Evolve has put together a comprehensive report on all aspects of second-home rental property owners. Click the link below to be taken to their report.
Whether you’re in the process of buying your first home or you’ve been a homeowner for years, there are few phrases that hit right to the bone like “mortgage insurance.” Why, you’re not sure entirely, but lots of people indicated that it was terrible and you were going to regret it.
As usual, the truth lies somewhere closer to the middle. Mortgage insurance is not your enemy, but it can be a costly surprise if you’re not prepared. Let’s dive into this hot button topic.
What Exactly is Mortgage Insurance?
Mortgage insurance is a type of coverage that your lender will take out on your loan to help shield them against loss should you default. They generally only require it if you have less than 20 percent down and often, this monthly payment will drop off once you’ve paid your home loan down to the point that your house has about 22 percent in equity versus its mortgage.
To be clear, this insurance does not cover you — at least not directly. In the case of default, the bank gets the check, but you get something, too. In many states, even recourse states, the mortgage insurance can be enough to prevent the bank from coming back on you for the difference between what you owe and what it was able to recover at a public sale.
Having mortgage insurance does not guarantee you will be free and clear should you lose your home, but it sure helps, especially if that house is in good condition when you turn it over to the bank. Its original purpose was to make it easier for people to get mortgages, even if they couldn’t come up with a big down payment, but during the housing bubble a decade ago many homeowners discovered that it can help on the back end, too.
MIP, PMI and Funding Fees
Mortgage insurance is a blanket term for several different insurance programs that essentially do the same thing. Rather than just calling it “mortgage insurance” across the industry, due to the way each program came into being in sort of a vacuum, different loan types have different names for it. For example:
* FHA calls it MIP, the Mortgage Insurance Premium. It was one of the first programs and the name is an original, for sure. It requires both an upfront and monthly payment.
* Private Mortgage Insurance is available on conventional loans and will be provided by one of a few different companies, MGIC being one of the biggest.
* Many people think that VA loans don’t have mortgage insurance, but they do — it’s a one time charge at closing known as the “Funding Fee.”
For most people, having mortgage insurance is just a reality of life. They can either continue to give their entire payment to someone else to pay off real estate the renter will never have a stake in, or they can give a fraction of their payment over to the bank in order to be given a chance to establish some equity and build a little wealth, even if it’s in the form of the family home.
Since the pricing of your mortgage insurance is based largely on your outstanding mortgage balance, the payment will get smaller and smaller each year. You can expect to pay from a half percent to one percent of your total mortgage balance annually. So, for example, if you borrow $300,000 to buy your home, your mortgage insurance payment will be anywhere from $1,500 to $3,000, or $125 to $250 a month, the first year.
Getting Rid of Mortgage Insurance
Although mortgage insurance has its place, you don’t want to pay it forever. That’s where this section of the blog comes in! If you borrowed using an FHA program after the summer of 2013 and had less than 10 percent down, you probably have lifetime mortgage insurance. There’s no joking, this is not a great situation.
Usually, once you reach 78 percent loan to value, based either on the original appraisal or an updated one, the bank will drop your mortgage insurance. You may have to write a formal request, but it’s not that big of a deal. With these FHA products, the mortgage insurance is meant to stay for the entire life of the loan. So, your options to shed it are a little trickier. You can:
1. Avoid it entirely by using a piggyback loan. This is a combination mortgage made up of an 80 percent LTV conventional loan and a 15 percent LTV secondary loan. That secondary loan, however, can have a pretty high base interest rate and may have terms like an adjustable rate, a shorter amortization period or a prepayment penalty.
2. Bring more to closing. Hey, it’s not fun to crack your piggy bank or 401(k) to get extra money, but there are times when it makes sense. This is one of them. You always need somewhere to live, you might as well be building equity, too.
3. Refinance the monster. If you’ve noticed prices in your neighborhood rising dramatically or you’ve just been paying on your mortgage a while, it could pay to refinance your loan. Your Realtor can help you determine if it will be worthwhile to spend the money for a new appraisal and new loan paperwork. That’s also the downside, though. It can cost as much to refinance at the wrong time as you’re paying in mortgage insurance.
