5 Myths About Transitioning From Renter to Homeowner

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Making the leap from being a renter to becoming a homeowner is a process that includes taking stock of your financial situation and determining whether you’re ready for such a massive responsibility. For most people, the primary question is affordability. Do you have enough cash in the bank to fund a down payment, or do you have a credit score high enough to qualify you for a home loan? But there are other considerations, too—and plenty of misconceptions and myths that could keep you from making that first step.

Below, our experts weigh in on why some situations that may seem like roadblocks are actually not as daunting as they appear.

1. Buying a home means heavy debt

Some may argue that continuing to rent can spare you from taking on heavy debt. But owning a house offers advantages.

“Buying a home and using a typical loan would be spread out over 20 to 30 years. But if you can make one extra payment a year or make bimonthly payments instead, you can shed up to seven years from that long-term loan,” says Jesse McManus, a real estate agent for Big Block Realty in San Diego, CA.

Plus, as you pay your mortgage, you gain equity in the home and create an asset that can be used when needed, such as paying off debt or even buying a second home.

“Currently, mortgage interests rates are at their lowest point in history, so … it’s a great time to borrow money,” McManus says.

2. At least a 20% down payment is needed to buy a home

“Contrary to popular belief, a 20% down payment is not required to purchase a home,” says Natalie Klinefelter, broker/owner of the Legacy Real Estate Co. in San Diego, CA. “There are several low down payment options available to all types of buyers.”

These are as low as 0% down for Veterans Affairs loans to 5% for conventional loans.

One of the main reasons buyers assume they must put down 20% is that without a 20% down payment, buyers typically face private mortgage insurance payments that add to the monthly loan payment.

“The good news is once 20% equity is reached in a home, the buyer can eliminate PMI. This is usually accomplished by refinancing their loan, ultimately lowering their original payment that included PMI,” says Klinefelter. “Selecting the right loan type for a buyer’s needs and the property condition is essential before purchasing a home.”

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Watch: 5 Things First-Time Home Buyers Must Know

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3. Your credit score needs to be perfect

Having a credit score at or above 660 looks great to mortgage lenders, but if yours is lagging, there’s still hope.

“Credit score and history play a significant role in a buyer’s ability to obtain a home loan, but it doesn’t mean a buyer needs squeaky-clean credit. There are many loan solutions for buyers who have a lower than the ideal credit score,” says Klinefelter.

She says government-backed loans insured by the Federal Housing Administration have lower credit and income requirements than most conventional loans.

“A lower down payment is also a benefit of FHA loans. Lenders often work with home buyers upfront to discuss how to improve their credit to obtain a loan most suitable for their needs and financial situation,” says Klinefelter.

McManus says buyers building credit can also use a home loan to bolster their scores and create a foundation for future borrowing and creditworthiness.

4. Now is a bad time to buy

Buying a home at the right time—during a buyer’s market or when interest rates are low—is considered a smart money move. But don’t let the fear of buying at the “wrong time” stop you from moving forward. If you feel like you’ve found a good deal, experts say there is truly no bad time to buy a home.

“The famous saying in real estate is ‘I don’t have a crystal ball,’ meaning no one can predict exactly where the market will be at a given time. If a buyer stays within their means and has a financial contingency plan in place if the market adjusts over time, it is the right time to buy,” says Klinefelter.

5. You’ll be stuck and can’t relocate

Some people may be hesitant to buy because it means staying put in the same location.

“I always advise my clients that they should plan to stay in a newly purchased home for a minimum of three years,” says McManus. “You can ride out most market swings if they happen, and it also gives you a sense of connection to your new space.”

In a healthy market, McManus says homeowners will likely be able to sell the home within a year or two if they need to move, or they can consider renting out the property.

“There is always a way out of a real estate asset; knowing how and when to exit is the key,” says Klinefelter.

The post 5 Myths About Transitioning From Renter to Homeowner appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

A Guide To Everything You Need To Know About Home Ownership Costs [Free Download]

Along with the excitement of purchasing a new home, comes the additional costs that you will be expected to pay as a homeowner. Apart from covering the mortgage of your home, you’ll have additional expenses – such as home insurance – that you will be expected to cover. If you’re looking to budget for a home purchase, it’s important that you consider these costs as they can add up to thousands of dollars each year.

To help you make educated decisions when budgeting, we’ve compiled a list of the major home ownership costs in one free, downloadable guide. Get the Home Ownership Costs to Consider guide here.

Home Insurance

Home insurance policies help protect against serious damage and destruction, like fires, leaks, floods, or break-ins. It also protects a homeowner from personal liability. Some banks may offer home insurance products, although you can typically purchase a home insurance policy through a home insurance agent or broker. 

