home finance

What Are the Fees to Get a Reverse Mortgage?

By DEBORAH KEARNS

A reverse mortgage is a special type of home loan that allows homeowners 62 and older who have paid off all or most of their mortgage to withdraw some of their home’s equity and convert it into cash.

When evaluating the costs of a reverse mortgage against other potential retirement strategies, you’ll want to look at Home Equity Conversion Mortgages, or HECMs, in particular. HECMs account for nearly all reverse mortgage loans in the U.S. and are insured by the Federal Housing Administration.

Reverse mortgages differ from other types of home equity loans in a number of ways, one of which is higher costs. Fees will include mortgage insurance premiums, both initial and annual; third-party fees for closing costs; a loan origination fee, capped at $6,000; and a loan servicing fee.

It’s also worth noting that reverse mortgage rates tend to be higher than traditional home loans, and will vary depending on how much you borrow, how you withdraw your proceeds, the home’s appraised value and your credit profile, among other factors.

To get to the bottom of reverse mortgage costs, we asked two experts to weigh in: Dan Hultquist, co-chair of the education committee at the National Reverse Mortgage Lenders Association, and Paul Fiore, executive vice president of retail lending at American Advisors Group.

Here are their insights on HECM fees, broken down by upfront and ongoing costs:

Upfront costs

Out-of-pocket HECM counseling fee: In order to get a reverse mortgage, borrowers must undergo mandatory counseling with a third-party HECM counselor approved by the U.S. Department of Housing and Urban Development. The fee is typically around $125, according to the Consumer Financial Protection Bureau. The counseling addresses the lending process, benefits, drawbacks and eligibility requirements involved in a reverse mortgage. This fee cannot be rolled into your loan and must be paid directly to the counseling agency in most cases.

Appraisal fees: Professional home appraisals are always required for a HECM and cost about $300 to $500, on average, Hultquist says. Appraisals can be more (or less) expensive depending on the size, age and condition of your home, he adds. This is a fee you’ll need to pay upfront to an appraisal management company.

Third-party closing costs: Expect to pay typical mortgage fees for loan recording, credit checks, title insurance and so on. Ask to see a detailed breakdown of each fee, which should be included in your closing disclosure from your lender, Hultquist says. Keep in mind that you can shop for your own title company (if you don’t want to use your lender’s suggestion) to perform the title search and provide title insurance.

Initial mortgage insurance premium: You will be charged an initial mortgage insurance premium at closing. The initial MIP due at closing will be 0.5% or 2.5%; the percentage is determined by how you choose to receive your reverse loan proceeds (line of credit versus a lump sum, for example), according to HUD.

Loan origination fee: Many lenders charge a loan origination fee to process, underwrite and close your loan, and a HECM is no exception. Expect to pay either $2,500 or 2% of the first $200,000 of your home’s appraised value (whichever is greater), Fiore says. Additionally, you’ll pay 1% of the amount over $200,000. Loan origination fees were the main barrier to obtaining a reverse mortgage in the past, but they’ve come down in recent years, Fiore says, and are now capped at $6,000. Although HECM origination fees can be rolled into your loan, that’s still cutting into your loan proceeds, he notes.

Ongoing costs

Annual mortgage insurance premiums: Over the life of the loan, you’ll pay an annual MIP that equals 1.25% of the outstanding mortgage balance, according to HUD. You’ll also have to pay an FHA mortgage insurance premium, which acts as collateral to ensure you receive loan advances. You can roll the MIP costs into your reverse loan, which will accrue interest for the life of the loan.

Loan servicing fees: Lenders can charge a monthly servicing fee of up to $30 if your reverse mortgage loan has an interest rate that adjusts annually, and no more than $35 monthly if the interest rate adjusts on a monthly basis. When you close on your reverse mortgage, your lender will deduct the servicing fee cost from your available loan funds and add it to your loan balance each month, which will increase your balance over time. Also, your lender can add the cost of its servicing fee into your interest rate, which will increase your monthly loan balance.

Long-term property costs: When you apply for a reverse mortgage, the FHA requires that you show proof of enough income (without the proceeds from your reverse mortgage) to continue paying essential items such as your homeowners’ insurance premiums, annual property taxes, homeowners’ association dues and hazard insurance premiums (if applicable to your area; these can be steep). If you have any liens on your property because you haven’t paid property taxes or HOA fees, for example, you likely won’t qualify for a reverse mortgage.

