Deciding to get involved with investing in a rental property is an important decision and finding the right property for your efforts can make the difference between a profitable, successful career in rental properties and a discouraging experience that leaves you unwilling to continue on. No matter if you are looking at a rental property purchase for the first time or the 50th time, there are some key things to consider when searching out a good deal.
More Than Just The Rent
Money plays into your investment in a variety of ways, making an impact beyond simply what kind of rent payments you will be receiving. Knowing what kind of cash flow will be available through rent payments is important, but so is knowing what kind of cash you are going to put up for needed improvements or routine maintenance to the building. Whoever is selling the rental property is doing so for a reason, so make sure that high maintenance costs isn’t one of them.
The value of surrounding real estate, rental or not, can influence the kind of activity you receive at your rental property. In areas of expensive homes, rental properties will often pull in higher rental amounts even if the property isn’t up to those standards. Consumers that have their heart set on a particular area may turn to renting in the face of expensive home prices that would yield unaffordable mortgage payments.
Other rental properties in the area of course also play in to your cash flow situation and purchasing a rental property operating with rent payments below what the area is worth are great targets. Sometimes rental property owners get set in their ways with rent and avoid raising rent to scare off customers. Knowing that you can later raise a rent after purchasing a rental property is a great way to get an early jump on profitability.
Who Are You Buying From?
Understanding why someone is selling a rental property will go a long way towards understanding whether or not it is a good investment. Property owners that live far from their rental properties often get fed up with managing a property so far away and sell out of convenience. These types of sellers offer great opportunities as they are often more willing to deal in order to be rid of the obligation that they have grown tired of.
Additionally, the history of the property often reflects the history of the property owner. If you are dealing with a stable seller with a history of good rental ownership, it is probably that the property has been kept up to date with adequate repairs and improvements when necessary. Ask for all improvement records available on the property to look for a history of care taken with the property. Those that have been taken care of well will be less likely to cause headaches later.
What Does The Code Say?
Older buildings are more likely to have issues with building and fire codes. Do research not only into the age of a particular property but also into the history of updates done in regards to building and fire codes. Has anyone ever been out to inspect the property to ensure that is up to code with various local statutes? As soon as you sign on the dotted line, those obligations become yours so investigating just what issues may arise will save you from uncovering code surprises down the road.
Rental properties can be fulfilling, profitable investment opportunities, but selecting the right rental property for you is perhaps the most important step of the process. Protect yourself by asking some key questions about the property and its owner and you will avoid the pitfalls that beset many real estate investors out there.
There are times when the growth of the real estate industry has drawn the nervous energy of local or national media expecting a downfall after a period of prolonged growth. There are some serious flaws in the logic behind expecting a burst in the real estate bubble nationally and during any period of prolonged growth, you as a real estate investor should not panic in the expectation that a market fall will ruin your investment.
Of course, there are exceptions to every rule and there are times when a very localized market depression (such as the downturn of an area neighborhood) can profoundly affect a real estate investment. Extrapolating things like that into a national concern, however, ignores the fact that there really is no national real estate market.
The overall picture of the real estate market that the media uses to describe economic indicators is really made up of thousands of small real estate markets. Any time that a market is spread over that great of an expense, the chances of every tiny market failing at the same time are extremely slim. That is indeed what would be necessary for a national real estate market crash, making such an eventuality extremely unlikely.
To call something a “crash” takes an extreme drop off over a short period of time, something that would be difficult to accomplish in any real estate market. Pieces of information like population growth, new construction statistics and other economic measures can forecast a general trend for any real estate market well in advance.
Certainly, real estate markets will downturn from time to time, but no downturn happens in such a short period of time so as to trap investment money. Generally speaking, you can always get out if the writing is on the wall and that fact separates real estate markets from something like the stock market that can crash more easily.
The nature of real estate investment also provides some insulation behind any kind of dip in the real estate market. For those holding properties over a long period of time as investment opportunities, if a dip does happen in the local real estate market, the long term nature of your investment dictates that you will hold it long enough to see an upturn in the market. Real estate markets rarely stay down for over a decade and for a long term investment, that storm can certainly be weathered.
