Wednesday, October 31, 2012
A 30 year fixed-rate mortgage hasn't always been the standard. As part of FDR's New Deal in 1934, the Federal Housing Administration was created to help Americans purchase homes with affordable terms.
Prior to then, many loans had an amount due at the end of the term called a balloon. Most mortgages had adjustable interest rates even though some might be fixed for a short time. While banks would loan money on a home, they retained the right to call the note due at any time which could exert considerable stress on borrowers.
FHA, during this time, introduced mortgages that offered a fixed rate of interest to the borrower for a 30 year term. This fully amortized loan provided borrowers a financial vehicle that would help them achieve the American Dream while minimizing the risk of having a loan called without the resources to pay it off. It brought long-term stability to the housing market and helped stimulate the economic recovery at a very difficult time in our nation's history.
Roughly, a third of the mortgages created in 2011 were less than 30 year terms. Many homeowners, similar to those after the Great Depression, would like to get their home paid for as soon as possible. Shorter term mortgages typically have a lower interest rate but higher payments due to fewer years to amortize the mortgage.
Monday, October 22, 2012
The question plaguing every tenant who wants a home of their own is whether they should continue to rent or is it the right time to buy?
The combination of good prices and low mortgage rates make it considerably cheaper to own than rent in most markets. Assuming a person is qualified with a down payment and won't be moving for several years, there may not be a better time to buy a home.
In the example below, the total house payment is $1,281.01 compared to $1,500 to rent the same home. Before you consider any of the financial benefits attached to home ownership, it's cheaper to own than to rent.
The net cost of housing falls to $764 or just more than half the house payment when you consider the principal reduction due to normal amortization, a modest appreciation and the tax savings along with a reasonable maintenance expense that a tenant would not have to pay.
One of the biggest benefits is the growing equity. As the value goes up, the unpaid balance goes down. A favorable leverage causes their low down payment to grow to $40,609 in a short seven years based on a modest 1% appreciation.
There's an expression often heard in real estate circles: "Whether you rent or buy, you pay for the house you occupy." You're either buying it for yourself or you're helping the landlord buy it.
Check out a Rent vs. Own to see how your numbers will compare to this example or call me to do it for you.
Monday, October 15, 2012
Rental properties have four primary factors that contribute to a return on investment. Based on market conditions and investor strategies, the individual motivating factor can change for property owners. There was a time when the benefit of tax savings to offset income from other sources was considered important to some investors. However, in today's environment, they are more likely valued as incidental benefits. Some investors expect appreciation to deliver the satisfactory results which can be reasonable over time if a reliable appreciation rate is used. Savvy investors today are using conservative estimates for long-term holding periods. Leverage occurs when borrowed funds are used to control a larger asset. Positive leverage can actually increase the yield on an investment. The fourth component that contributes to a property's yield is the cash flow. When the rents are greater than the expenses of operating the property and servicing the debt, there is a positive cash flow. A property with a good cash flow doesn't have to go up in value to justify the investment. The combination of lower prices, incredibly low mortgage rates and rising rents are attracting investors to rental properties that include single-family homes in predominantly owner-occupied neighborhoods. Even if you were to ignore the benefits of tax savings, potential appreciation and leverage, the attractive cash flows make rental property a very smart investment alternative. If you're curious, contact me for more information.
Sunday, October 14, 2012
While the Internet is a great resource to locate information about food, travel and a number of other things, it isn't necessarily the best place to find a local service provider. Sure, you can run the search, get quick results and may even see some fairly impressive websites. The problem is that sometimes, those sites are run by companies that sell the leads to providers who may not be as experienced as you're expecting. Instead of taking a chance on a total stranger, a personal recommendation could yield you more satisfactory results. Most real estate transactions require some work to be done to the house either in preparation prior to the sale or to meet requirements from the buyer or inspector after the sale is made. Looking for a service provider on the Internet is easy. Contact me for a recommendation is easier still and you can trust that they'll be reputable and reasonable. I want to be your personal source of real estate information.