Browsing Category: Real Estate

Can You Afford to Buy a Home on Your Salary?

afford a house

57 percent of Americans feel buying a house has become less appealing, reflecting a widespread belief that fewer people can afford to buy homes, according to a Hart Research Associates survey. Ray Martin of CBS MoneyWatch says this reflects property costs rising faster than wages, coupled with economic challenges for consumers trying to save down payments and afford mortgages. Given these conditions, you might be wondering how to go about determining whether you can afford a home on your salary.

Estimating What You Can Affordafford a house

As the Federal Home Loan Mortgage Corporation explains, a number of key factors determine whether you can afford a home. These include annual gross income, credit history, and down payment availability.

To evaluate how these factors translate into your ability to afford a home, lenders consider two key ratios. The first is your housing expense ratio, relating your mortgage payment costs to your gross income. Lenders recommend your mortgage payment should be no more than 28 to 36 percent of your monthly gross income.

The second key is debt-to-income ratio. This compares your obligations on mortgage and other debts such as student loans and car payments to your gross income. Your monthly debts should not exceed 30 to 43 percent of your gross income.

For a precise estimate of what you can afford, Bank of Little Rock Mortgage Senior Vice President Lee Maris recommends that first-time home buyers get pre-approved for a mortgage before shopping for homes.

Searching for Affordable Homes

With a sense of what you can afford, you can gather information about homes within your range. Online databases such as those provided by the U.S. Department of Housing and Urban Development and Socialserve can help locate homes fitting specific criteria. Geographical search tools can also help you find locations with homes you can afford. For instance, as of July 2014, Trulia’s national homes price page shows that the median listing price of a home in New York’s Queens County is $419,000, compared to $839,000 for San Francisco County, $189,500 for Cook County, or $142,500 for St. Louis County. Another way to find a more affordable home is to purchase a less expensive residence to renovate. For instance, you might buy a home and then install energy-efficient windows, both improving the value of the property and lowering your long-term energy costs. Realtor recommends that if you buy a home to renovate, the most cost-efficient strategy is to look for these types of potential cosmetic renovations to windows, paint, wallpapers, carpets, tiles, doors, kitchens, bathrooms, and fixtures. Do a home inspection and count the cost before considering more expensive renovations such as upgrading roofing, heating, or air conditioning.

Exploring Down Payment and Financing Options

When it comes to paying for your home, nearly eight out of 10 first-time home buyers use savings to raise their down payment, while a third receive a gift from family or friends, and about one in 10 draw from investments or retirement savings, according to the National Association of Realtors. Traditionally your down payment should equal 20 percent of your home’s price, but some options allow this to go as low as 3 to 5 percent. As for financing, the NAR reports that over nine out of 10 first-time buyers go with a fixed-rate mortgage, four out of 10 use a low down payment FHA mortgage, and nearly one in 10 go with no down payment using the VA’s loan program. HUD’s site can point you towards online resources and housing counselors and other resources to help explore financing options.

You Should Put a Large Down Payment on Your Home – Here’s Why

Real estate trends year-over-year get all sorts of contradictory analysis, which leaves new homebuyers wondering how they’ll ever make a safe, sound purchase. One thing is certain: The larger the down payment you can put down on your home-to-be, the better.

Mortgage RatesSmall House with Stacks of Hundred Dollar Bills on White.

Going up on a down payment enables you to shrink your mortgage rates, a big cause of the financial woes of current owners. Figures from Realtor.com show mortgage rates rising about 100 basis points through last year, and they are expected to continue to rise in 2014, according to The Huffington Post. Same goes with home prices in general. Nineteen percent of us are underwater on those payments, according to CNN Money. That’s down 7 percent from 12 months ago.

By putting more down, you’re lowering your monthly mortgage payment. Lenders tend to drop interest rates when you put more down, since you’re bettering your ability to make your monthly payment. You can bet your new front porch this means people are putting more down now to offset scary mortgages later, fostering long-term financial security despite those looming loan hikes. Visit Bankrate.com for an interest-only mortgage calculator that will give you an amortization schedule for an interest-only mortgage.

In Case of Emergency

A solid down payment also behaves as its own insurance should a future financial crisis hit. By lowering your monthly payment, your mortgage won’t demand more than you can swing each month. If a crisis pops up and you need an emergency loan despite a doable payment, you may be able to borrow against the equity in your home, which may be available thanks to your sizable down payment.

If a crisis or accident has yielded a settlement in your favor, putting the settlement toward your home protects you in much the same way, especially if the event threatens your interest or insurance rates. If you’ve been awarded a structured settlement, consider selling your future payments for a lump sum of cash now and applying the money to your down payment. Contact J.G. Wentworth for more information about selling your future payments.

Resale Value

Homeowners with lower mortgages incur less risk when selling in a down market, which would be brutal if you end up looking to sell during its next dip. The simple fact is when houses cost less, high mortgages—which Realtor.com sees coming—can’t match what you get for your old place. If foreclosure is the end result, a myriad of tax consequences could await, especially if you file for a Cancellation of Debt. Visit IRS.gov to learn more about home foreclosure and debt cancellation. The last thing you want on your tax record is default. So spend now, while you have it, and secure the future of your new home.