For short term flips, often the atmosphere of the local real estate market will not have time to change by the time you are looking to sell off your investment project. Fixer-upper properties and the like will often take a few months when the arrival of a market depression can take at least that long to show up.
Early economic indicators will tell you what the market may be like in a few months time and that is certainly something to look at when getting involved in a short-term investment. Simply put, by the time a market depression could affect your short-term investment, you’ll probably have sold it off.
Of course, getting involved in a bad investment will nullify a lot of these positive aspects of long-term and short-term investments, so do not take this advice to mean that any investment will withstand market fluctuations. If you buy an investment property with a less-than-stellar cash flow record, relying on an upturn in the market can leave you waiting for a long enough time so as to drain your funs and bust your investment.
When deciding on an investment, you need to understand the fundamental positives and negatives of an investment and when your property is a sound investment to begin with, it will generally withstand the fluctuations of the local market. At the very least, you now know that when national media talks about the real estate market, you can rest assured that the word “crash” is not going to follow.
When undertaking large remodeling and home addition projects, it is smart to research your local real estate market to find out if your project will return your investment when it is time to sell. Depending on where you live, the right project may return 100% of your investment. That is why research is the smartest way to begin any remodeling project.
Recoup Your Remodeling Investment
Remodeling projects should be done when you are planning to stay in the house for several years, not simply for the sake of trying to increase resale value. Since you can’t guarantee that you will get a decent return, it makes the most sense to remodel when you will be able to enjoy the benefits in the long run. Only minor remodels should be considered if selling is your primary goal.
Here is a sample of returns for some of the most popular home remodeling projects. Statistics are compiled from multiple published surveys and based on major cities within states:
- Minor Kitchen Remodel: 125% (Connecticut)
- Basement Remodel: 98% (California)
- Bathroom Addition: 96% (Missouri)
- Major Kitchen Remodel: 92% (Kentucky)
- Bathroom Remodel: 90% (Oregon)
- Exterior Paint: 90% (Pennsylvania)
- Master Bedroom: 86% (Florida)
In general, across many real estate markets, kitchen and bathroom remodeling consistently offer the highest percentage return on your investment (80-100%). Bathroom and family room additions offer a fairly high return also. A master bedroom remodel can potentially get a high return.
Certain projects such as converting a basement or an attic into functional living space varies widely from region to region. The same is true for deck additions.
Remember Curb Appeal
Repainting the exterior of your home also shows decent returns in most markets. When preparing to sell your home, at least sprucing up your exterior paint is important. Without curb appeal, potential buyers will not even stop or get out of their car to give your house a chance.
Repainting is only part of curb appeal, however. A well-manicured lawn and attractive landscaping will grab buyers’ attention as well.
Keep Your Home’s Original Design Intact
When considering a remodeling project or addition, you should not only do research in your local real estate market, but also look around your neighborhood. Any improvement you make should be consistent with other homes on your block.
An elaborate addition in a modest neighborhood will stick out and will not provide the return you are hoping for based on the fact that someone who can afford the extra money to buy your home will most likely search in a more expensive neighborhood.
Along those same lines, keep the original design of your home in mind. Stick with either the same materials or complementing ones. Aim for a flowing congruency so that your home remains tastefully appealing on the inside and out.
Think through color scheme and decor in much the same way. Bold, eccentric color schemes that will stay with the house after you sell can deter potential buyers who lean on the conservative side. Being flamboyant with your remodel is a fine idea for those homeowners who plan to stay in their home for years to come. For those of you looking to move in two to three years, choosing neutral colors for floors and walls will benefit you when it’s time to sell.
Remodel for Your Needs, Not for Resale
When trying to decide whether or not you should take the plunge and remodel, think of your own needs. If you absolutely want to add on a deck, go for it. If you have a spacious basement and could use a children’s play area, don’t hesitate.
By concentrating completely on the return you might get from a home improvement project, you are limiting your options and basing your decision on a factor that is constantly changing.
Depending on the economy and the real estate market in your area, as well as other factors, your remodeling return could be more or less than you expect when it is time to sell.
