A fixer-upper can be a great investment when you know what you are getting into. Homeowners that purchase and renovate fixer-uppers can often see their homes appraise for 50% or more than what they paid when they purchased it. That’s a pretty substantial return on investment.
But before you pick a fixer-upper as your next home, be careful!
One other thing that most folks overlook… be sure to talk with your insurance professional as you begin the process of purchasing and fixing your new home.
They can give you guidance on insurance products designed to protect the property during construction and they can make sure you have the right amount of insurance for what the home is truly worth after renovations… not just what you paid for it.
A fixer-upper can be a great investment if you have the time, money, and emotional energy. And like many others who have gone before you, if done right you’ll have a home that’s worth more PLUS the satisfaction that goes with creating a space that’s truly yours while improving the value of the neighborhood around you as well.
Unless you’re among the one-third of homebuyers who can purchase a property with cash, you’re going to need a mortgage approval before you can secure your next home. While a good credit rating can make the process much less stressful, most homebuyers still experience a nagging worry that their application will be rejected even after they’ve dotted and crossed those metaphorical I’s and T’s. Fortunately, forewarned is forearmed. Talking to your trusted mortgage or real estate professional about the reasons—even these surprising ones—borrowers are turned down for loans can help you prevent unforeseen issues from derailing your home purchase.
Mortgage lenders love borrowers who demonstrate stability. Unfortunately, frequent career changes tend to make you look like anything but an acceptable risk. If you’ve been thinking about looking for a new job, consider postponing your search until after you’ve closed on your loan. Lenders generally prefer borrowers who have been in the same position for at least two years.
If you were able to retire before the age of 65, congratulations! Most everyone will acknowledge that required hard work and diligent saving and investment efforts. However, depending on your retirement income, it may not endear you to mortgage lenders. They want to see enough earnings—whether from a traditional job, self-employment or investments—to ensure you’ll be able to meet your mortgage obligations.
Maybe you just leased a new car. Perhaps you opened a Care Credit card to finance your child’s orthodontics or Lasik surgery for your spouse. While these are all sensible actions under most circumstances, mortgage lenders don’t want you to increase your monthly debt obligations in any way during the months leading up to your home purchase. To best improve your chances of securing a loan, avoid all non-essential purchases until after you’ve closed on your new home.
While plenty of mortgage lenders make loans for condo purchases, those who want to sell those loans to government-backed Fannie Mae and Freddie Mac will only do so if the condo complex meets certain standards. This includes a certain level of owner occupied units. If too many are investor-owned and occupied by renters, your mortgage application may be rejected. The same goes for FHA loans. If the condo you want to buy is not on the FHA-approved list, you’ll be turned down for a mortgage.
Believe it or not, sometimes a sizeable down payment can actually result in an application rejection. Lenders make money on interest and many set mortgage minimums. If you’re buying a $150,000 home with a $75,000 down payment and your lender’s minimum loan amount is $100,000, you may have to go elsewhere to secure a mortgage or agree to borrow more.
For the first time since 2012, total mortgage originations are expected to exceed $2 trillion this year thanks to strong home sales and housing price gains across the nation. As of July, refinance rates were up 50 percent year-over-year, and with interest rates predicted to stabilize around 3.5 percent, they should remain at about that level for the remainder of 2016. What does all this mean for millions of U.S. homeowners and potential homebuyers? Simply put, now is an excellent time to buy your first property, move up or refinance your current loan.
Of course, not all mortgage applications are approved. Whether you’re purchasing or refinancing, ‘complicating circumstances’ can lead lenders to reject you. In fact, according to Zillow, 11.2 percent of applications for conventional home loans were denied last year. Fortunately, there are plenty of steps you can take to improve your situation should you be turned down for a mortgage.
Low credit scores—or a complete lack of credit history—are common reasons lenders reject potential borrowers. So are high loan-to-value and debt-to-income ratios. If your application is rejected, you’ll generally receive a letter from the lender explaining the reason. You can also contact the lender for additional insight into your specific situation if necessary.
If you were rejected due to a low credit score, you’ll have to work on improving it. Review your credit report for errors and request corrections. Pay down your revolving debts—and make those payments on time. Steps like these will lead to a higher credit score over time. Paying down debts—or taking on a second or higher-paying job—will also help you if you were rejected due to a debt-to-income ratio that was too high.
If you were attempting a refinance and turned down for high loan-to-value, you can look for ways to improve your home’s value (such as making repairs and improvements) and try again, or focus on paying off a larger portion of the loan balance to increase your equity in the property and reduce loan-to-value.
Whatever the reason for rejection, your lender should be able to advise you on the steps you can take to alleviate their hesitation.