4. Sell your home. You know, it was a good home, but you’re sick to death of paying the mortgage insurance. You plan to take the sale proceeds to buy another place that you can put at least 10 percent down on to avoid further incidents of lifetime mortgage insurance.
Most of the time, if you compare your mortgage insurance to the alternatives, it’s not really that big of a deal to pay an extra percent for the ability to buy a home with five percent down, rather than when you finally have 20 percent down.
Keep in mind that although interest rates have been in the three to four percent zone for a while now, pre-bubble, they were between six and eight percent for a prime mortgage and no one blinked an eye. Effectively having a four to five — or even six — percent interest payment doesn’t have that much of a relative impact on your monthly housing costs.
Ready to Shed That Mortgage Insurance?
Log in to your HomeKeepr community, where you can meet bankers who can help you refinance, builders who can help you add instant equity to your home and, of course, your Realtor who can help you build your case if you’ve accumulated enough equity naturally to be rid of mortgage insurance entirely. Because the entire community is powered by recommendations, you know the people you’ll meet can be trusted to follow-through in a totally professional way..
RealtorMag has compiled information about the top reasons for delayed closings. This is why it’s important to not only work with a realtor you trust to navigate the local market for the best inspectors or title companies, but also to work with a lender that will actively help you ensure your financing comes through!
Seventy-three percent of home sales closed on time in October, but 25 percent of REALTORS® report a delay in getting to the settlement table, according to the latest REALTORS® Confidence Index, a survey based on responses from more than 3,500 real estate professionals. Only 2 percent say a contract was terminated completely.
What are the main problems encountered with delayed settlements? Real estate pros report the following:
- Issues related to obtaining financing: 32%
- Appraisal issues: 20%
- Home inspection/environmental issues: 16%
- Titling/deed issues: 11 percent
- Contingencies stated in the contract: 6%
Seventy-four percent of all contracts in October contained contingencies, most often for home inspections, appraisals, or financing.
Source: “REALTORS® Confidence Index Survey,” National Association of REALTORS® (October 2017)
By Craig Middleton
Over the last couple of years, rehabbing TV shows have become increasingly popular. In these shows, people fix or introduce new features to their homes while adding substantial market value to the house in the process. If you own a home, you can make many of these types of fixes or additions to increase the value of your home, too. You can also enjoy these changes for as long as you live there. Some of the best financial investments you can make to your home include:
Major Problem Fixes
The first high-return investment you should make in your home is to correct all major problems. If your home has serious issues, such as a broken air conditioner or a pipe leak, fixing those issues should be priority No. 1. Repairing or replacing the roof and siding can be a great investment, and potential buyers will generally factor in both the time and cost of having to fix it. Problems like these are always easier to fix when they’re small than later after having put them off.
Investing in the facade of a home can also bring great returns. Replacing garage doors is one of these investments. If your garage door looks new, your house will look new, as well. Painting the outside of your home is another good investment in the exterior. If you don’t want to take the time and money to fully repaint your home, pressure-washing can be a quick way to make the outside of your home look much more presentable.
Another good investment is to invest in a new entryway door. Like the garage door, the front door is important in making a good first impression on a potential buyer. Replacing your front door with a steel door can also make your home safer; increasing the safety of your home can be another great selling point for a potential buyer. Replacing windows is another way to make the outside of your home look better, as well as improve the home’s energy efficiency.
Fixes and additions to the inside of your home can be a great financial investment. A fresh coat of paint to the interior can add value by making the home look cleaner and brighter.
Update Bathroom, Kitchen and Appliances
Improving your home’s bathroom, particularly visible elements such as vanities, lighting, toilets and tubs, can create a high return. For bathroom improvements, you may obtain a better return on investment by spending your money on items in the bathroom that a potential buyer would see, instead of completely gutting the bathroom.
Kitchen remodels can be another way to significantly improve the value of your home. For kitchen remodels, you’ll want to spend money on functional items such as cabinets, drawers, pantry doors and appliances. Appliances such as refrigerators don’t have to be completely new, but they should keep up with current trends. Kitchen remodels should also suit the home. A kitchen that looks like it belongs in a $300,000 home will feel out of place in a $150,000 home.