Just remember that for the immediate future, you will determine the value of a luxurious bathroom remodel or sunroom addition. The enjoyment of improving your home for the rest of your time living in it might far outweigh what money you get back when it is time to sell.
And, who knows? You might just like your new and improved home so much that you never want to move.
Finding a loan that works for you and your financial situation is one thing and getting it approved by the lender is another. Lenders consider mortgages as a somewhat risky business. They give out huge amounts of money in hopes that the mortgage holder will repay it as agreed. You may have had a loan application denied by a lender. But this shouldn’t be a reason to give up. Perhaps, it’s time you took charge of the situation and do all it takes to turn that denial into an approval. Below are a few tips to get approved for a mortgage loan.
Find a suitable cosigner
Having a cosigner who has a reasonable amount of disposable income can contribute to having your application approved. Some lenders may even consider your cosigner to compensate for your poor credit score. Overall, cosigners provide some form of guarantee that your mortgage will be paid. However, don’t find a cosigner if you think you cannot afford to make the mortgage payments on your own.
Wait for conditions to improve
Working with a mortgage broker Newmarket can be advantageous in the sense that, he/she is able to review the housing market and let you know if the conditions are right to borrow. You can spend time improving your credit score and reducing debt within this period as you’re waiting for conditions to improve. Sometimes the home prices or interest rates could go down and this may end up improving your mortgage eligibility.
Target a more affordable property
If you can switch to a different property with fewer bedrooms, or move to a less attractive neighborhood, you may get more mortgage options to choose from. You can even consider moving to a different part of the country where it’s cheaper to own a home. As soon as you get your finances back on track, you may trade the property and move to a place you prefer.
Review the reject application and defend your case
You may want to forward the rejected loan application to someone else in the lending company so that they can give you a second opinion. You may even consider sending the mortgage company a letter explaining facts such as the circumstances that led to your application being rejected. For instance, you can explain that the incident was a one-time event that will never happen again. For instance, if you had a medical emergency that caused financial setback, explain this in your letter.
Shop for a second opinion
If your home loan application has been rejected by one lender, you may want to approach a different lender. Try out a few other options so that if your application is rejected for the same reason, you’ll have no choice but to fix the problem. The rule of thumb is to avoid showing lenders that you are desperate for the loan; this could lead to them raising your interest rate or adding fees that will make the loan more expensive. This often happens to high-risk borrowers who are often desperate to get a home loan approved.
Feeling Nervous? Feeling Excited? Your Move Is Soon Approaching
So, you are going to move? It’s definite. You have made your decision. There is no turning back now. You have given notice at your current place of employment and you are heading onward towards the next big thing for you and your family. How exciting, and you must be so ready for this! Change can be invigorating! It can also be a bit scary or unpredictable. If your family has children in it, you know what this is about. Whether you are feeling more overwhelmed, excited, or nervous about the move, how about you go ahead and address everything that needs some special attention.
If you mostly fall into this category, you are likely unsure about how everything will go and how the move will turn out. As a way to not be so nervous, take action to find out the answers to the questions you are wondering about. Say you like a favorite bag of chips, look them up online and see if they will sell them in your new area. Maybe they don’t! Then look them up online yet again to see if you can make a purchase online and have them delivered to your door. If you are wondering where to attend schools, look up local community forums and chats. See if you can join a facebook group for moms or dads, or other hobby-level type of interaction you would like to be a part of.
Another way to not feel so nervous is it make a plan. Yes, the move will be a big, huge change. Hire Minneapolis full service movers if that is where you are headed into or out of. Leave the major work to the professionalsthat is what is recommended. Next, make a plan to the best of your ability. Then plan for change. Plan for delays. Plan for more than you think it will take in terms of time and money.
This is an easier emotion to heal with. If you are just going goo-goo-ga-ga crazy over this new place, then check out what it is like in all of the ways you can. Learn about where you are going and dive into conversations and learn as much as you can about where you are headed before you even get there. It doesn’t hurt to do such a thing. Talk about it and prepare for it. It is sure to be a change from where you last were.