You can also ask your lender about alternative loan products. For example, government-backed FHA loans, which are insured by the Federal Housing Administration, have lower credit score and down payment requirements. If you’re a veteran, you may be able to qualify for a mortgage through the VA loan program. Direct Home Loans are available for Native Americans, or you may be able to qualify for a Rural Housing Loan if you live in an eligible rural area. You can learn more about the various government-backed loan programs available here.
If you’re having difficulty qualifying for a conventional mortgage and are not eligible for a government-backed mortgage, you might want to talk to a family member or friend about cosigning your loan. As a cosigner, they’ll apply for the mortgage with you. This means the lender will consider their financial information (credit score, income, etc.) in addition to yours. If he/she happens to be an attractive borrower (with excellent credit, for example), it may help you secure a mortgage.
A mortgage rejection is disappointing to say the least, but it doesn’t have to be the end of the world. Talk to your mortgage lender, take the appropriate steps to improve your situation, and explore additional options. You may still be able to make your dream of home ownership or a refinance a reality.
While property values are rising across much of the nation, far too many homeowners still find it difficult to avoid overpricing their home. Though this is often caused by emotions getting in the way of cold, hard real estate data, inexperience (first-time home seller) and misinformation (such as Zillow ‘Zestimates’) can also play a role.
Unfortunately, an overpriced home is unlikely to sell. In some parts of the country—where competition for available properties is fierce and bidding wars are rampant—it might not noticeably slow down the process. But in other areas where market conditions have stabilized, a too-high price could result in additional weeks, months or even years waiting for a buyer. And continually lowering the price could eventually lead potential buyers into believing something is actually wrong with your home.
If you’d like to ensure your home is priced correctly from day one, your best bet is to consult with a qualified real estate agent who knows your neighborhood well. He or she will consider renovations you’ve made to your property—such as building an addition, updating your kitchen, adding a bathroom or installing wood flooring—as well as what similar homes in your area are selling for.
These comparable sales, or comps, should be comprised of properties that are as near-identical to yours as possible in terms of floor plan, square footage and amenities. They should also have closed as recently as possible—such as within the last couple of months. If there aren’t any recently sold homes in your neighborhood, your real estate agent can pull older comps and adjust them for the current market. He or she may also find neighborhoods similar to yours in demographics and amenities and then look for comparable properties there.
Armed with this data your real estate agent can then help you determine the best listing price for your property. If you begin receiving offers quickly, you’ll know you priced your home correctly. If you get requests for lots of showings but don’t have any offers, you may want to reconsider the price or have your agent ask the potential buyers about issues/features that may be turning them off once they’re inside the home.
Bonus Pricing Tip
If you’re ready to sell your home or just curious about its current value, we’re here to help. Give us a call today for a comparative market analysis.
Whether you’re redoing your kitchen, adding a bathroom or finishing your basement, it’s easy to get caught up in the excitement of a home renovation. However, before you buy your supplies and hammer in that first nail, here are a few things you might want to consider.
You may need a permit before you can begin.
Depending on where you live, you may need a permit before you can take down or erect walls, cut new doors or windows, or even update the plumbing or electrical system in your home. Professional inspections may be required as well, making home improvements even more of a challenge for the do-it-yourself renovator. Hiring a general contractor who is familiar with the requirements in your city and county can help—though it will increase the cost of your project. If you still want to go it alone, be prepared to make multiple calls to the local permitting office.
The improvement may not increase your home value.
Consider the value of the other homes in your neighborhood before beginning any renovation. If you’re planning an expensive improvement that is going to out-price the market, it’s unlikely you’ll ever recoup your investment when it comes time to sell. The same can be said for home renovations that are less popular or even unpopular with many buyers—such as reducing the total number of bedrooms by combining two smaller into a larger or adding a swimming pool or high-maintenance water feature.
Safer bets are improvements that have traditionally increased home values. These include updating your kitchen (new appliances, flooring and countertops); modernizing your heating, plumbing and electrical systems; finishing the basement or attic; replacing flooring and adding a fresh coat of paint.
Hiring professionals might ultimately cost less.
You’ve included building supplies, new fixtures, carpet and paint in your budget. But what about your time? Not only will a major do-it-yourself renovation suck up all your free time, it will also turn your home into a work zone. When you hire professionals, you can spend that time doing things you enjoy while the job—usually—is completed faster than you could do so yourself. Before you begin your project, it doesn’t hurt to get quotes from a few professionals. All things considered, you might be surprised how much more “affordable’’ professional home improvement can be.
If you want to use a contractor, you’ll need to plan further ahead.
Whether you just want to use a general contractor to help you get the right permits and inspections or plan to outsource the entire project, you’re going to have to line up help months in advance. Not only do you need to get on the contractor’s schedule, but you also need time to make sure he or she—plus the subcontractors he or she works with—are licensed, bonded and insured. While you’re at it, ask if you can contact a few of their previous customers. Then call the homeowners and ask about their experience.
