in California is certainly a hot one. And the shorter the supply of homes listed for sale, the greater the demand; and vice versa.
There’s just not enough available housing in the state to keep housing prices within an affordable range.
The California Association of Realtors (CAR) says the low supply is partly a result of homeowners choosing to stay put in their homes and renovate or upgrade instead of starting over. That means homes that would have otherwise been listed for sale are not making it to the market.
As the classic economic equation goes, high demand and low supply translates into higher prices for sellers. While that may be fantastic for those looking to turn a profit on the sale of their homes, that’s bad news for people who can barely afford the price tag. This is especially true for first-time homebuyers who are finding it nearly impossible to get into the market at all, and are forced to delay flying the coop or foregoing rent in favor of obtaining title on a property.
Obstacles in the Way of Building New Housing
Considering the number of residents that California houses, it would only make sense to ensure accommodations meet needs. But new home builds just aren’t keeping up with demand and need. While 13 percent of the national population calls California home, only about 8 percent of all building permits across the country come from California.
The continual lack of new home construction has done nothing more than contribute to steadily increasing housing prices and decreasing inventory.
So what’s standing in the way of new home construction? For one, California has some pretty stringent regulations when it comes to construction quality. Construction labor costs are high, and land costs and fees are through the roof. Local governments tend to slap developers with exorbitant expenses related to residential building construction.
The cost of undeveloped land is also extremely high, especially in areas like LA and Bay areas where such land has become scarce.
Foreign Buyers
Foreign buyers are key players in the game of real estate in the US. And the money coming from abroad tends to be very focused and targeted. Canadians like their Florida and Arizona real estate, for instance.
And when it comes to California, buyers from China are swooping in by the hoards. In fact, Chinese buyers currently sit at the top of the list of foreign investors snatching up American real estate, particularly in the Golden State.
With a lack of supply currently plaguing the housing market in California, it could very well be that foreign buying is driving up housing prices in select markets across the state. Foreign buyers are simply paying a lot more than your average domestic homebuyer. According to the National Association of Realtors (NAR), the mean price paid by American buyers for homes was $255,600 in 2015, compared to $499,600 for foreign buyers.
Whatever is driving prices up in California real estate, low- to middle-income families continue to face a housing affordability crisis.
What’s the Difference Between a Mortgage Pre-Qualification and Pre-Approval?
Real estate agents will often recommend that their clients get pre-approved for a mortgage before embarking on a home search. It gives buyers a better idea of how much they can comfortably afford, and gives sellers the peace of mind knowing that there’s a good chance that the buyers will be capable of obtaining financing for a streamlined deal.
But in addition to a mortgage “pre-approval,” you’ve probably also heard of a “pre-qualification.” Don’t they sound like a different name for the same thing? What exactly is the difference?
The distinction lies in the accuracy of estimation of how much you can afford to borrow to purchase a property, and the weight held in the actual mortgage approval process.
What Pre-Qualifications Mean
The first step in the mortgage process typically starts with a pre-qualification. This simple step basically involves providing a lender with documents that help paint a picture of your finances. Your income, assets, and debt are looked at and evaluated, after which the lender can get a better idea of how much of a loan you’d be able to realistically afford.
There’s no lengthy or in-depth investigation of your credit history or any other issues that may have a detrimental effect on your ability to afford and pay off a loan. The lender is essentially depending on whatever information you supply in order to estimate how capable you are of paying for a home within a certain price bracket.
Basically, a pre-qualification is meant to provide you with an explanation of mortgage options that may be available to you based on the information you give the lender. At that point, the lender can make recommendations about which type of mortgage product and amount would be ideal for your specific financial situation.
But a pre-qualification doesn’t mean a mortgage amount is written in stone; it’s simply the amount of loan that you could potentially be approved for.
A pre-approval offers a more solid indication of whether or not mortgage approval is imminent, though pre-approvals aren’t necessarily a sure thing either.
What Pre-Approvals Mean
After a pre-qualification, the next step in the mortgage process is a pre-approval. This process is a lot more involved than a pre-qualification, and includes a much deeper investigation of your financials and credit history. Instead of looking solely at the data you supply to a lender, it involves a much more extensive check into your background.