Though home inspections are often part of the home buying process that is not the only time you may look to the abilities of a professional inspector for your needs. When making large additions to your home or trying to put your home on the market with accurate information about the state of things like your roof or furnace, professional inspectors can also offer their services.
Foundations, roofs, major appliances and other aspects of your home can be subjected to professional inspection to ensure that they are in the proper working order. While the professional is usually the best decision in most cases where legal issues come into play such as a home sale or purchase and permitting for new structures on your land, simply doing a first inspection yourself can sometimes save you the hassle of having multiple inspections.
Things To Take A First Look At
Your roof is something that you can usually take a look at and pinpoint areas that need to be improved. Do you have shingles that are damaged or out of place? Is there anywhere on the roof where you can see through the outside shell? These may seem like common sense issues to address, but they are the kind of common sense issues that a professional inspector would point out as well.
You don’t need to wait for a professional inspector to tell you to fix a broken roof. Take the initiative and make an effort to get your home in good shape before the professional inspector is called. During a home selling process, this can leave you with fewer issues to discuss later as part of a contract negotiation.
In addition to the roof, there is certainly something to be said for simply eyeing the exterior of your piece of real estate. If there are cracks in any of the outside walls, especially near the base, those will need to be looked at and probably repaired. Again, these are common sense tips but steps that can often be overlooked during the frenzy of buying or selling a home.
The Professional Inspector’s Role
When legal agreements start to come into play, such as during a home-buying process, a professional inspector is usually required to come out to the home and look over the property in its entirety. During any deal when you purchase a home that is already built, there will inevitably be some issues that come up during inspection and it is then up to your realtor to work out a deal to remedy those situations.
On the minor side, these inspections can turn up things like small cracks in interior walls or wood working that needs to be tended to, but they can also turn up big problems such a shaky foundation or substandard furnace. Furnaces tend to be a hotspot (no pun intended) for inspection issues because most people don’t have the knowledge to accurately appraise a furnace on their own.
No matter what kinds of issues an inspector turns up, they are all then fair game for the negotiating process and often times an agreement will be hammered out as to what the seller must repair or replace before a deal can be consummated. Real estate transactions are themselves a long negotiation and the home inspection is just one step on that process.
So, as you get ready to sell your home or perhaps undertake a smaller endeavor like periodic repairs, know that you can save some time and effort by going through and looking at the key parts of your piece of real estate yourself and remedying situations before professional inspectors ever need to get involved. The periodic upkeep of your property will yield dividends later when the professional shows up and has nothing to report. A blank inspector clipboard is the positive result of strong personal inspections and upkeep.
When purchase prices for homes escalate into the hundreds of thousands of dollars, sometimes a $10,000 difference in an offer price can seem like a small variation, but $10,000 is $10,000. As you go through the process of making mortgage payments, you will no doubt wish you could shave a few months off of your payment term, which is exactly what shaving $10,000 or more will net you.
One of the prime ways of doing so is to locate a seller that is truly motivated to sell a property, sometimes at a minor expense in return for a speedy, smooth transaction. Making low offers is something all realtors have probably done in the past, though it can sometimes seem like a slap in the face to send a below-list offer.
The prospect of saving $10,000 or more should take that embarrassment out of the equation and motivate you to explore all avenues for saving money. There are a few ways to spot motivated sellers that might be more apt to accept an offer below list price than they otherwise would.
Everyone Sells For A Reason
One of the best ways to investigate the motives of your seller is to simply ask. That might seem like a common sense approach, but people often go through entire real estate transactions without asking even the most simple questions about who they are purchasing a very expensive item from.
Your realtor or the seller’s realtor may have that kind of information at hand and while they might have reason to guard it, more often than not they will make polite conversation about what a seller’s plans are. At open houses especially, realtors may make the effort to chat with you, sometimes answering such questions, in hopes of getting you interested in the property. Let that eagerness work for you and get the information you need that might help you.
There are quite a few situations that might result in a motivated seller, but perhaps the most common are relocations, divorces and financial troubles. As you can imagine, if a seller is involved in any of these three situations, it is probable that speed is an issue and sometimes that speed is worth a bit of a discount on the list price of the real estate property.
