You’ve got $500,000 in liquid assets for your retirement and you’re still 15 years away. All your bills are paid; you have a small mortgage on your home; cars are paid for and great credit. Don’t break your arm patting yourself on the back yet.
People think more about what they’re going to do when they retire than whether they’ll have the funds to do them. Ask anyone who has retired, it takes more money than you thought it did. Let’s look at a hypothetical situation.
To retire with $125,000 income in today’s dollars with a life expectancy of 25 years after retirement, you’ll need to have a net worth of $1.5 million at retirement including what Social Security may provide. Your $500,000 will grow to $1,045,420 in 15 years which will leave you about a half million short. You’ll need to save $24,149 each year for the next 15 years to reach your goal.
Is this surprising? Did you imagine that this example would be that far from its goal? It might seem staggering to save $24,000 each year but there is another way…investing in rentals.
Real estate over the long term has proven to be a solid, predictable investment. Cash flows, appreciation, equity buildup and tax advantages are the components that contribute to the rate of return. Increasing rents, available financing and solid appreciation make rentals particularly attractive in today’s environment.
Call me at (919) 247-4667 to find out more about how rental homes can help you reach your retirement goals.
FHA insured mortgages serve a sector of the market that is not necessarily being met by other loan programs.
Securing an 80% conventional mortgage that doesn’t require mortgage insurance may be the lowest cost of financing but if the buyer doesn’t have 20% down payment, it isn’t really an option.
Securing a 100% VA loan doesn’t require a down payment or mortgage insurance but if the buyer isn’t a veteran with his/her eligibility intact, it isn’t an option either.
There are conventional loan programs with as little as 3% down payment but they not only require mortgage insurance, they also require a credit score of 740 or above which may eliminate some buyers.
For these reasons, FHA is a viable alternative to about 20% of new and existing home sales. The Federal backing of these mortgages makes it easier for first-time and low-income buyers to qualify because the requirements are not as demanding. They’re even more lenient towards buyers who have previously experienced bankruptcy, foreclosure or a short sale.
Finding the right mortgage for the right home is a team effort where both mortgage and real estate professionals work in harmony to get a buyer into their own home. Call us at (919) 247-4667 for a recommendation of a trusted mortgage professional.
General FHA loan requirements include:
- The loan is for primary residences only but can include two, three or four units.
- The property must be appraised by an FHA-approved appraiser.
- The property must be safe, sound and secure, in compliance with minimum property standards as defined by the U.S. Department of Housing and Urban Development.
- The borrower must be a legal resident of the U.S. and have a valid Social Security number.
- The minimum credit score of 580 with a down payment of at least 3.5 percent, or a minimum credit score of 500 with a down payment of at least 10 percent.
- The borrower may not have delinquent federal debt or judgments, or debt associated with past FHA loans.
- The borrower must have steady employment history.
- Documentation is required if the down payment was gifted by a family member.
- The borrower must have a debt-to-income not exceed limits of 31% for front-end and 43% back-end ratio (some exceptions may apply).
- Any judgments or collections on the credit report must be resolved or satisfactorily explained.
In 2007, Congress passed an energy act that required new energy-efficient standards for basic light bulbs. Standard incandescent bulbs are being phased out and eventually will be unavailable.
The alternative bulbs differ considerably in price. LED bulbs are the most efficient but they also cost the most. CFLs are a less expensive alternative. Interestingly, the more expensive replacements offer lower operating costs and longer economic life.
One approach will be to inventory the different types and quantities of light bulbs you need in your home. Then, research either online or a big box store to find out what each type of bulb costs. This information will give you a total budget for converting your lighting.
It could be a significant expense to replace all the bulbs in a home at one time, especially when most of the bulbs still work. That’s where a plan might make sense.
Replace the bulbs in the rooms where the lights are used the most such as kitchen, family rooms and bathrooms. There may be other “rooms” where the lights are used frequently like certain hallways or stairs. Outside flood lights for security purposes may be a large energy consumption.
Bulbs can vary in light output measured in lumens as well as color of light from warm white to bright white and daylight. The lighting label required by the Federal Trade Commission on all packaging will help you determine which will give you the most bang for your buck.
The last thing you want if you’re traveling these holidays is to worry about someone burglarizing your home. Use this check list to add some peace of mind while you’re out of town.
- Ask a trusted friend – to pick up mail, newspaper and keep yard picked up to avoid an appearance of being empty.
- Consider discontinuing your mail (USPS Hold Mail Service)
- Don’t post about your trip on Facebook and other social media until you return – some burglars actually look for this type of announcement to schedule their activities.
- Do notify police or neighborhood watch – especially if you’re going to be gone for more than just a few days. Let your monitoring service know when you’ll be gone and if someone will be checking on your home for you.
- Light timers make it look like someone is home – use several sets for different times to better simulate someone being at home.
- Do unplug certain appliances – TV, computers, toaster ovens that use electricity even when they’re off and to protect them from power surges.
- Don’t hide a key – burglars know exactly where to look for your key and it only takes them a moment to check under the mat, above the door, in the flower pot or in a fake rock.