A mortgage application will need to be filled out and submitted to a lender, along with all supportive documentation related to your financial and credit history. Make no mistake – lenders will be able to uncover any negative aspects about your credit rating even if you aren’t entirely upfront about them.
At this point, your lender will be able to give you a more precise loan amount that you’d be approved for at that given time. You can also get a clear idea of the interest rate you’d be given upon mortgage approval, and in many cases you can even lock in at a certain rate.
A mortgage pre-approval essentially means that you’ve been given a conditional loan commitment for a precise amount. This gives you a more accurate picture of how much you can afford, and can adjust your home search accordingly. There’s no point in looking in the $800,000 to $1 million bracket when you can only realistically afford between $400K to $500K.
Not only does this help you avoid major disappointment during your home search, it also puts you in favor of sellers, which can come in really handy when there are other interested buyers who you may be competing with. And when you do find that perfect home that you put an offer on, the closing process can move along much more quickly.
What Pre-Qualifications and Pre-Approvals DON’T Mean
Only after you’ve put in an offer on a home that’s contingent on financing will an actual loan commitment be issued. A pre-approval puts you close to being 100% approved, but a loan commitment can only be promised by a lender after there’s an actual home in the picture. That’s because the home itself needs to be appraised to verify its real value according to current market conditions, which needs to be at or above the final agreed-upon sale price.
If the appraiser deems the home worth less than what you agreed to pay for it, you could potentially be denied a mortgage to finance it. Lenders aren’t in the business of handing out loan amounts that are more than the home’s appraised value.
The lender might also need more info if certain things are discovered during the appraisal that warrant further investigation, such as structural issues or liens on the property. And if anything has changed with your finances and credit since your pre-approval – such as new debt or loss of a job – this could affect final mortgage commitment from your lender. That’s why another income and credit profile check will be conducted again before final approval.
A mortgage commitment letter is issued only after the lender is 100% sure that a loan will be granted. For this reason, the closer the commitment date on the contract to the offer date, the better.
While pre-qualifications and pre-approvals don’t guarantee you a loan commitment, they’re still extremely helpful in the house hunting process. You’d be well-advised to take these steps to help you figure out how much you can afford, and speed up the closing process after you’ve found the perfect home that you’ve agreed to purchase.
Should You Pay Your Mortgage Off or Keep Refinancing?
Taking out a mortgage typically means making regular payments until the loan is paid off. But while this may have been the traditional way of looking at mortgages, many homeowners these days are choosing to keep their mortgages by refinancing to take advantage of certain benefits, such as getting a lower interest rate, using the equity to invest, consolidating debt, or taking advantage of tax deductions.
Refinancing a mortgage basically means paying off an existing loan and taking out a new one. Considering the low mortgage rate environment we’ve been in for a while now, some might question whether it makes more sense to keep refinancing instead of just paying off the mortgage and getting rid of it once and for all.
The strategy of refinancing a mortgage to a new 30-year loan every decade or so typically involves using the equity and cash savings to put towards higher-return investments or paying off higher-interest debt.
The question is, should you pay your mortgage off and relieve yourself of regular principal-plus-interest payments? Or should you keep refinancing to open up capital to be used for other financial reasons? The answer to that will depend on your specific situation.
What Are the Benefits of Refinancing?
The advantages of paying off your mortgage sooner rather than later are obvious: it’s one massive debt that you can scrap off the books. No more managing payments and making sure there’s enough money in the pot to make sure payments are made on time and in full every month. Instead, that money can be freed up to do with as you please.
But there are real benefits to refinancing, or else homeowners wouldn’t consider it at all.
The number one reason that many homeowners refinance their mortgages is to take advantage of a lower interest rate. Some even go so far as to buy points to reduce this rate. And the reason is obvious: the lower the rate, the more money is put towards the principal. Translation? The overall cost of the home can be drastically reduced.
Refinancing also allows for extra money from equity to be freed up in the budget to be put towards both short- and long-term savings goals.
