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Shelly Pattison

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What Can You Expect?

6/12/2017

What Can You Expect?

Businesses must treat customers fairly if they expect to do business with them again or get recommendations to their friends. Customers of stores like Nordstrom’s understand that a salesperson is an employee and represents the company.

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The line becomes less clear in some industries, especially ones that involve real estate. Agency is a legal relationship authorizing a person to act for or in the place of another. It involves responsibilities that exceed treating a person fairly.

The duties a buyer or seller can expect to receive from a real estate salesperson or broker include but are not limited to honesty, accountability, full disclosure, representation and reasonable skill and care. Buyers and sellers might additionally expect representation, obedience, loyalty and confidentiality.  State laws can differ on specific duties.

Mortgage and title officers are limited in their duties to the buyer to honesty and accountability and specific requirements under the federal Real Estate Settlement and Procedures Act.

A special relationship with a real estate agent makes it advantageous to have them coordinate efforts with the other professionals in the home buying process. Since most buyers’ and sellers’ transactions are infrequent, the agent can bring valuable experience to the transaction.

Every buyer and seller should discuss the level of service they expect from the real estate professional they work with. Another good question is what happens if the purchase and sale are within the same company.

 

Must Be This Tall to Ride

6/6/2017

 

Must Be This Tall to Ride

Surely, you remember being a child at an amusement park when after having stood in line with your friends and family, waiting to get on a terrific ride, you discovered the sign that read, “you must be this tall to ride.”

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Not only was it disappointing, it was slightly embarrassing. You never want to go through that again.

A remarkably similar situation occurs when people are buying a home. After finding the right home and negotiating the contract, they find out that they don’t measure up financially.  It’s not something that anyone wants to go through if they have a choice.

Regardless of what you think you know, if you’re buying a home with a loan, you need to physically visit with a trusted mortgage professional before you get serious.

  • You’ll find out your credit score which will directly affect the mortgage rate you’ll pay.
  • You might discover blemishes on your credit that possibly can be corrected.
  • You’ll even get a pre-approval letter that you can submit with an offer which could dramatically affect your negotiations in the current competitive market.

Some rides don't turn out to be as good as you thought they were going to be.  A person certainly doesn’t want that disappointment with a lender. Contact me for a recommendation of trusted mortgage professional.

 

Would-be Buyers with Student Debt

5/22/2017

Would-be Buyers with Student Debt

59% of non-owners are not comfortable taking on a mortgage with their student debt according to the Aspiring Home Buyers 2017 survey. It is estimated that the college graduates have an average of $37,172 in student debt.

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Fannie Mae, who has loan programs with as little as three to five percent down payments, has announced changes to how student loan debt is treated that could make the difference in qualifying for a mortgage.

For the 5 million borrowers who participate in the reduced payment plans, actual payments are considered for calculating debt-to-income ratio rather than maximum payment amount.

Non-mortgage debts paid by another party for at least 12 months won’t be included in calculating debt-to-income ratio.  For example, payments being made on a student loan by the parents would not be counted against the DTI ratio for the student.

These changes can make it possible for would-be buyers with student debt to get a home now instead of waiting for years. Being pre-approved by a trusted mortgage professional is the best way to confirm that these changes apply to your situation. Call today for a recommendation of a trusted mortgage professional.

 

Good Info - Good Decisions

5/16/2017

 

Good Info - Good Decisions

While low inventory is certainly challenging buyers, not having a clear understanding of mortgage financing is also causing issues. By having good information, they are able to make better decisions as well as compete favorably.

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Most buyers don’t realize how the mortgage rate is determined for a borrower. While annual income is important, a good credit score, low debt-to-income ratio, loan-to-value ratio and ability to repay the loan are vital concerns.

A variety of myths seem to permeate the market such as rates are set and released once a day; FHA loans are for first-time buyers only; pre-qualification commits the lender; lender fees are not negotiable and adjustable rate mortgages always go up.

Misunderstanding of actual mortgage practices may be a contributing factor to why more buyers are not taking advantage of what are still historically low mortgage rates.

While getting solid information about mortgages and being pre-approved from a lender are very important, it is only one step in the home buying process. Success in buying a home in today’s market should begin with a real estate professional who will coordinate all the different parts of the transaction including mortgage, title, insurance, inspections.

 

Indecision May Cost More

5/5/2017

Indecision May Cost More

“More has been lost due to indecision than was ever lost to making the wrong decision.” Interest rates have as much effect on housing costs as price and when they are both trending upward, it can be very expensive to wait.

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There can be some legitimate reasons for postponing a purchase such as needing to save the down payment, improve your credit or waiting to find out about a possible transfer. The problem is that prices and interest rates could, and very likely will, go up in the future.

If the price of $250,000 home went up 5% and the interest rate went from 4.5% to 5.25%, the payments would increase by $176.42. The additional cost over a seven-year period would be close to $15,000.

The questions that indecisive buyers need to ask themselves is “how am I going to feel knowing that if I had not waited, I could have been living in the home for less money?” and “What would I have spent the money on if I didn’t have to make the larger payment?”

Use the Cost of Waiting to Buy calculator to find out how much indecision may be costing you.

 

Would-be to Should-be

5/5/2017

Would-be to Should-be

Some would-be buyers have emotional reasons to own a home like having a place of their own where they can raise a family, feel safe and secure and enjoy their friends’ company. Other buyers’ dominant reasons might be financial in nature such as building equity or lowering their cost of housing.

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Regardless of what might be motivating people to want their own home, it is easy to justify that now is a good time to purchase. Let’s look at a $250,000 example using a FHA loan.