Tip: You may get better rates if you use a broker or agent. It’s also important to keep in mind that policies typically renew on an annual basis.

Condo Fees

The cost of maintenance fees should be taken into account when you’re buying a condo. This recurring cost is in addition to your mortgage and impacts how much home you can afford. 

Your mandatory monthly fee will vary by your building and square footage. It typically covers:

  • Utilities (such as water and garbage collection)
  • Building insurance
  • Maintenance of common areas (such as the gym, pool, front desk, hallways, landscaping)
  • Building reserve fund (covers emergencies and long-term maintenance projects such as a new roof or elevators repairs)

What Are Status Certificates?

If you’re looking to purchase a condo, you’ll want to look into obtaining a status certificate so that you have as much information about the building and your unit as possible before buying. A status certificate provides valuable information about the condo corporation and its financial

situation. It includes details on the budget, legal issues, the reserve fund, maintenance fees, and any fee increases expected in the future. 

Tip: You’ll want to carefully review your status certificate with your lawyer before making a purchase.

Property Tax

Property taxes are paid annually by homeowners to their municipality. These taxes are ongoing and are separate from your mortgage. Your annual property tax can often be paid in installments.

Tip: It’s important to remember that this cost is not due at closing, but is a recurring cost.

How Are Property Taxes Calculated?

Your property tax rate will vary depending on the value of your property as assessed by your provincial assessment authority. This is then multiplied by a rate that falls between 0.5% to 2.5%.

How Do You Pay Property Taxes?

You can pay your property taxes either through your mortgage provider or directly to your municipality. 

Your Utility Bills

When you purchase a home, you’ll have to set up or transfer your utility bills to your new home. If you live in a condo, these costs may be included in your monthly maintenance fee. Your utility bill will include:

  • Hydro (electricity)
  • Heat
  • Water and Garbage
  • Internet, Phone, Cable

For the full details on the home buyer’s journey including examples, advice, pictures and sample calculations, download a copy of our free Home Ownership Costs to Consider Guide here.

The post A Guide To Everything You Need To Know About Home Ownership Costs [Free Download] appeared first on Zoocasa Blog.

Source: zoocasa.com

8 Upfront Costs of Buying a House

Looking to buy a home soon? There will be upfront costs of buying a house.

You may have found a house that you like. You may have been approved for a mortgage loan, and have your down payment ready to make an offer. If you think that, at that point, all of the hard work is over, well think again.

In addition to the down payment, which can be significant depending on the price of the property, there are plenty of upfront costs of buying a home. As a first time home buyer, this may come to you as a surprise. So, be ready to have enough cash to cover these costs. In no particular order, here are 8 common upfront costs of buying a house.

If you are interested in comparing the best mortgage rates through LendingTree click here. It’s completely free.

What is an upfront cost?

An upfront cost, as the name suggests and in terms of buying a house, is out of pocket money that you pay after you have made an offer on a property. They are also referred to as closing costs and cover fees such as inspection fees, taxes, appraisal, mortgage lender fees, etc. As a home buyer, these upfront costs should not come to you as a surprise.

What are the upfront costs of buying a house?

Upfront cost # 1: Private mortgage insurance cost.

If your down payment is less than 20% of the home purchase price, then your mortgage lender will charge you a PMI (private mortgage insurance). A PMI is an extra fee to your monthly mortgage payment that really protects the lender in case you default on your loan. Again, depending on the size of the loan, a PMI can be significant. So if you know you won’t have 20% or more down payment, be ready pay an extra fee in addition to your monthly mortgage payments.


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Upfront cost #2: inspection costs.

Before you finalize on a house, it’s always a good idea to inspect the house for defects. In fact, in some states, it is mandatory. Lenders will simply not offer you a mortgage loan unless they see an inspection report. Even if it is not mandatory in your state, it’s always a good idea to inspect the home. The inspection cost is well worth any potential defects or damages you might encounter.

Inspection fee can cost you anywhere from $300-$500. And it is usually paid during the inspection. So consider this upfront cost into your budget.

Upfront cost # 3: loan application fees.

Some lenders may charge you a fee for applying for/processing a loan. This fee typically covers things like credit check for your credit score or appraisal.

Upfront cost # 4: repair costs.

Unless the house is perfect from the very first time you occupy it, you will need to do some repair. Depending on the condition of the house, repair or renovating costs can be quite significant. So consider saving up some money to cover some of these costs.

Upfront cost # 5: moving costs.

Depending on how far you’re moving and/or how much stuff you have, you may be up for some moving costs. Moving costs may include utilities connections, cleaning, moving

Upfront cost # 6: Appraisal costs.

Appraisal costs can be anywhere from $300-$500. Again that range depends on the location and price of the house. You usually pay that upfront cost after the inspection or before closing.