Consider Refinancing Only if You’ve Got Plenty of Equity Built Up
If you’ve been making regular payments for a few years now, and property values in your area have been steadily increasing, you could potentially have quite a handsome amount of equity built up in your home. This is a crucial factor, since refinancing is typically possible only if you have home equity. Not only that, but you usually need a minimum of 20% in home equity if you want to avoid having to pay Private Mortgage Insurance (PMI).
The only way to know exactly how much equity you have in your home is to have it appraised, then deduct the amount that you still owe on your mortgage.
Consider the Costs Associated With Refinancing
Taking advantage of low interest rates is great, but don’t assume that you’ll necessarily be saving a ton of money; you’ll need to figure out all the upfront costs of refinancing before you decide whether or not it makes financial sense for you. You’ll be responsible for covering fees related to the following:
Applications ($100 – $300)
Loan originations (up to 1.5% of the principal)
Appraisals ($300 – $800)
Inspections ($200 – $350)
Attorney reviews ($500 – $1,000)
Title searches and insurance ($700 – $1000)
Surveys (approximately $400)
Prepayment penalties
Generally speaking, refinancing costs about 1 to 2 percent of the entire loan value. Of course, locking in a really low rate can justify these costs as long as all the other numbers associated with your unique financial position support the move.
How Do You Plan on Using the Extra Money Freed Up From a Refinance?
If you want to free up some cash from the equity in your home via refinancing, you can do so in a couple of ways.
One way would be to lower your monthly payments because of a reduced interest rate or an extension of the loan term. The other way is with a cash-out refinance whereby the lender provides you with a lump sum of money.
Let’s say your home is worth $400,000, and you currently have a $200,000 loan outstanding on it. If you refinance with a new loan for $300,000, that fees up $100K since you only needed $200K to pay off your old mortgage.
Of course, that $100K isn’t exactly free, per se; it’s still subject to the interest rate that your mortgage is attached to.
Once you’ve tapped into the equity through a refinancing program, there are a number of things you can do with the cash.
Consolidating debt – Maybe you’ve got a bunch of high-interest debt on the books that you’re finding tough to get rid of. By refinancing at a much lower interest rate, you can pay off these debts, such as credit cards, and potentially save a lot of money in interest.
If you’re consistently falling behind on your credit card payments, your debt will continue to mount, and your credit score can suffer. In that case, using your home equity to pay off this debt might make sense. But you need to be 100% certain that you’ll be able to afford your new mortgage payments in favor of a refinance, or your could lose your collateral – your home.
Making profitable investments – If you’ve dreamed of investing your money as a way to build wealth and pad your retirement nest egg, but never had enough available liquid cash to do so, a refinancing program can be the ticket to feeing up some capital.
This can work to well if your investments are projected to pay out more than what you’re currently paying in interest to hold your mortgage. Ideally, the investments you make should also have a proven historical track record of performing well.
But you’ve got to weigh the risks associated with making certain investments, and understand the potential of being stuck with even more mortgage debt. The important thing to remember is that you need to make absolutely sure that you can afford your mortgage payments, no matter how well – or poorly – your investments do.
Paying for college tuition – Getting a post-secondary education these days is downright expensive. If you’ve got a child at home who’s embarking on a college career, you’re going to need to flip the bill somehow. And if you haven’t been saving for it up until now, you’ll need to come up with another way to finance the tuition; perhaps through refinancing your mortgage.
A situation like this might not actually have as much of a benefit considering student loans usually have low interest rates (though not necessarily as low as mortgage rates). On the other hand, refinancing could lower the risk of default if you lower your mortgage payments.
So, is refinancing a good idea?
It’s a loaded question, and one that requires a deeper look at your short- and long-term financial goals, your current state of finances, the equity you’ve already built up in your home, and why you’d want to free up the equity in the first place. Before you make a move, be sure to speak with a financial advisor and mortgage specialist to make sure refinancing is right for you.
How to Sell Your Place While Your Tenants Are Still Living There
Whatever your reason for wanting to list your rental property for sale, having a tenant still living there while selling the place can definitely make the process a little more complex. But it’s not impossible, nor does it have to be a total nightmare if you play your cards right.