Relocations especially can split a seller’s attention between two locations, greatly motivating the seller to quickly get rid of an old property to focus on a new one. That split focus can be your gain with a big of a discounted offer that nonetheless represents a quick chance to be done with the real estate.
Each Property Has Its Own Traits
More than just investigating a seller, you can investigate a particular property as well to perhaps indicate a seller that is tired of a particular piece of real estate. For example, properties that are not kept up as well, rental properties especially, could indicate that a seller is tired of dealing with a property and is more motivated to sell quickly, even if at a small discount.
If you want to go the extra mile and go through county tax records, it is entirely possible to find properties where sellers have home addresses far away from the property in question. In those cases, sellers that live far away are usually selling property that they can no longer maintain from a distance and have grown tired caring for. These are perhaps the best candidate to accept an offer below list price as they are tired of the hassle of maintaining a long-distance piece of real estate.
No matter your tactic, there are sellers out there that want desperately to sell you a piece of real estate. Do your homework and investigate just why a seller is doing so and why a particular property is on the market. Those two bits of information could produce the difference between a list-price offer for a piece of real estate and an accepted offer below list price.
Putting a price tag on a home you’re trying to sell is a tricky thing. For one, it’s your home, crammed full of memories, hopes, and dreams—and all that stuff can cloud your thinking and lead you toward the wrong price. There are consequences: Shoot too high, and your home could languish on the market for months and maybe not sell at all. Price it too low and you could bilk yourself out of a whole lot of dough.
That’s why we’re here to guide you through this tough but critical decision (and all the others you’ll have to make) with our step-by-step weekly Home-Selling Guide. Read on to pinpoint a price that’s just right.
You may have a dollar figure in mind—perhaps based on what you paid originally, plus a little extra. Because homes appreciate, right? Maybe yes, maybe no. While a hefty increase in value is nice in theory—and in general, it’s expected to be a seller’s market this year—“ultimately, it’s up to the market,” says Chandler Crouch, broker of Chandler Crouch Realtors in Fort Worth, TX.
Think of it this way: Would you buy a banana for $1 if those same bananas were on sale down the block for 69 cents? Of course not! And, of course, a home ain’t no banana.
No matter what you paid for your home, market values fluctuate—both up and down. This can work for you or against you. But all that matters on the open market is what buyers are willing to pay now.
The best way to get a handle on your home’s sales price are the prices of similarly sized homes in your neighborhood—otherwise known as “comparables,” or “comps.” For example, if a house near yours with the same square footage and numbers of bedrooms and bathrooms, and in similar condition, sold for $230,000 within the past three months, you can bet your own price will be in that ballpark.
For a quick snapshot, several websites (including this one) offer automated valuation models, or AVMs, where you type in your address and then get a price based on an algorithm that factors in comps in your area. But AVMs are just a starting point.
“No one has actually put eyes on your house, so an AVM can’t really give you an accurate price,” Crouch says. That’s why you need your Realtor to visit your home, so she can factor in your home’s unique strengths and weaknesses along with comps to come to a better estimate.
When your Realtor tells you a price, check it. Ask her how she came up with the amount, and look into the comps in your area yourself. Once you’re able to pore over the info, Crouch says, “you’ll be able to see a price range for yourself, so you won’t feel like you’re just having to blindly trust your Realtor.”
Factor in upgrades with a grain (or two) of salt
Yep, you poured $10,000 into your brand-new chef’s kitchen, or $15,000 to install an in-ground swimming pool. Sweet! So it stands to reason that you’d make that money back when you sell, right? Well, not quite. Surveys by the National Association of Realtors® show that your return on investment for home improvements depends on what kind of renovation you’ve pulled off—and how much prospective buyers want it in your area. Refinishing hardwood floors, for instance, will reap a 100% return, paying for itself. Convert a basement to a living area, and you’ll recoup only 69% of those costs. The harsh truth: Not everyone is going to fall head over heels with your five-seat built-in hot tub.So do your research and find out what those upgrades will really get you.