In 2012, the Federal Trade Commission (FTC) completed a study examining errors on American consumers’ credit reports. Some of the results were rather disturbing, namely that one in five consumers had errors on at least one of the credit reports issued by the three major credit reporting agencies. However, the study also found that about 20 percent of consumers who identified and disputed these errors were able to increase their credit score as a result. And as we all know, a higher credit score often means a lower interest rate—whether you’re applying for additional revolving credit, an auto loan or a mortgage.
If you’re preparing to buy a new home or refinance your current property, experts suggest you review your credit report for errors and take the necessary steps to dispute any inaccurate information you may find. Errors open to dispute include:
You’ll need to check and correct your credit report at all three major credit reporting agencies: Equifax, TransUnion and Experian. If you visit annualcreditreport.com, you can get a free report from each agency once every 12 months. Periodically reviewing these reports and addressing any errors will help you protect your credit and keep your score as high as possible—ultimately saving you money on interest.
To dispute an error, you’ll need to contact the credit reporting agency that issued the erroneous report. If you purchased a report complete with credit score from a service such as MyFico.com, you may be able to log a dispute online. Otherwise, you’ll need to submit notice of your dispute to the appropriate credit reporting agency in writing. The FTC offers a sample dispute letter here. Complete it and mail it, along with copies of supporting documentation, by certified mail. They also suggest you use the USPS ‘return receipt requested’ service so you can document when the credit reporting agency received your request.
Credit reporting agencies have 30 days to investigate the information under dispute. This includes notifying the organization that supplied the erroneous information of the dispute and reviewing the results of that organization’s subsequent investigation. Once the investigation is complete, the credit reporting agency must send you the results in writing along with a free copy of your report if the dispute resulted in any changes.
Do you want to learn more about the home buying and financing process? We’re here to help, whether you have a simple question or require more in-depth advice and assistance.
In real estate, the ‘closing’ is the final step in the home buying and financing process. It generally involves legal forms (and often representatives) from the title insurance and escrow companies, your mortgage lender, your real estate agent, the seller and seller’s real estate agent, and—in some states—both parties’ attorneys. During the closing, you’ll sign various loan and real estate transfer documents as well as pay any outstanding closing costs that you haven’t rolled into your mortgage.
While a smooth closing can take as little 30 minutes, certain circumstances can delay the process by hours or even days. Many—such as errors in documents, missing documents and last-minute lender requests—are out of your control. You can take action to avoid others, however, by taking the proactive steps below.
Are you ready to buy or sell a home? The real estate market is hot in most of the country, and low interest rates make it a great time to apply for a loan. Give us a call today to begin the process.
Homes are selling pretty quickly these days—at least when you look at the nation as a whole. According to the National Association of Realtors, properties are typically staying on the market for 59 days this spring, with about 35 percent on the market for less than a month. But real estate is local, and national averages may not accurately reflect market conditions in your area. Whether you live in a city where homes aren’t selling quickly or you’re planning to sell during the slow season, consider these homebuyer incentives to speed up the process.
If your property has been sitting on the market for a while, buyer’s agents (real estate professionals who work on behalf of homebuyers to help them find and buy a property) may not bother to show it to their clients. Offering an additional percentage as a commission bonus may stimulate their interest.
When a homebuyer applies for a mortgage, lenders generally offer an interest rate based on the current market as well as the option to lock in a lower rate by paying a portion of the interest upfront in the form of discount points. Each point is equal to 1 percent of the mortgage amount.
Most buyers will find an offer to pay their points more attractive than a discounted purchase price. Why? Because a rate reduction—even a small one—can save a homeowner tens of thousands of dollars over the life of the loan. Knocking a few thousand dollars off your home’s selling price will not.
Whether you’re selling a condo, townhome or single-family property in a neighborhood with a Homeowners Association, offering to pay your buyer’s HOA dues (for a few months, a quarter or a year) can be an attractive incentive. Many buyers are making big dents in their savings in order to pay closing costs on their mortgage, and HOA fees may be expenses they forgot when budgeting.
This incentive may be particularly attractive to young, first-time homebuyers who previously split the cost of gas, electricity, water, cable and Internet services with roommates. An offer to pre-pay their utilities—or a portion of these expenses—for several months while they adjust to their new mortgage payment could be just the incentive they need to get off the fence and make an offer on your property.
Once you’ve received an offer, your home is as good as sold, right? Wrong. The process can take a significant amount of time—especially if the buyers need to sell their home, ask for dozens of repairs, or are having difficulty with financing. If you want to move the closing along quickly, consider offering a credit to the buyer for closing by a specific date.