While it might be a lot easier to wait until the lease expires and your tenants have vacated the premises, you might not necessarily have the luxury of time. Not everyone can necessarily afford to have the place vacant with zero income while the property is up for sale.
In that case, there’s little choice other than to list the property, even while it’s occupied by renters.
Be Open and Honest With Your Tenants
Before anything else, the first thing you should do is show some common courtesy and inform your tenants of your intentions to sell. Think about it from their perspective: this is currently their home, and odds are, they may not want to move.
Perhaps they don’t have to, if the buyer you find specifically wants an investment property that will provide them with residual income through monthly rent checks. But there’s a good chance that the people who buy the place may want to move into it themselves. In that case, your tenants will need to find themselves a new home.
In the meantime, they’re essentially being inconvenienced as strangers come in and out to check the property out before putting in an offer. This can be disheartening, so it’s important that you are sympathetic to their situation. And that starts with keeping them in the loop about your intentions.
You’re going to need the tenants’ permission to show the property at specific times, considering the rights they hold, such as the right to quiet enjoyment. You’ll need to give them a certain amount of notice before a prospective buyer visits the property. Since tenants do have some influence over a landlord’s selling decision, your best bet is to communicate with them early on in the process – and often – when placing your rental property up for sale.
While you’re having the conversation with your tenants about your plans to sell, that would be the perfect time to ask them if they’d perhaps be interested in buying. You never know – you just might make the entire process of finding the right buyer a lot easier and less time-consuming for you if your tenants are interested in purchasing the home at an agreed-upon price and closing date.
If not, the doors of communication need to be open throughout the listing and sales process.
Check Out Your Local Landlord-Tenant Rules
At the same time that you inform your current tenants, you should also be scoping out the local rules and regulations surrounding tenant and landlord rights in the case of selling a tenant-occupied property.
Some areas in the US have rules that state that tenants have the right of first refusal, which means owners have the obligation to offer the current tenant the opportunity to purchase the property at the listed price. Even if they refuse at first, they still have the same right of first refusal when an offer comes in. These rules can vary from one jurisdiction to another, so it’s important to find out exactly what these regulations are in order to avoid stepping on toes and getting yourself into hot water.
Offer Incentives to Entice Cooperation
Monetary incentives can help sway your tenant’s attitude in your favor. You might want to consider offering your tenant a discount off rent during the showing period for keeping the place in proper condition and being flexible with letting in prospective buyers and their agents.
Consider offering them something along the lines of a gift certificate for dinner during each month the property is listed. You’re going to want your tenants to make sure that dishes are out of the sink and beds are made, and that all their little knick-knacks are put away and kept out of sight. All that takes some effort, so rewarding them for their troubles can encourage them to cooperate with buyers.
Offering them a free hotel room on the weekend of an open house is also a great option, as this would significantly reduce any inconveniences on their part.
Rather than leaving them out in the cold, you may want to consider helping your tenants find a new rental place while they’re making plans to vacate yours. Help them find a real estate agent or provide them with a listing of properties that are up for rent and meet their criteria as far as location and price. Show them that you care about their well-being, and that you understand that your property is their home, and not just a commodity.
The Bottom Line
Having tenants living in your property while it’s being shown to prospective buyers can definitely throw a wrench in the selling process. But how you approach the situation and deal with your tenants can have a huge effect on how smoothly the transaction goes. Before you make a move, get an experienced real estate agent on your side who can offer you tips and advice on the landlord-tenant laws in your area, and how you should deal with you specific tenants when trying to sell.
6 Things Burglars Don’t Want Homeowners to Know
Every 15 seconds, a home is broken into and burglarized in the US. Thieves spend hours scoping out targets, and once they zero in on them, it takes less than 60 seconds to break in.
Locking the doors when you’re not home is only scratching the surface when it comes to keeping your home impermeable to intruders. These thieves are smart, and have an arsenal of tricks up their sleeves when it comes to pinpointing which house on the block is easiest to break into, and has the pricey goods to steal.