Upfront cost # 7: Earnest Money Costs

After you reach a mutual acceptance for the home, in some states, you may be required to pay an earnest money deposit. This upfront costs is usually 1% to 3% of the home purchase price. The amount you pay in earnest money, however, will be subtracted from your closing costs.

Upfront cost # 8: Home Associations Dues

If you’re buying a condo, you may have to pay homeowners association dues. Homeowners association dues cover operation and maintenance fees. And you will pay one month’s dues upfront at closing.

In conclusion, when it comes to buying a house, there are several upfront costs you will need to consider. Above are some of the most common upfront costs of buying a house.

Click here to compare mortgage rates through LendingTree. It’s completely FREE.

MORE ARTICLES ON BUYING A HOUSE:

10 First Time Home Buyer Mistakes to Avoid

How Much House Can I afford

5 Signs You’re Better Off Renting

7 Signs You’re Ready to Buy a House

How to Save for a House


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7 Key Home-Buying Numbers to Know When Shopping for a House

There’s a lot that goes into buying a new home, starting with finding the right one all the way down to finalizing the paperwork. Somewhere in that process, you’ll likely find yourself trying to decipher myriad new terms and figuring out what they mean for you.

We’ve compiled this list of seven key numbers you’ll need to know when buying a home — plus the details on how understanding these terms can help you land your dream home.

Here are seven all-important home-buying numbers to know.

1. Cost per Square Foot

One of the first numbers you’ll encounter when shopping for homes is cost per square foot. While this number is based on a relatively simple calculation, it’s an important one to understand since ultimately it helps you determine how much house you’re getting for your money.

“Cost per square foot is simply the list price divided by the number of livable square feet,” said Tyler Forte, founder & CEO of Felix Homes. “This number is important because it allows a homeowner to compare the relative price of homes that are different sizes.”

But there’s more to consider, he said. “While cost per square foot is an important metric, you should also consider the layout of the home. In many cases, a home with an open floor-plan may seem larger even if it has a smaller livable square footage.”

Forte defines livable square footage as any interior space that’s heated and cooled, which is why a garage wouldn’t necessarily fit the bill. One of the best ways to understand how much home you can afford is to break it down by cost per square foot, which will vary from city to city and neighborhood to neighborhood.

Work with your real estate agent to understand the differences in cost for various properties to map out what areas and homes are within budget.

2. Earnest Money Deposit

Once you’ve found a home you like enough to bid on, you’ll quickly start hearing about something called an earnest money deposit (EMD). This is a type of security deposit made from the buyer to the seller as a gesture of good faith.

The amount of the EMD is set by the seller, typically running anywhere from 1% to 2% of the home’s purchase price. The key thing to keep in mind about EMDs is that they represent your commitment to buying the home, and can be useful in making a compelling offer in a competitive sellers’ market.

“An earnest money deposit is very important because it’s the skin in the game from the home buyer,” said Realtor Jason Gelios of Community Choice Realty. “If a home buyer is up against other offers, the EMD can make or break them getting the home.”

“I’ve seen lower offers won due to a higher EMD amount, because sellers view the higher EMD as a more serious buyer,” he added.

The money you put toward your EMD comes off the purchase price for the home, so there’s no reason to be stingy. If you really love the house and have the available cash, you might even consider offering more than the deposit amount your seller is asking. Either way, be sure to start saving up for your EMD early and factor it into any other cash you set aside for your down payment.

3. Interest Rates

Since most home purchases involve a mortgage, you’ll want to familiarize yourself with current interest rates. Interest rates dictate how much you’ll pay your lender every year to borrow the amount of your mortgage, so you’ll want to shop around for the best deal.

“Your interest rate is the annual percentage rate you will be charged by the lender, and the lower the rate you receive, the lower your monthly payment,” said real estate developer Bill Samuel of Blue Ladder Development. “You should speak with a handful of lenders when starting the process and get a rate quote from each one.”

While interest rates are mostly determined by your creditworthiness (aka credit score) and the type of loan you’re getting, they’ll still vary between lenders. Even a half-point difference in rates can amount to a big difference in your monthly mortgage payment — as well as the grand total you pay for your house.

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4. Credit Score

Speaking of credit scores, you’ll want to know yours before you get serious about buying a home. Since your credit score helps determine the type of mortgage (and mortgage rate) you qualify for, you need to meet the basic minimum credit score requirements before diving headlong into buying a home.

Forte broke down the term a little more: “A credit score is the numerical grade a rating agency assigns to you,” he says. “Commonly referred to as a FICO score, this grade is made up of many factors such as credit utilization, and the length of your credit history.”