Leave some wiggle room
Most buyers love to negotiate when you’re trying to sell your house. So it helps to “let them win one,” Crouch says. Instead of starting out with the absolute lowest price you can afford to go, add a bit of a cushion. How much? Crouch says you should round off your asking price in $5,000 increments. “It’s just how people think,” he says. So if you know you want $347,000 for your house, you can play it safe and round up to $350,000.
Also keep in mind that many first-time buyers may have a hard time coming up with cash for closing in addition to their down payment, even if their finances are good and they’re qualified for a loan. Offering to cover closing costs—while sticking to a higher asking price—might help seal the deal.
Price with Internet browsing in mind
Once you find yourself a ballpark price you’re happy with, it’s time to fine-tune it. Keep shoppers’ online search parameters firmly in mind—small differences in your price can spell a big difference in your exposure.
“Home buyers typically fill out a Web form that has a minimum price and maximum price,” says Crouch. “If you’re a dollar outside of that range it is going to be like your house didn’t exist—they’ll never see it.” In other words: Price your home at $300,000, and you could miss out on a whole lot of people who are searching in the $250,000–$299,999 price range. So if you’re on the cusp, consider rounding down to capture more eyeballs. Remember what we said about padding? It cuts both ways.
Test the waters with a soft rollout
While choosing a price can be scary, consider this one small loophole: Some brokerages offer a “soft” rollout plan in which they highlight the house as “coming soon” online, without officially listing the house in a multiple listing service. That buys you time to test the market, see if people will click at that price—then adjust accordingly without having to officially lower or raise your price on the record.
Principal represents the amount you borrow, which has to be repaid over time.
Interest is the cost that mortgage lenders charge for the use of their money during your repayment schedule.
Taxes are an assessment that local governments collect on property to pay for local services. Property tax rates will vary by location and can affect your total cost and affordability.
Homeowner’s Insurance will be required to replace the value of loan in the event of a disaster such as fire, earthquake, flood, etc.
Property taxes and insurance costs must be collected and paid when they are due.
In most cases, mortgage lenders will make the collection by allocating the amount you need to pay for taxes and insurance each month to your mortgage payment.
These collections are placed in escrow, a depository account that the bank manages.
Your total monthly mortgage payment will include payments for real estate taxes, insurance, and Private Mortgage Insurance (PMI) and other items that are placed in escrow and used to pay taxes, insurance, PMI and other items on your behalf when they come due in the future.
Note that the escrow portion of your monthly payment may increase or decrease, depending on the change of your taxes and insurance assessments.
If your mortgage does not have an escrow account, you will be required to pay your taxes and insurance separately and show proof of payment to your lender.
Local Property Taxes
Your county and city may levy taxes on your real estate property. These taxes pay for government services such as schools, roads, police, and other community services. The annual tax is usually calculated as a percentage (factor) of your property’s appraised market value. For example, an assessment may look like this:
$0.94 per $100 in appraised value
This calculates into a tax factor of 0.94% on the appraised value of your home Contact your local community and county officials to determine your county and city tax factor. And, keep in mind that many of these local real estate taxes may qualify for tax deductions. Check with your tax advisor for more information. At your home closing, you will be required to pre-pay up to one year’s cost of your property tax. Then each month, your loan payment will include 1/12 of the annual property tax that will be deposited in your escrow account until the property tax payment is due.
You may be required to carry hazardous insurance on your home in the event of a fire, flood, disaster, and any other natural disaster that destroys or partially destroys your home.
The insurance will protect your investment (and the lender’s) and repair any damage that may occur. The annual premium may vary depending on your home area and location. You must provide proof of insurance before closing and settlement.
At your closing, you may be required to prepay up to one year’s cost of hazardous insurance.
Then each month your loan payment will include 1/12 of the annual hazard insurance premium to be deposited in your escrow account until payment is due.
Other Costs (PMI)
There may be other associated costs that may be included in your escrow payment such as Private Mortgage Insurance, tax liens, etc. Check with your real estate agent or your legal council to determine what other charges may apply.
Private Mortgage Insurance (PMI) Private Mortgage Insurance (PMI) is mortgage default insurance that is required for all conventional mortgage loans with less than a 20 percent down payment. It is designed to pay the lender a portion of the outstanding balance of a loan in the event the homeowner defaults.