If you’re like most Americans who want to buy a home, you’re going to need a mortgage. In fact, according to CoreLogic, a real estate data company, homebuyers making cash purchases accounted for a mere 34 percent of total transactions in 2015—the lowest percentage since 2008. It’s easy to see why: the median existing-home price for all housing types nationwide is currently $210,800. And 62 percent of Americans have less than $1,000 in savings.
Of course, whether to obtain a loan or empty your savings account isn’t the only decision you’ll need to make when purchasing real estate. Should you go the mortgage route, you’ll need to calculate costs carefully in order to determine how much property you can afford and how high a mortgage payment you can comfortably take on. For the most accurate calculation, avoid making these mistakes.
Before you start plugging today’s low interest rates into a mortgage calculator to estimate your potential monthly payment, take time to check your credit score. It plays an enormous home financing role. Lenders will factor it into their calculations before extending any loan offer to you. The lower your score, the higher the interest rate you’ll have to pay on the loan. The higher—or better—your score, the lower the interest rate they offer you will be. The difference in money spent or saved or the life of your mortgage can be significant.
Federal law allows you to request a free credit report from all three credit-reporting agencies every 12 months. You can also purchase your credit report—complete with credit score—directly from Equifax, Experian or TransUnion. If you find any mistakes (i.e. debts that don’t belong to you, misreported late payments or judgements, etc.) correct them before you apply for a mortgage.
Mortgage calculators, while useful, only help you estimate your monthly mortgage payment. But as any homeowner can tell you, buying—and owning—a home comes with additional expenses. From homeowner’s insurance (which your mortgage lender will require) and property taxes (which you much pay by law) to routine maintenance, these costs quickly add up. And don’t forget the closing costs and fees required just to process and close your loan.
If you want to be a savvy homebuyer, take some time to learn about the process before you start searching for properties. Doing so will help you avoid time-consuming and costly surprises down the road. If you’re not much for research, your mortgage professional can help. Gather your financials and request a mortgage pre-qualification to help you determine how much you’re likely to be able to borrow and the types of loan products for which you qualify. Don’t hesitate to ask questions and request further clarification.
Are you ready to get started? We’re here to help. Give us a call to schedule your free mortgage pre-qualification today.
Recasting—also known as re-amortizing—is a little-used option homeowners have for reducing their monthly mortgage payments. Unlike a refinance, the loan term and interest remains unchanged by the recast. However, when they’re applied to the newly reduced principal, the amount required each month to satisfy the loan by the end of its term is lower.
You must make a lump sum payment to reduce your loan balance and request a recast. While the amount required varies depending on your lender, it could be as much as 10 percent of your remaining mortgage balance. The fees, however, are likely to be lower than those required for refinancing are—as low as $250 in some cases.
Let’s say you took out a $200,000 home loan 10 years ago and have been paying 5 percent interest ever since. Your monthly payments have been about $1,074, and your remaining balance is about $162,288 with 20 years remaining on your mortgage term.
Suddenly, you acquire $10,000 and decide to put it towards your mortgage. You make a lump sum payment of $10,000 and ask your lender to recast the remaining $152,288. The interest (5 percent) and remaining term (20 years) stay the same. But your new loan payment will be $1,005 a month.
In essence, you’re paying $69 less a month as a result of the recast. Over 240 months, you’ll pay $16,560 less. Minus your initial $10,000 lump sum payment, that’s total savings of $6,560.
Recasting is generally restricted to fixed-rate mortgages of the convention, conforming loan variety. FHA and VA loans do not allow for recasting. Jumbo loans also tend to prohibit recasting.
The time it takes to recast a mortgage tends to be longer than that required for a refinance. It may be several months before your new payment takes effect. Additionally, you must wait 90 days after closing on your original mortgage before you can initiate a recast.
If you just bought a new home and have yet to sell your old residence, you may want to keep a recast on the table. When you finally sell your previous property, you can take your portion of the proceeds (or equity) and use it to pay down the balance on your new mortgage. A recast will then re-amortize the remaining balance, lowering your monthly obligation.
If you aren’t planning to sell other property and just want to lower the interest rate on your current mortgage, a refinance may be a better option. However, if you’re underwater—owing more than your home is worth—or your credit is poor, consider a recast. It won’t require an appraisal or a credit check.
If your goal is to pay off your mortgage sooner, making biweekly payments could be the answer. A biweekly payment program basically leads to one extra mortgage payment each year. The number of years it will save you depends on your interest rate. However, at today’s average rates, it should allow you to pay off your home four years sooner.
Are you wondering if a refinance or a recast is the better way to lower your monthly payment? We’re here to help. Please don’t hesitate to contact us with any real estate questions.