Adding high-efficiency appliances to a home can modernize it and also save you money on electricity. Some states and cities have tax programs that could reduce your taxes if you buy and use high-efficiency appliances that require less electricity.
Overall, you should research the investment potential of your home before making any purchase. If you are trying to increase the value of your home, you need to make sure your fix or addition will increase the value of the home not only for you, but also to potential buyers.
This article is intended for informational purposes only and should not be construed as professional advice. The opinions expressed in this article are those of the author and do not necessarily reflect the position of RISMedia.
Realtor®Mag helps outline some of the pros and cons to flipping, renting or holding you home. (Source Realtor.com®)
Flip, Rent, or Hold: The Best Investment Option
What are the pros and cons of each type of real estate investment, and which ones are the most profitable? “Over the generations, real estate has proven itself to be a pretty good, time-tested investment,” says Eric Tyson, co-author of Real Estate Investing for Dummies. “Like investing in the stock market, people who follow some basic principles and buy and hold over long periods of time should do fairly well. But, of course, there’s no guarantee.”
Realtor.com® analyzed the five most common real estate investments and broke down the typical returns investors have received over the past five years. Here’s an overview:
1. Home Flips
- First half of 2017 gross returns: 48.6%
- 2014 gross returns: 45.8%
- 2012 gross returns: 44.8%
2. Rental Properties
- 2017 gross returns: 13%
- Three-year returns: 9.9%
- Five-year returns: 11.67%
- 2017 returns: 2.75%
- Three-year returns: 8.39%
- Five-year returns: 9.79%
4. Crowdfunding (pooling money to invest in apartment complexes, office buildings, or shopping centers)
- Year-to-date annualized returns: 8.72%
- Two-year returns: 8.89%
5. Home Appreciation
- One-year appreciation: 10%
- Three-year appreciation: 26.7%
- Five-year appreciation: 44.8%
Source: “Flip, Rent, or Hold: What’s the Best Path to Real Estate Riches?” realtor.com® (Sept. 25, 2017)
Whether you are looking for a new home or building your dream home reading a floor plan will be part of your daily life. Houzz helps explain how to read them.
Looking to save more money on your next new home? Kara Masterson from housecall outlines some really helpful ways to do so. If your interested in making your new home a mountain escape contact me and we can get you settled in Summit County and saving money! – Anne Skinner
Posted on Sep 30 2016 – 12:08pm by Housecall
By Kara Masterson
The process of buying a new home is stressful, even if you’ve already done it before. Looking at properties, researching areas, processing paperwork, etc., can all take a toll on your schedule and daily life. With all this going on, the last thing you should have to worry about is saving money when it actually comes time to buy the property. Use the following five tips for saving money on your next new home:
Always Use a Real Estate Agent
One of the biggest mistakes people make is trying to purchase a home without a licensed real estate agent. Places like Lisa Burridge & Associates Real Estate can be of immense help during the purchase process. Not only can an agent help with paperwork, but they’ll also know how to negotiate the price using fair market value, the actual condition of the home and other various factors.
Try Not to Pay PMI
Also known as private mortgage insurance, this is tacked on to your monthly payment if you buy a home with less than 20 percent. Some lenders will still offer standard mortgages with smaller down payments, but they’re increasingly hard to find. Save money by trying to save at least 20 percent for your home, or purchase a home that fits into a slightly smaller budget.
Reduce your Property Taxes
This is a very popular and often effective way to save money on a new home. If you think the assessed value of your home is too high, ask for a review. A different assessor will come out, perform an inspection and make any adjustments, if necessary. While this doesn’t always work, it’s worth a shot if you want to save as much money as possible.
Find Better Insurance Rates
Similar to auto insurance and health insurance, monthly property insurance premiums vary depending on the company that underwrites the policy. Spend time shopping around to different insurance companies until you find the one that offers an affordable rate that sufficiently covers your property.
Make Additional Monthly Payments
If your mortgage payment is low enough where you can consistently pay more each month, doing so could save you tens of thousands of dollars over the course of the mortgage and reduce the number of months you’ll need to pay.
There are a variety of methods consumers can use to save money, both upfront and during the course of their mortgage. To avoid financial issues in the future, always purchase a home that is within your set price range and never buy a home with zero money down; doing so will make it much harder for you to borrow against the property in the future.