These easy-to-handle suggestions may protect your belongings while you’re gone while adding a level of serenity to your trip.
Would someone really refinance their home and not take money out of it? Certainly, if they could get a lower rate, build equity faster and pay off the home sooner.
For people with extra cash available, this can be very attractive compared to the low savings rates being paid by banks.
In the example below, the current mortgage is 5% for 30 years after 48 payments of $1,342.05. The owner can refinance for 15 years at 3.37%. If they put $36,000 into the refinance, their payments will be slightly more but the mortgage will be paid off in 15 years. At that same point, if they keep the current mortgage, their unpaid balance will be $136,049.03.
If you have a goal to get your home paid off and have the available funds, a Cash-In Refinance may be just the strategy for you.
When loans are quoted by lenders, most buyers pay attention to the interest rate but not so much to the points that may be charged along with the rate.
A point is one-percent of the mortgage amount and considered pre-paid interest that affects the yield on the loan. Buyers or sellers can pay points but there can be limits based on underwriting guidelines for different types of loans.
A lower note-rate would obviously make the payments less. However, with a little analysis, you can determine how much points paid up-front can save a borrower or whether you’ll recapture the additional costs in the anticipated time in the home.
In the example below, two choices are compared; a 4.25% loan with no points vs. a 4.00% loan with one point. If the buyer stays in the home at least 69 months, he will recover the $2,700 cost for the point on the lower interest rate.
If the purchaser stays ten years, he’ll save two thousand dollars over the cost of the point. A less obvious advantage will be realized because the unpaid balance on the lower interest rate loan will results in an additional $1,780 savings.
This is an example of a permanent buy-down but temporary buy-downs are also available. A trusted mortgage advisor can help you determine alternatives.
The Mortgage Debt Forgiveness Act, originally passed in 2007, was extended three times to protect homeowners from paying income tax on debt that was relieved due to foreclosure, short sales or deed in lieu of foreclosure.
The law expired on December 31, 2016 and unless it is extended again, homeowners with debt relief in 2017 may be subject to tax.
A homeowner might feel a sense of relief without the obligation of a delinquent mortgage but just because the payments are no longer due doesn’t mean that there isn’t another obligation that replaces it. If a lender cancels or forgives debt, a taxpayer must include the cancelled amount in their income for tax purposes depending on the circumstances. The tax significance could be serious.
This previously allowed relief only applied to a taxpayers’ acquisition indebtedness of their principal residence which did not include second homes and investment property. The maximum amount was limited to $2 million of mortgage debt forgiveness or $1 million if filing separately.
Due to the serious consequences involved in short sales and foreclosures, it is advised that homeowners faced with this possibility should seek expert advice from their legal and tax professionals.
There could be some legitimate reasons for not buying a home but indecision is not one of them. Indecision is rooted in not having enough information to move forward to own a home or continue renting.
If you keep renting, at the end of the year, you have had a place to live and a pile of receipts that helped the landlord pay for his house. Deciding to buy a home will give you a place to live that is yours and all the things that come with that.
When you consider principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying. The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation as the home goes up in value. The equity is part of your net worth and an investment in your family’s future.
The income tax savings can be an additional financial consideration if the combined interest and property taxes are greater than the allowable standard deduction.
Trends are showing that both tenants and homeowners are staying in their homes longer. It’s been said that whether you rent or own, you’re paying for the home. Do you really want to buy the home for your landlord? Check out your numbers on a Rent vs. Own and then, call us to help make it happen.
Regardless of what a lender quotes on mortgage rates, the actual rate a borrower pays is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.
Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.
- Loan amounts – conventional mortgages above conforming limits as set by Fannie Mae and Freddie Mac are considered jumbo loans and generally have a higher interest rate.
- FICO score – the lowest interest rate is reserved for the highest score; the lower the score, the higher the rate the borrower will pay.
- Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
- Loan purpose – purchase transactions generally have the lowest interest rate with refinancing for better rates and terms being priced slightly higher. An even higher rate might be charged for refinancing and taking cash out of the property.
- Debt-to-Income Ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.
- Property Type – some types of property are considered higher risk than others which could adversely affect the rate.
- Loan-to-value – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.
Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Pre-approval by a trusted mortgage professional can be the best way to know what rate you can expect to pay. Please call for a recommendation of a trusted mortgage professional.
Buyer’s mortgage pre-approval is good for everyone in the transaction. It saves time, money and removes the uncertainty of knowing whether the buyer will be qualified after negotiating a contract. The direct benefits include:
- Looking at “Right” homes – price, size, amenities, location
- Find the best loan – rate, term, type
- Uncover credit issues early – time to cure possible problems
- Negotiating power – price, terms, & timing
- Close quicker – verifications have been made
There is a significant difference in having a trusted mortgage professional take a loan application and run all the necessary verifications compared to going through calculators on a lender’s website. Beside the peace of mind, the cost of being pre-approved is a bargain and generally, limited to the cost of the credit report.
Even if a person has been pre-approved, a second opinion from a different lender may be a good option. It can verify there is a good deal or you’ll discover that you can improve it. Either way, it works to your advantage. Contact me if you’d like a recommendation of a trusted mortgage officer.