If your credit score is low (under 600), spend some time figuring out why and how you can boost it. Just remember, the better your credit score, the better your interest rate — and the more money you’ll save in the long run.

5. Debt-to-Income Ratio

Another personal finance term that comes into play when buying a home is your debt-to-income ratio (DTI). Much like creditworthiness, this number is used by lenders to determine how much of a loan you qualify for and at what rate.

“When looking to get approved for a mortgage, a buyer should know what their debt-to-income ratio is,” said Gelios. “This is the amount of debt you owe per month as compared to your gross monthly income.”

For example, if you earn $6,000 per month but have to pay $3,000 in bills, this would be a debt-to-income ratio of 50%. Gelios says lenders typically view any DTI above 40% as high risk, and with good reason. If over half of your income is accounted for in bills, that would make it significantly harder to make a big mortgage payment every month.

Understanding your DTI isn’t just good for lenders, it also helps put your personal finances in perspective when deciding how much house you can afford.

6. Down Payment

The all-important down payment: Many homebuyers use this number to help them determine when they’re actually “ready” to buy a home — based on how much of a down payment they have saved up.

“A down payment is the amount you contribute to the transaction in cash,” said Forte. “Most home purchases are a combination of cash in the form of a down payment and a loan from a mortgage company.”

The old rule of thumb on home purchases was to put down 20%. If that sounds like a lot of money, it is. (Home price $250,000, time 20% = $50,000. Ouch.) For many buyers, a 20% down payment just isn’t feasible — and that’s okay. Forte said the down payment can be as low as 3% of the sales price with a conventional loan, although 10% is more typical.

Remember that any amount you pay up front will ultimately save you money in interest on your mortgage — and putting more money down will lower your monthly payment. Take some time to calculate what your monthly mortgage payment will be based on various down payments. That way you’ll know exactly what to expect and how much of a down payment you should aim to save up.

Pro Tip

Keep in mind that for any down payment of less than 20%, you may be required to pay private mortgage insurance (PMI), another expense that adds to your monthly payment. 

7. Property Taxes & Other Expenses

Long before you close on a home, you need to be ready for ongoing expenses such as property taxes, homeowner’s insurance and any potential HOA fees. These expenses tend to slip through the cracks, but it’s important to know about them before you become a homeowner.

“One of the most overlooked and underestimated numbers when buyers actually locate a home and win an offer on it is the tax amount,” said Gelios. “Too many times, I’ve seen real estate agents list what the seller is paying in taxes at that time. If time allows, a home buyer should contact the municipality and ask for a rough estimate as to what the taxes will be if they closed on the home in X month.”

Since taxes almost always increase when homes change ownership, it’s good to get an updated quote before those payments become your responsibility.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Prepare For Closing Day [Free Download]

After you’ve successfully put in an offer for your dream home and set a date for closing, you’ve come to the final steps of your home buying journey. However aside from getting the keys, you’ll want to be prepared for the additional costs, and steps that will be required for a successful home purchase.

The Preparing For Closing Day guide contains information, tips, and more about what to expect on the big day. The guide will also include a checklist of what to prepare and an example of how to calculate the funds needed for closing.

To learn more about how you can best prepare for closing day, get our free buyer’s guide here.

Pre-Closing Day Checklist

To ensure a smooth process for your home transaction, you’ll still have a few steps to go through before you get your keys. Here are 6 steps to check off your list before closing day:

  1. Review your contract
  2. Complete a final walkthrough
  3. Meet with your lawyer
  4. Purchase home insurance
  5. Know how much cash is required at closing
  6. Secure cash required for closing

Cash Required At Closing

Understanding the costs that will be required at closing day is important to know even before you start your home search. Not only will you be prepared for what to expect, but this can help you with budgeting your costs.

Some examples of costs to include in your calculation:

  • Down payment
  • Title insurance
  • Legal fees
  • Land transfer tax

Statement of Adjustments

Another important document is your statement of adjustments, which will display any credits to both the buyer or seller as well as the final amount payable by the buyer on closing day. You can expect the following to be listed in the statement:

  • Purchase price
  • Your deposit
  • Prepaid property taxes, utilities or fuel
  • Prepaid rents 
  • Appraisal fee
  • Land survey fee

For a sample calculation of cash required at closing, download our Preparing For Closing Day guide here.

The post How to Prepare For Closing Day [Free Download] appeared first on Zoocasa Blog.

Source: zoocasa.com

How a CFP Celebrates Her Money Wins

People may often imagine that when they reach their milestones, there will be fireworks and party buses along with a huge celebration. And while sometimes there are, most wins are simply small steps you take every day until one day you wake up where you visualized you would be. That is why it is important to celebrate it all — the ups, the downs, the wins, the steps forward, and sometimes even backward. Without awareness and reflection, you might miss out on celebrating how much progress you have made in your financial life. By acknowledging even the so-called small things, you can keep the momentum alive and feel good about yourself.