The total payment will be about $1,835 dollars a month. If the payment is lower than the rent a person is paying, that should encourage a person to continue investigating.

In this example, when you consider the monthly principal reduction, the monthly appreciation and the tax savings, even with money added for monthly maintenance, the net cost of housing is less than half the total house payment.

Considering all those advantages, the would-be buyer is spending over $1,100 per month more to rent than it would be to own. In a year’s time, they would lose close to $14,000 which is more than the down payment of $8,750 required on this price home.

Most would-be buyers understand that a home is a big investment but they may not understand the advantage of the leverage caused by the low down payment mortgage. The benefits extend beyond a return on the down payment but to the value of the home.

In this example, the $8,750 down payment grows to an equity of $73,546 in seven years based on 2% annual appreciation and normal amortization on a 30-year loan. If you calculated that as a rate of return, you’d be challenged to find anything that could compare with it.

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An Alternative to Paying Tax Today

4/17/2017

An Alternative to Paying Tax Today

The cartoon character Wimpy would say that he’d gladly repay you Tuesday for a hamburger today. Some real estate investors say a similar thing to Uncle Sam to be able to hold on to their proceeds from the sale of an investment and agree to pay the tax later.

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The benefit of a 1031 exchange is that it allows the investor to defer the tax due from the sale into the replacement property. This allows more money to be reinvested. In the example shown, the investor has 27% more to invest now by deferring the tax into the future.

The property to be exchanged must be like-kind which means real estate for real estate.   Rental property can be exchanged for other rental or investment property.  Personal-use properties like a first or second home are not eligible for exchanges.

There are some critical dates that restrict the validity of the exchange. The investor must identify the replacement property within 45 days of the sale of the relinquished property. The replacement property must be closed within 180 days of the sale of the relinquished property.

  • The replacement property must be equal to or greater in value, equity and debt than the one being relinquished.
  • All net proceeds must be used in acquiring the replacement property.

There are specific rules involved in constructing a valid tax-deferred exchange. There are three professionals that should be involved: a tax advisor, a real estate professional and a qualified intermediary who will assist in the acquisition and transfer of both the relinquished property and the replacement property. Additional information can be found in IRS Publication 544.

 

Lower the Rate - Deduct the Interest

4/12/2017

Lower the Rate - Deduct the Interest

Credit card debt in America is back to levels prior to the recession. The average credit card APR is just under 16% according to CreditCards.com Weekly Credit Card Report.  

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Homeowners have an advantage over renters when it comes to getting their arms around debt issues.

 

Basic money management suggests that higher rate debt be replaced with lower rate debt. Credit cards, personal cars, boats, motor vehicles and other personal property, typically have interest rates higher than that of real estate loans.

Borrowing against a person’s home usually provides the lowest rate of financing. Refinancing a home mortgage to take cash out to retire personal debt is one option. Another would be to secure a home equity or HELOC, home equity line of credit.

An alternative advantage of borrowing against one’s home is that the interest may be tax deductible unlike the interest on most personal debt. Qualified mortgage interest includes acquisition debt which can only be used to buy, build or improve a principal residence and up to $100,000 of home equity debt which can be used for any purpose.

Managing money is a critical life skill that people need to master. While the goal may be to become debt-free, paying the least amount of interest possible can be a good first step. Owning a home provides an asset that allows for options not available to tenants. Seek professional advice to determine your best course of action.

 

Rentals are Ideal

4/3/2017

Rentals are IDEAL

Rental homes are the IDEAL investment because they offer a higher rate of return than other investments without the volatility of the stock market. With certificates of deposit and bonds at less than 2%, people need an alternative investment that they understand and with a reasonable amount of control.

In this case, IDEAL is an acronym identifying the advantages of rental properties.

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  • Income from the monthly rent contributes to paying the expenses and a return on the investment.
  • Depreciation is a non-cash deduction that shelters income for some investors.
  • Equity buildup occurs with amortized mortgages because each payment is composed of interest owed and principal reduction to retire the loan by the end of the term.
  • Appreciation is achieved as the value of the property goes up.
  • Leverage can increase the return on investment by using borrowed funds to control a larger asset.

These individual benefits working together make rental real estate a good investment for today’s economy. Increased rents, high rental demand, good values and low, non-owner occupied mortgage rates contribute to positive cash flows and very favorable rates of return. 

To find out more about how rentals might complement your current investment plans, contact your real estate professional.

 

Save the Cost of Mortgage Insurance

3/28/2017

Save the Cost of Mortgage Insurance

During the banking crisis in the Great Recession, certain types of mortgages were unavailable that are once again being offered. Fortunately, the 80-10-10 mortgage is one of those making a reappearance and it can save borrowers a considerable amount of money.

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The objective of an 80-10-10 mortgage is to avoid the expense of mortgage insurance for buyers wanting a 90% loan. A buyer can obtain an 80% first mortgage and a 10% second mortgage with a 10% down payment and not be required to have private mortgage insurance.

For example, a buyer could put $30,000 down on a home priced at $300,000 and get an 80% first mortgage without mortgage insurance. The borrower could get a second mortgage, either through the same lender or a third party.

In the example, the 80-10-10 would save a buyer $193.71 per month which can be a considerable amount of money over a ten-year period. The interest rate on the second loan will be higher than the first because there is more risk.

Helping buyers make better choices is a valuable service real estate professionals can provide. Having the right tools and information can make the decisions easier to understand. Using an 80-10-10 calculator, you can see what the savings might be for your situation.

 

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