Don Reynolds, a Senior Loan Officer (CMPS) at Envoy Mortgage, sent out this great email this month:
I hope this email finds you well.
I wanted to send you a friendly reminder to obtain a free copy of your credit report by going to AnnualCreditReport.com. This site is an initiative mandating that the 3 major credit reporting agencies allow consumers free access to their credit report once every 12 months. I accentuate the word “free” here because there are several other websites with similar names which are not free at all.
I highly recommend that you take advantage of AnnualCreditReport.com every year as one additional step in protecting yourself from identity theft and to make sure your credit is in good order for the next time you need a mortgage. As always, if you have any questions about this email, or just want to say “Hi”, I’m always here to serve you. Thanks again for your loyal business and referrals.
Don Reynolds | Senior Loan Officer, CMPS
NMLS: NMLS # 1217170 | LO State Lic:
10 year resident of Breckenridge, Colorado
“Serving Colorado and it’s Mountain Communities”
Envoy Mortgage, Mountain Regional Center
9035 Wadsworth Parkway Suite 2730
Westminister, CO 80021
(970) 455-1008 Office Phone
(970) 333-3409 Cell Phone
(970) 480-1001 Fax Phone
This is great advice not only as we head into tax season, but also in general if you are interested in buying a home or investing in a second property.
Tax season is around the corner and RealorMag is here to help with useful tips on how to avoid an audit.
6 IRS Audit Triggers and How to Avoid Them
Use these tips for keeping better track of your business expenses.
NOVEMBER 2016 | BY QUICKBOOKS SELF-EMPLOYED
The end of the calendar year is approaching, with another tax season around the corner. For real estate agents, this can be a time fraught with worry. Your tax return is probably more complex than your neighbors’ returns. Maybe you haven’t done such a great job of keeping track of your business expenses — or separating them from your personal expenses. Does that make you vulnerable to an IRS audit? It may if you’ve done anything to trigger a warning for the IRS. Here are 6 triggers to avoid:
1. Failure to file quarterly taxes. Very likely, your neighbors’ employer withholds federal, state, and FICA (Social Security and Medicare) taxes for them. It’s your job to set aside the money for your own taxes and pay the IRS (and possibly your state) each quarter. Not paying your quarterly taxes, or payments that are late or too small, can result in penalties and additional interest owed. It can also raise a red flag for the IRS. Use the IRS’s 1040 ES to determine the appropriate amount to withhold.
2. Unreasonable deductions. The IRS knows from experience that sole proprietors aim to minimize their earnings and maximize their deductions. But try to deduct expenses that aren’t necessary for your business — like declaring the full cost of your backyard pool installation as a business expense — and you may raise a red flag. Expense only what you legitimately use for your business, and keep current on what the law allows (such as the $25 limit on deductions for business gifts).
3. An unlikely home office deduction. Your home office deduction should be based on the percentage of your home used exclusively for the purpose of conducting your business. This means your dedicated space may not be used for other purposes, such as a TV room for your kids. If you do have a dedicated space, though, you can typically deduct insurance, repairs, real estate tax and utilities. If your home office space is 300 square feet and your entire home is 3,000 square feet, for example, the percentage of the deduction you can take is 10 percent.
You may want to take advantage of the IRS’ new simplified method for home office deductions. This method usually results in fewer errors, thus reducing the chance of an audit.
4. Deductions that seem unlikely for your income level. Too many deductions with too little income is a red flag to the IRS. In fact, in 2014, the percentage rate of audits for those who reported no adjusted gross income was a whopping 5.26 percent compared to the 0.85 percent average, according to an IRS report. Why were there so many audits? When the IRS sees this, they wonder if you have inflated your deductions so that you have no taxable income. You shouldn’t take any deductions that you can’t back up with a receipt. Many agents use receipt capturing phone apps like QuickBooks Self-Employed.
On the same point, don’t inflate your charitable deductions. As with anything your buy for your business, keep records of all receipts for charitable contributions. The IRS has limits on how much you can deduct based on your adjusted gross income, so ensure your reported donations don’t go over the allowable limit.