Here are some ways I celebrate my money wins, no matter how big or small:

Tell my family and friends.

By sharing my money wins and even challenges with my closest friends and family, it opens me up to receive the love and support that is needed to sustain the financial journey. I think because money is still a topic most do not feel comfortable talking about, getting vulnerable with close family and friends allows them to do so with me in return. That kind of give and receive is part of living an open, abundant life. If you’re comfortable, you can even share on social media about your wins, which could inspire others. Sharing your money goals and personal finance journey also helps you stay out of the “I am all alone” mindset, which is not true and can actually hold you back from receiving more in your financial life.

Pause and feel proud of myself.

There are so many specific times in my life where I felt my money wins viscerally and just paused to take a moment to feel proud of myself for doing it. Whether it was saving a certain amount of money, negotiating a specific compensation package, or changing a mindset pattern holding me back from living abundantly, I can recall the memories specifically and feel great about them and myself. I remember years ago when I sold my first business and received the payment in my bank account, I felt amazing to know that I actually did it. I had finally reached my financial goal. It was just a regular workday and I was alone doing my weekly money date. And I distinctly remember feeling all the excitement and joy knowing I had accomplished something I worked on for years. The irony is when we reach our financial goals such as buying a home, paying off our student debts, or reaching our cash cushion goal, there aren’t actually big fireworks. Instead, you feel a deep understanding within yourself that you finally reached a goal you may have been striving toward for years.

Remember I can keep doing what it takes.

When celebrating my money wins, it also reminds me that I have the power to do and create what I want in life. By using my real-life experiences of achieving something I have worked for, I am reminded that I can continue doing so to achieve whatever next financial goal I have. When I reached my cash cushion goal years ago, I remembered that I have the power to keep creating my financial life as I desire and have the discipline to save for my goals. These reminders are key because no matter where we start financially, we all have the power to create our lives as we want, and choose how we show up, behave, think and act with our money. We are not victims. When I feel that and know that in my being, I feel anything is possible and am able to stay in the positive, “I can,” mindset.

Buy something memorable to acknowledge my hard work and effort.

This does not always have to be something major but can even be something that you have been wanting for a significant amount of time. When I reached my own financial goal last year of making a certain amount of business revenue for the year, I decided with one of my larger incoming checks to my business, I would take a portion and buy myself a designer handbag I had wanted for a few years. It was a gift to myself that I could enjoy and remember my hard work to achieve it. But you don’t always have to spend a lot. I also treat myself to smaller things like a massage or treating my family or friends out to a nice dinner. I just try to take time to celebrate by enjoying something nice whether it is a material item or a nice experience with my loved ones.

Journaling my accomplishments.

Every year, I take time to reflect on my total accomplishments for the year by journaling them out. This activity is solely for me to remember all I have achieved and to feel good about my accomplishments. By reflecting, I am able to connect to the positive aspects and blessings in my life to acknowledge how incredible I am. We tend to focus on what we are lacking or what we are not. By doing this activity, you are shifting your mindset and balancing the scales in a sense.

It’s common to look internally and criticize ourselves. Our mind jumps to comparing, thinking, “I don’t have this or that or I didn’t do this or that” or even feeling like a failure. With that mindset, you can get stuck only focusing on what you are not and have not, instead of embracing all that you are and all that you have. Having an attitude of gratitude goes a long way, especially with money. So take time to celebrate and feel grateful for what you have and all that you have accomplished. I truly believe this will also help you continue to attract more in your life.

The post How a CFP Celebrates Her Money Wins appeared first on MintLife Blog.

Source: mint.intuit.com

Buying A Second Home? 8 Things To Consider

Buying a second home is a major expense. You might have several reasons for wanting to buy a second house. Perhaps, you’re buying a second home for vacations or weekend getaways. Or, it might be that you want to use it as a rental property for rental income. However, there are things to consider before buying a second home.

The benefits of buying a second home

If you’re buying a second home for rental income, you’ll benefit from many perks, especially tax advantages.

For example, you will be able to deduct interest, property taxes, homeowners insurance and other expenses against the property’s income.

Even if the value of the property declines, you will still be able to deduct depreciation from your taxes.

While these benefits are great, the mortgage requirements for a second home are much stricter than for a mortgage on your primary residence. So, make sure you can afford it.

8 Things To Consider When Buying A Second Home

1. Financing options: When you bought your first home, you had available to you what’s called an FHA loan – a government loan program.

FHA loans are an appealing and favorite choice among first time home buyers due to their relatively low down payment requirement.