Here are 6 things burglars don’t want you to know.
1. Shrubbery Makes For Great Coverage
Outdoor landscaping is an excellent way to boost curb appeal and enhance the esthetics of your home’s exterior. But all those shrubs that you meticulously maintain on the weekends could be doing a lot more than just making your home look pretty.
This greenery also does double-duty by acting as coverage for ne’er do wells who are looking to make their way into your home without being spotted by passersby in the meantime. When you’re planting shrubs and hedges, make sure they’re positioned far enough away from your windows so they don’t give burglars the opportunity to crack the windows open and slip in without being spotted. And make sure they’re trimmed low too so that as much of the windows are exposed as possible.
2. Big Boxes From New Electronics Are a Tip-Off
Any big-ticket electronics or appliances typically come encased in cardboard boxes. And after you’ve taken your prized possessions out and set them up in your home, you’ve got to discard these boxes somehow.
Most likely you’ll be leaving them at the bottom of your driveway come garbage/recycling day, which is exactly what burglars are watching for. Rather than blatantly announcing to the world that you just bought a new flat-screen TV, make sure you cut the cardboard boxes up into small pieces and stack them in such a way as to hide the labels that show what came in the box. Or else, consider storing the cut-up sections inside a bin until the morning of recycling pick-up.
3. Service Technicians Might Be Doing More Than Repairs
Whether you need to call a plumber to clear a clogged drain, or an electrician to revamp your electrical panel, letting a complete stranger in your house is always a gamble. While most service technicians coming into your home are honest workers who are there simply to rectify whatever issue you have, you just never know when one of them has an ulterior motive.
Some burglars use jobs like these as a means to go into other people’s homes to scope out the goods inside, as well as the best ways to get in when you’re not home. They’ll even go so far as to unlock windows while in the bathroom to make their break-in that much more convenient.
4. Mirrors Reflect a Lot More Than Your Image
Hanging mirrors in the entrance of homes is a pretty common design practice, and for good reason. It’s helps enlarge an often tight space and brightens the area up while providing a decorative element to the entryway. But while mirrors are attractive and all, they can also be a burglar’s ally. If your home has an alarm system installed, that mirror that you use to check your makeup on the way out for work will also reflect the alarm pad.
And if you forgot to set the alarm system before leaving your home, thieves will see that. And even if it is set, they’ll know that your home has an alarm system and may be crafty enough to disarm it by finding and cutting the telephone wire that it’s hooked up to. If you’ve got a mirror in your entryway, make sure the alarm system pad doesn’t show from the outside.
5. Those Door Hangers Might Not Be From the Local Real Estate Agent or Cleaning Company
Local professionals regularly advertise their services to homeowners via paper advertisement, whether they’re flyers, mail, or door hangers. But savvy thieves often use the door-hanger tactic to see how long it takes before this piece of paper is removed from the handle.
If it sits there for a few days, odds are the homeowners are away on holidays, which means it’s prime time to break in and help themselves to your belongings. If you happen to be away for more than a couple of days, ask your neighbor or a friend to clear these door hangers – as well as newspapers and your mail – while you’re gone to thwart off thieves.
6. Facebook is a Treasure Trove For Holiday-Goer’s
When you’re on vacation, you’re probably dying to show pictures of the glorious beaches or amazing landmarks you’re experiencing. But instead of waiting until you come home to do this, you’re likely plastering these images all over your Facebook page and Instagram account, just like millions of Americans do all the time.
But in addition to your friends scoping out your pics, burglars are doing the same. Mention that you’re out of town for however long, and these invaders will target your home, knowing that they’ve got plenty of time to ransack the place before you get back. Do yourself a favor and wait until the holidays are over before bragging to the world about your amazing vacation.
The Bottom Line
Burglars these days are always upping their game when it comes to breaking into homes and making off with valuables. That means you’ve got to keep up with their game in order to protect your home and its belongings. With an estimated $4.7 billion in property losses annually according to FBI stats, it’s well worth the effort to go beyond simply locking your doors and putting in an alarm system. In essence, think like a thief in order to impede on their efforts.