5. Sloppy mileage reporting. You can deduct actual car expenses or mileage to the extent you use the car for business. Most agents take advantage of the IRS standard mileage rate, a fixed rate that takes into account variable costs of operating a vehicle such as insurance, repairs and depreciation, instead of tracking and deducting actual costs. Beginning Jan. 1, 2015, the standard mileage rates are 57.5 cents per mile for business miles driven, up from 56 cents in 2014. So what triggers an audit in this case? Not tracking your mileage or grossly over-representing it as it relates to your adjusted income. Say you earned $15,000 last year and reported driving 15,000 miles, but this year you earn $10,000 and report driving 40,000 miles. The IRS might flag the deduction. Even if you haven’t been tracking mileage, it’s never too late to start. Consider using an IRS-compliant phone app, such as the mileage tracking feature in QuickBooks Self-Employed.
6. Earning a lot of money. The odds of being audited are low, to be sure. But as your income rises so does your chance of an audit. In 2014, if your income tops $200,000, your chance of being audited doubles from 0.85 percent to 1.75 percent, according to the IRS report. As you earn more income, it’s even more critical for you to keep meticulous records. You may want to hire a tax accountant or use small business software to keep records and claim the allowable deductions. You also may want to talk with a real estate attorney about turning your sole proprietorship into an LLC for tax and liability
I just had the opportunity to read a great article in Realtor Mag that stated about 51% of buyer’s nation wide identify themselves as a ‘First Time Home Buyer’. This is up from 35% just about a year ago. However, 9% of buyers say they can’t qualify for a mortgage and 25% of buyers say they don’t have enough money for a down payment.
Buying your first home can be daunting, but there are several things you can do to get prepared for the process. The first thing is to get your credit in order. There are tips all over the internet, but one of the most important things is to pay your bills on time. Your payment history comprises almost 35% of your FICO score. The second piece of advice is to work on your debt to income ratio. The lower your monthly payments (credit card bills, car payments, student loan payments, etc), the more you are usually eligible to borrow. Pay some of your debt off or refinance to get a lower monthly payment.
Last but not least, start saving! There are plenty of programs out there that do not require you to have 20%. There are even some loans that we have available here in the mountain region that really only require you to have enough money to put down an earnest money deposit, which is typically 1-2% of the purchase price. However, having more money to put down can allow you to have lower monthly payments or get into a more expensive home. For more tips or tricks, feel free to reach out to me!
Last August, about 35 percent of home buyers identified themselves as first-time buyers. Flash-forward one year later, the share of buyers identifying themselves as first-timers has soared to 51 percent, according to research by realtor.com®.
As more first-time buyers re-emerge, new challenges – mostly financial – are becoming more paramount for the market, notes Jonathan Smoke, realtor.com®’s chief economist, in his latest column.
For example, about 9 percent of buyers are now reporting having difficulty qualifying for a mortgage, up from 5.6 percent a year ago. The number of buyers saying they need to improve their credit score has since doubled, increasing from 9.7 percent of all buyers in 2015 to 19.5 percent this August. What’s more, the percentage of buyers who say they don’t have enough funds for a down payment has increased from 16 percent a year ago to 25 percent this year.
“The market has seen growth despite higher prices in part because of pent-up demand from very qualified buyers who were able to meet the challenging mortgage qualifications that are the norm these days,” Smoke says. “A key question for the months ahead is whether a higher share of first-time buyers is ready or capable of qualifying for a loan and closing on a home.”
Smoke offers the following financial tips for first-time buyers who want to make a move sooner rather than later:
- Get your finances in order: Know your FICO score and take efforts to get it above 700 to improve your chances of qualifying for financing and securing a better interest rate. Also, start collecting financial records, like recent bank and financial statements, the past two years of income tax filings, and pay stubs.
- Know your down payment: The average down payment for 2016 is 11 percent nationwide. That can vary dramatically, however. Several down payment assistance programs also are available to help.
- Get pre-approved: Getting pre-approved will prove you do have the finances in place to qualify for a mortgage and purchase a home. “A pre-approval letter as part of an offer will communicate to the seller that you have the ability to close,” Smoke notes.
Source: “First-Time Home Buyers Come Out in Force – But Face New Challenges,” realtor.com® (Sept. 8, 2016)