FHA loans require a 3.5% down payment and a relatively low credit score of 580. However, FHA loans are not available to second home buyers.

That is because FHA requires the home to be the borrower’s primary residence. So, if you’re thinking of buying a second home, you will need to either use a conventional loan or financing it with your own cash.

2. A larger down payment: If you’re using a conventional loan for your second home, you will need to come up with a larger down payment.

Lenders for a conventional loan usually requires a 20% down payment of the home purchase price.

But for a second home which will be used as a rental property or vacation home, expect lenders to ask for 30% or even 35%.

3. A higher credit score. For an FHA loan, you only need a credit score of 580 to qualify. But for a conventional loan on a second home, you will need much higher credit score — usually 750 or higher.

4. Expect a Higher Interest Rate: Lenders will likely charge you a higher interest rate on your second home than your primary residence.

The reason is because they see a second home — be it a vacation home or a rental property — as riskier. They feel that you are more likely to default on a mortgage on your second home than on your primary residence.

5. Do your research: Just as you did your homework when you bought your place to live in, buying a second home is no different.

In fact, you’ll need to spend more time researching rental property. That means researching the neighborhood you will want to invest in, knowing the zoning laws for a particular area, the sales price for the homes in the area.

You will need to know if the area has adequate public transportation, schools, grocery shopping, etc,– things that potential tenants will need.

6. Be prepared to be a landlord: if you’re buying a second home to rent, be prepared to be a landlord.

And be prepared to deal with all of the headaches that come with being a landlord. Do you have sufficient time? Can you deal with problems?

Owning a rental property and being a landlord is time consuming. It is also hard hard work and you have to do your due diligence.

You can hire a property manager to run the property for you. But if that is not feasible, you’ll have to do it yourself.

That means, screening new tenants, collecting rent, dealing with delinquent tenants, fixing problems in the property, such as a broken pipe.

So before buying a second home, make sure you have sufficient time and make sure you can deal with the day-to-day headaches that come with being a landlord.

7. Do you have a stable income? Dealing with a second mortgage on your second home is doable.

While you may be able to afford upfront costs, if you don’t have a stable income, you may have to think twice about whether it is a good idea.

Plus, you still have to consider the additional expenses of owning a second home such as insurance, property taxes, maintenance, repairs, property management fees, etc.

8. Are you out of credit card debt? If you have paid off outstanding and high interest credit card debts, then purchasing a second home may make sense.

But if you’re still struggling to pay your debt, you may need to put buying a second home on hold. 

The bottom line

If you’re thinking about buying a second home, whether it is for investment or vacation, be prepared to save some money, budget for expenses, and come up with a bigger down payment.

More importantly, spend as much time, if not more, researching for the home just as you did when your purchased your primary home.

Speak with the Right Financial Advisor

  • If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
  • Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post Buying A Second Home? 8 Things To Consider appeared first on GrowthRapidly.

Source: growthrapidly.com

How to Buy a Second Home that Pays for Itself

Recent data from the U.S. Census Bureau shows that home sales were up more than 17% in June 2020 from the month before, and up more than 13% compared to the year prior. Those who have the means to buy a second home are wise to take on mortgage debt (or reorganize their current debt) in today’s low interest environment.

With low 30-year mortgage rates, owning a rental property that “pays for itself” through monthly rental income is especially lucrative with a significantly lower mortgage payment. If you’re curious about buying a second home and renting it out, keep reading to find out about the major issues you should be aware of, the hidden costs of becoming a landlord, and more. 

Important Factors When Buying a Short-Term Rental

The issues involved in buying a rental home varies dramatically depending on where you plan to purchase. After all, buying a ski lodge in an area with seasonal tourism and attractions might require different considerations than buying a home in a major metropolitan area where tourists visit all year long.

But there are some factors every potential landlord should consider regardless of location. Here are a few of the most important considerations:

  • Location. Consumers rent vacation homes almost anywhere, but you’ll want to make sure you’re looking at homes in an area where short-term rentals are popular and viable. You can do some basic research on AirDNA.co, a short-term rental data and analytics service, or check competing rentals in the area you’re considering.
  • Property Management Fees. If you plan to use a property management company to manage your short-term rental instead of managing it yourself, you should find out how much other owners pay for management. Also, compare listing fees for your second home with a platform like Airbnb or VRBO.
  • Taxes. Property taxes can be higher on second homes since you don’t qualify for a homestead exemption. This means higher fixed costs each month, which could make it more difficult to cover your mortgage with rental income.
  • Competition. Check whether a rental area you’re considering is full of competing rentals that are never full. You can find this information on VRBO or Airbnb by looking at various rentals and checking their booking calendars.
  • Potential Rental Fees. Check rental sites to see how much you might be able to charge for your second home on a nightly, weekly, or monthly basis. 