Dan Pinter
Accountant, New Hubby, Horticulturist

You’ve Inherited a Rental Property: The First Three Essential Steps

real estate

When Pattie Sheehan and her four siblings inherited a house from their mother, it seemed like they had just received a windfall, but the inheritance was a bigger headache than boon. After sitting on the market for nine months, the house finally sold for less than asking process, and the siblings’ relationship suffered as they argued through the process.

According to CNN Money, this is not an uncommon occurrence, but those who are savvy can avoid this scenario. Instead of selling your inherited property in a tough market, you can keep the home and convert it to a rental property with the following three simple steps:real estate

Educate Yourself

Before making any changes to the property, educate yourself on landlord-tenant law in your area. Many cities offer classes and handbooks to new landlords. To see if your community does, call the local HUD (Housing and Urban Development) office, the county action center, or your city’s neighborhood services department. These departments also offer free mediation services that can be useful if any issues arise between you and your tenants.

Landlord-tenant laws vary from state to state and city to city but, according to the department of Neighborhood Services in Fort Collins, Colo., some of the issues you learn about when taking one of these classes include security deposits, the definition of normal wear and tear, leaky roofs, how to respond to mold, and more. Without the right education, you might make small mistakes like not hardwiring your fire alarm, and those little mistakes can lead to huge liability issues.

Create a Landlord Toolbox

To make your landlord experience successful, you need a tool box — not just the tools that you will use to adjust leaky faucets and repair holes in the sheetrock, but virtual tools that make your job easier. CNN Money recommends using property management software like Quicken, RentRight, or IDEAS property clerk. The AAOA (American Apartment Owners Association) is also an incredible resource and offers background checks, credit checks, and other essential services. By tracking your expenses carefully, you will be able to tell how lucrative your property really is, and by doing thorough background checks on your tenants, you will be able to safeguard and boost your potential profits.

Decide between Vacation Rentals, Executive Rentals, or Family Homes

If your property is in a great spot, you should consider forgoing the idea of renting it long-term. Instead, consider converting your property into a holiday getaway. Your guests will pay more per night for a holiday rental than they would a regular home and, according to HomeAway.com, the average vacation rental owner makes $26,000 per year in rental income.

If your property is not in a travel destination, you can still squeeze extra cash out of it by making it into an executive rental. This sort of rental appeals to business executives who have just relocated to town and are still looking for a permanent home or business executives who are just spending a month or two in town. By attracting this type of renter, you can charge about 150 percent of the average rent in your area.

If you opt to make your property into a vacation rental or an executive rental, you will have to invest some money upfront furnishing and decorating the home. However, depending on the condition in which you inherited the property, you may have had to face these expenses anyway.

Luke Horton is a property manager from Arkansas.

How Much House Can You Afford?

house mortgage

There are lots of different opinions on how much house you can afford. There are those who subscribe to the notion that you should buy as much house as you can afford. The downside of course is when your income drops even slightly and you’re struggling to keep up with the payments. On the other side of the coin, there are those who suggest buying a house with cash. While it would be great to own your home outright from the beginning, most people are not in the financial position to do so.house mortgage

Many Americans make a down payment and get a mortgage ot finance the rest when buying a house. For those looking to buy a house with a mortgage, I wanted share some advice based on our experience (the good and the bad).

Looking at Your Numbers

The general consensus seems to be getting a mortgage that is no more than 2-3x your annual salary. That typically means you have a mortgage payment that is around 25-30% of your monthly income. For us, our personal goal was to have a mortgage income that was 25% or less of my husband’s net income.

When we were home shopping we received a letter from the lender that we were pre-qualified for a certain amount on the mortgage. When we looked at the number is was much higher than we expected. When we applied, we decided to use only my husband’s income. We wanted buffer room in case one of us lost our jobs or our income dropped. We read about too many people losing their homes due to one financial setback. The bank however, did not take that into consideration and gave us a loan that gave us little wiggle room for anything else.

The lesson learned? Even if banks may suggest you can afford more, be careful.  Look at your circumstances and decide for yourself if the amount is right for you. You are under no obligation to go for the maximum amount allowed.

Stash your down payment fund in a high yield savings account.

If you have a high yield savings account, such as Capital One 360 (open an account now), or Ally Bank (open an account today) you can also speed up the process of building your savings.

Buying a House is Than Having a Down Payment

While you’re saving up money for your down payment, keep in mind the other costs involved with buying a home. Some of these expenses come up when you’re deciding if a house is the right one for you and the others will be included in your closing costs. Plan ahead now to make sure you have enough money in the bank to take care of it.

  • Appraisal
  • Credit Report
  • Closing Fee
  • Title Search
  • Homeowners’ Insurance
  • Escrow Deposit for Property Taxes & Mortgage Insurance
  • Transfer Taxes
  • Recording Fees
  • Processing Fee
  • Underwriting Fee
  • Loan Discount Points
  • Pre-Paid Interest
  • Property Tax
  • Pest Inspection

Plan Your Down Payment Before Buying a House

Buying a home can be a great experience, but it can also be a nightmare. If you’re not in a position to buy a home, don’t worry. Rent can be a wise choice for many people. Don’t be impatient; wait for the right time. In fact, with some areas having a lot of empty homes, you may be able to rent a home at a decent rate. This gives you the option to test run home ownership without the big commitment.

What advice do you have about qualifying for a mortgage? Did you rely on the estimates from the lenders or did you run the numbers yourself? Did you receive any pressure from your real estate agent to get a more expensive house? If so, how did you cope with it?