If PMI is required as part of your loan, the initial annual premium will be included in your closing costs while your subsequent premiums (1/12th of your annual premium) will be included in your monthly mortgage payments and deposited into your escrow account.
You need to check with your lender to estimate your cost percentage for PMI if your down payment is less than 20 percent. Nationally, the average annual percentage is around 0.005 of your loan balance.
Fannie Mae and Freddie Mac establish maximum loan amounts, income requirements, down payment requirements, and type of suitable properties. Loans that do not conform to these guidelines are referred to as non-conforming loans.
Jumbo Mortgage Loans
These are loans that are above the maximum loan amounts established by Fannie Mae and Freddie Mac. Rates on jumbo loans are generally a little higher than conforming loans. Jumbo loans are used to purchase expensive and high-end custom construction homes.
Loans that do not meet the credit requirements of Fannie Mae and Freddie Mac are referred to as B, C and D paper loans. Loans of this type are made to applicants that have filed for bankruptcy, foreclosure and who generally have bad credit.
These loans are temporary loans until the applicant can qualify for conforming “A” loans. The interest rates on B/C loans vary, but are generally higher than conforming “A” loans.
Different governmental agencies will secure mortgage loans for low- to moderate-income and other qualified homebuyers. Lenders are required to follow certain guidelines when making government loans.
The most common government loans include FHA Loans, VA Loans, and RHS Loans.
FHA loans have lower down payment requirements and are easier to qualify for than conventional loans. FHA loans are administered by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development.
VA loans are sponsored by the U.S. Department of Veteran Affairs. They guarantee loans for eligible veterans, active-duty personnel, and surviving spouses. These loans offer competitive rates, lower or no down payments, and minimum income requirement.
RHS loan programs ensure affordable housing for low- to moderate-income level rural residents to purchase, construct, repair, or relocate rural-related facilities. Lower down payments, and sometimes none at all, are required. These loans are guaranteed by the U.S. Department of Agriculture.
The condominium market has been rising steadily. While this trend is not guaranteed to continue, the condo market has regained the momentum and importance it had in the initial condo boom of the 1980s.
Condo buyers fall into three main groups: first-time buyers making the jump from renting; people looking to buy a second home that they will use part-time; and retirees who are trading in high-end homes for the low-maintenance lifestyle a condo provides.
A condominium can be a great purchase under the right set of circumstances, but some people still dismiss them as glorified apartments. If you’re not comfortable living within condo rules and restrictions, and in close proximity to others, then a condo is probably not the place for you. Before you buy a condominium, make sure you understand exactly what is involved in condo living.
What Exactly Is a Condominium?
A condominium development can take the form of apartment-style complexes, townhouses or converted multi-family dwellings. What distinguishes it from other multi-tenant buildings is that the developer has legally declared it a condominium, and individuals can purchase units in the building or complex. In most states, this means that the development falls under specially designated laws and regulations applied to condominiums.
When purchasing a condo, the owner buys the title to his or her individual unit, up to the walls, but not including them. A common description of a condominium is a “box in the air.”
Common areas of the development, such as stairwells, dividing and outer walls, fitness centers and rooftop gardens, are under shared ownership. Each unit owner holds an interest in these spaces. In order to manage the maintenance and repair of the shared common areas, every condo development has a condominium association, also known as a unit-owners’ association. The association is elected by condo owners and makes communal decisions in the interest of the community.
Condo costs include:
- Down payment, mortgage and property tax
- Condo fees, otherwise known as maintenance fees. Condo fees are paid by every resident to help with the maintenance of the building, pay the salaries of groundskeepers, concierges or handymen, and provide luxury facilities such as a pool, gym or rooftop garden. Condo fees are paid monthly and are subject to change
- Special assessment fees. These fees may be requested when an unexpected repair or planned modification exceeds the cost of the condo fees collected
Rules to Live By
Condominiums are governed by a set of rules called Covenants, Conditions and Restrictions (CC&Rs). The rules vary from one condo development to another. They may impose restrictions on pet ownership, noise levels, kitchen or bathroom remodeling projects, and renting. The CC&Rs are enforced by the condo association. It’s a good idea to read the CC&Rs to make sure that you are comfortable with them before you purchase a condominium.