5 Steps to Rent Your Second Home

Before purchasing a second home, take time to run different scenarios using realistic numbers based on the rental market you’re targeting. From there, the following steps can guide you through preparing your property for the short-term rental market.

1. Research the Market

First, you’ll want to have a general understanding of the rental market you’re entering. How much does the average short-term rental go for each night or each week? What is the average vacancy rate for rentals on an annual basis? 

Research your local rental market, the average price of rentals in your area, various features offered by competing rentals, and more.

Action Item: Dig into these figures by using AirDNA.co. Just enter a zip code or town, and you’ll find out the average nightly rate, occupancy rate, revenue, and more. Although some of the site’s features require a monthly subscription, you can find out basic information about your rental market for free.

2. Know Your Numbers

You need to know an array of real numbers before renting your second home, including the following:

  • Average nightly rate
  • Average occupancy rate
  • Fixed costs, such as your mortgage payment, taxes, and insurance for the rental
  • Property management fees and costs for cleaning between tenants
  • Additional fixed costs for things like trash pickup, internet access, and cable television
  • Costs for marketing your space on a platform like VRBO or Airbnb, which could be a flat fee or 3% of your rental fee depending on the platform

You’ll use these numbers to figure out the average monthly operating cost for your second home, and the potential income you might be able to bring in. Without running these numbers first, you wind up in a situation where your short-term rental doesn’t pay for itself, and where you’re having to supplement operating expenses every month. 

Action Item: Gather every cost involved in operating your specific short-term rental, and then tally everything up with monthly and annual figures that you can plan for.

3. Buy the Right Insurance

If you plan on using your second home as a short-term rental, you’ll need to buy vacation rental insurance. This type of homeowners insurance is different from the type you’d buy for your primary residence. It’s even unique from landlord insurance coverage since you need to have insurance in place for your second home and its contents.

Some vacation rental policies let you pay per use, and they provide the benefits of homeowners insurance (like property coverage, liability, and more) plus special protection when your property is rented to a third party. 

Action Item: Shop around for a homeowners insurance plan that’s geared specifically to vacation rentals. See our top picks for the best homeowners insurance companies out there.

4. Create a Property Management Plan

If you live near your second home, you might want to manage it yourself. There’s nothing wrong with this option, but you should plan on receiving calls and dealing with problems at all hours of the day. 

Many short-term rental owners pay a property management company to communicate with their tenants, manage each rental period, and handle any issues that pop up. Property managers can also set up cleanings between each rental and help with marketing your property. 

Action Item: Create a property management plan and account for any costs. Most property managers charge 25% to 30% of the rental cost on an ongoing basis, so you can’t ignore this component of owning a short-term rental. 

5. Market Your Space

Make sure you appropriately market your space, which typically means paying for professional photos and creating an accurate, inviting listing on your chosen platforms. Your property manager might help you create a marketing plan for your vacation rental, but you can DIY this component of your side business if you’re tech- and media-savvy. 

Action Item: Hire a photographer to take professional photos of your rental, and craft your rental description and listing. 

Risks of Purchasing a Short-Term Rental

Becoming a landlord isn’t for the faint of heart. There’s plenty that can go wrong, but here are the main risks to plan for:

  • Government roadblocks. In destinations from New York City to Barcelona, government officials have been cracking down on short-term rentals and trying to limit their ability to operate. New rules could make running your business more costly, difficult, or even impossible. 
  • Your home could be damaged beyond repair. If you read the Airbnb message boards and other landlord forums, you’ll find an endless supply of nightmare rental stories of houses getting trashed and rentals enduring thousands of dollars in damage. 
  • Housing market crash. If the housing market crashes again like it did in 2008, you might find you owe more than your second home is worth at a time when it’s increasingly difficult to find renters. 
  • Reliance on tourism. As we’ve seen during the pandemic, circumstances beyond our control can bring travel and tourism to a screeching halt. Since short-term rentals typically rely on tourism to stay afloat, decreases in travel can affect the viability of your business, quickly.
  • High ongoing costs and fees. Higher property taxes, property management fees, cleaning fees and maintenance costs can make operating a short-term rental costly in the long-term. If you don’t account for all costs and fees involved, you might wind up losing money on your vacation home instead of having the property “pay for itself”.

The Bottom Line

A short-term rental can be a viable business opportunity, depending on where you want to buy and the specifics of the local rental market. But there are a lot of factors to consider before taking the leap. 

Before investing hundreds of thousands of dollars, think over all of the potential costs and risks involved. You’ll want to ensure that you’ve done comprehensive research and have run the numbers for every possible scenario to make an informed decision.

The post How to Buy a Second Home that Pays for Itself appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Home Buyer’s Guide: How to Purchase a Property, From Start to Finish [Free Download]

Purchasing a home is both exciting and a major milestone in your life, so you’ll want to be prepared for what to expect to avoid a stressful process. Having an in-depth look at the buyer’s journey can help you make informed and confident decisions.

From finding a real estate agent, negotiating offers to getting your keys on closing day, we’ve outlined all the steps of a home buyer’s journey in our free Buyer’s Guide, which you can download here.

The Buyer’s Guide will cover the buyer’s timeline from meeting an agent to preparing for closing day. We’ve outlined the 8 steps in a home buyer’s journey below.

1. Working With An Agent

Every city is filled with thousands of agents, but not all are equal. We believe it is important to choose an agent that you feel confident with. Before you commit to working with an agent, make sure you have a good understanding of the knowledge and experience they offer. It’s important that you ask your questions before making the decision to work with them.

2. Financing Your Purchase

Before you set a budget and start looking for a home, you’ll have to understand what costs to expect when purchasing a home. Here are some of the major costs involved:

  • Deposits
  • Down payments
  • Mortgage insurance
  • Closing costs

You’ll also want to calculate a rough estimate of the down payment that you will be expected to pay. Depending on the price of your home, your minimum down payment can range from 5% to 20%. If you’re interested in learning more about how to finance your home, you can get our free Financing Your Purchase guide here.

3. Searching For A Home

An important part of searching for a home is understanding how the home will fit with your needs and your lifestyle. You’ll want to consider home ownership as well as different types of properties and features. 

Types of Home Ownership

  • Freehold Ownership
    • You purchase the home and directly own the lot of land it sits on
  • Condominium Ownership
    • For condos, you own specific parts of one building: titled ownership of your unit, along with shared ownership in the condo corporation that owns the common spaces and amenities
  • Co-Op Ownership
    • You own an exact portion of the building as a whole and also have exclusive use of your unit

Types of Properties

  • Detached houses
  • Semi-detached houses
  • Attached houses
  • Condos and apartments
  • Multi-unit

Tip: Depending on your budget and desired location, you may need to be flexible to find a home that meets your needs. By being willing to trade some features for others, you’ll have more options to choose from.

4. Negotiating An Offer

When you are making an offer to purchase a home, the purchase agreement should include the essential components listed below. Your agent can help put together an offer that is compelling, while safeguarding your interests and puts you in a competitive position to secure your new home.

You’ll also have the opportunity to choose the conditions that you’ll want in your offer. Some of these may include a home inspection or a status certificate review.

5. Financial Due Diligence

Whenever you make an offer on a house, you need to provide a deposit to secure the offer. The deposit is in the form of a certified cheque, bank draft, or wire transfer; it’s held in trust by the selling brokerage and is applied towards your down payment if your offer is successful.

There are two types of deposits:

  • Upon acceptance
    • The deposit is provided within 24 hours of the seller choosing your offer
  • Herewith
    • The deposit is provided when the offer is made

6. Property Due Diligence

To firm up a deal or educate yourself more on the state of the property, you’ll likely want to have a home inspection if you’re purchasing a house. If you’re purchasing a condo, then your lawyer will review the building’s status certificate.

Home Inspection

A home inspector will assess elements of the home such as the walls, windows, plumbing, heating and roof to judge the condition of the home. This process is non-invasive and is essential to help provide buyers with a good idea of the home’s current condition and the confidence of putting in an offer. 

Tip: The home inspector will provide a summary of suggested work along with a minimum budget estimate for the repairs needed. 

Status Certificates

If you’re purchasing a condominium, you’ll need to obtain a status certificate from the condo board or management for your lawyer’s review. This document will include valuable information about the condo’s budget, legal issues, reserve fund, maintenance fees and future fees increases – and the lawyer can help identify potential red flags

7. Preparing For Closing

Before the big day, you’ll want to keep a checklist of what to do ahead of time. Some of these include:

  • Review your contract
  • Complete a final walkthrough of the home
  • Purchase home insurance
  • Meet with your lawyer
  • Know how much cash you’ll need
  • Secure cash required for closing

8. Closing Day

Closing Day is when you’ll finally get the keys to your new home! In addition to bringing the cash required for closing, you’ll have to sign a few more documents which will include:

  • Mortgage loan
  • Title transfer
  • Statement of adjustments
  • Tax certificates

For the full details on the home buyer’s journey including examples, advice, pictures and sample calculations, download a copy of our free Buyer’s Guide here.

The post Home Buyer’s Guide: How to Purchase a Property, From Start to Finish [Free Download] appeared first on Zoocasa Blog.

Source: zoocasa.com