Condo Associations and Fees
The condominium association budgets and determines the condo fees for all units. Condo fees are typically determined by the size of your unit, how many units are currently occupied, and the projected expenses for building maintenance and repair.
Condo associations vary in their organization and expertise. Some questions you may want to look into are:
- Does the association maintain a reserve of funds to pay for unexpected and potentially expensive repairs? This will help you determine whether you are likely to get hit with special assessment fees.
- Has the association maintained the building in good repair? Do they handle repairs and maintenance before they become big problems? Before buying, it’s a good idea to get an inspection done on the unit you’re interested in, as well as the entire structure, to identify any potential problems.
- Does the association have plans to add any facilities, such as a pool installation or gym, in the near future? This could cause a sudden increase in your fees. Ask to see the minutes of the last few condo association meetings, which should reveal any such plans.
- Does the development have any pending legal actions? Are there any disputes between owners, with developers or with the association that you should know about?
- What is the association’s reputation in the building? Talk to other owners for comments or complaints about the association’s activities.
A Word about Developers
Developers do not generally retain a long-term interest in a building, but the work that they put into it is important. A home inspection can turn up major structural flaws in the building, but don’t rely on this alone. You should research the developer’s track record, and find out if there have been any problems with its previous developments. Also find out if the developer is still in business and whether it is financially stable. If the developer is no longer in business, your condo association may have little or no legal recourse if major flaws are discovered in the property.
Buying a new home is an exciting prospect that consists of purchasing not just a place to live but in some cases a whole new way of life. A fresh lawn, a new place to call home, all of it comes with a home purchase. However, the purchase entails more than just building materials and pavement.
Like it or not, buying a piece of property ties a home owner into the city, both in a social and financial link. As the financial state of the city around your property changes, so to does the potential equity level of your property. If a builder surrounds your high value property with low value developments, that can have an irrevocable effect on your significant investment.
Using that knowledge can help you as you go through the process of picking a home and picking an area to live in. As you look at homes, inquire to either your real estate agent or other expert what the surrounding environment is like. Has the commercial fate of the surrounding area improved lately? Have homes decreased in value over time? These are extremely valuable questions to ask.
Understanding the current state of the neighborhood around your potential home is a crucial part of the real estate process. While many people spend time investigating things like the quality of the school district or cleanliness of the neighborhood, not everyone investigates the financial state of the surrounding area and the general flow of population in and out of the region.
Are the businesses in the area of a potential home faring well? Have commercial developments seen a lot of turnover? While it may seem like an unrelated development, if businesses start migrating away from a potential area, the prospect of an eye sore abandoned strip mall increases. An abandoned strip mall may seem like a small portion of an entire local economy, but it is a symptom of economic decay that potential buyers are constantly reminded of as they drive to showings.
Just as this enters into your own determination, so too will it enter into the determinations of potential buyers as they research homes in your area. As buyers are deterred from your area, prices will have to be lowered to attract new residents and that decrease will affect the value of your property.
While the current economic state of your area certainly plays a role, the future value of your property is even more important as it will dictate the sale price of your property when it comes time to sell. In addition, future development can be very difficult to forecast, leading to a lot of uncertainty over how a home will fare.
There are a few things you can take into account when you try to forecast the economic future of your investment. Population statistics are available for the United States that can tell you the amount of people that have come to and left a particular area. If people are leaving, an area is likely to see an economic downturn and that can affect your property value. Your realtor can also be a good resource in this regard as time spent buying and selling properties can build up a high level of expertise in pinpointing when areas are beginning to hit a downturn.
So, as you go through the process of choosing a new home for you and your family, keep in mind that when you pick a home, you pick its immediate neighborhood too. With the considerable amount of money you are likely to pour into a mortgage, you need to protect your investment as best you can. To do that, understanding what might be the financial future and financial present of the surrounding area can give you valuable information as you choose your new home.