Next steps to getting a reverse mortgage

The old way of thinking about reverse mortgages as a “last resort” has shifted in recent years, Fiore says. You have multiple options to tap into your home’s equity with a reverse mortgage while living in the house for years to come.

“A lot of people could really benefit from it, but they need to find someone who knows the products,” Fiore says, adding that anyone thinking about a reverse mortgage should search the NRMLA database for a member lender to work with.

If you think a reverse mortgage might be right for you, contact a HECM counselor to enroll in counseling, or call HUD toll-free at 800-569-4287 to learn more. If you decide to apply for a reverse mortgage, contact an FHA-approved lender that can help.

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First-Time Home Buyers On: The Finances

By Adrienne Breaux

 

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(Image credit: Reagen Taylor )

How long do you need to save up for a down payment? How long does it take to get approved for a mortgage? Buying a home—especially for the first time—is a learning process, made all the more intense thanks to the fact that large sums of money are also involved. So I asked real-life first-time home buyers Tiffany and Alan Goldsteinto help illuminate some of the money-related concerns of buying a home.

Saving starts with getting a grasp on what you’re making and what you’re spending.

Early on in our marriage, we made a habit of sitting down and making a budget. How much are we going to make each month after taxes? What known expenses do we have (i.e. rent, car payments, charitable giving etc.)? What is our targeted spend for things like groceries, clothing, eating out, and various luxuries? Everything after that would go towards savings and a down payment. After a few tweaks, we had a plan to have an “emergency fund” and a targeted down payment in about three years.

The next step was following through, but also reevaluating and adjusting as we went along. Want to take a trip? That’s fine — we would go add the expense to our plan and see how much longer it would take for us to meet our home ownership goal and decide if we were comfortable with that.

Spend less going out to eat or pass on that awesome shoe sale? At the end of the month we could see how much closer those decisions brought us to meeting our goal. Getting organized put us in control and took the fear out of making decisions. Ultimately, we compared ourselves to our plan each month and were able to stay on track.

→ Where you put your savings is just as important

On a side-note, it was equally important to decide where we wanted to put our savings. We decided to put the money for our down payment in a high interest savings account through a different bank than the one we used for our checking account. This gave us better growth prospects than a checking account, took away the risk that it would drop with the stock market the day before closing, and put it out of sight while still leaving it accessible in case of a major emergency. We also took advantage of a credit card that provided 2% cash back on all purchases. Since we were closely monitoring our expenses and paying off our card each month, these became ways to reach our down payment goal faster at no additional cost.

Get pre-approved

We did get pre-approved for a loan long before we were even serious about looking for a home. As we considered getting pre-approval, we were nervous about how the whole financing process worked. We asked around and were recommended a mortgage loan officer who met us on the weekend, talked through the entire process, and gave us advice about what we should be doing in anticipation of getting serious. When we finally made the decision to buy this house, we went back to him and he actually recommended we reach out to other people to test his rates. He ultimately matched the best offer we found.

→ Be ready to move quickly depending on the housing market

The Austin housing market is pretty aggressive right now with finite inventory and a lot of demand. This doesn’t leave a lot of wiggle room to negotiate. Our offer was accepted two days after we put it in. The house had only been listed for four days and there wound up being three backup bids after they accepted ours. That said, we did go through a process with our realtor to develop a list of post-close items we would need to address with the house and asked the seller for related concessions off of the purchase price. They were amenable, so it was definitely worth the exercise.

→ Between the offer being accepted and closing, there’s still a lot to do

The offer was accepted in late December and we closed in February, so the overall process took about two months. To be honest, we spent most of that time focused on scheduling the necessary vendors required for closing (inspector, bank appraiser, etc.), as well as looking for a contractor, budgeting renovations, and aggregating furniture and accessory lists. Overall, it was more along the lines of dreaming about paint colors…and doors…and light fixtures…in the middle of the work week.

Where House Flippers Can Get Financing

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Chris Gash

Until recently, home flippers—investors who buy houses to improve and resell for a quick profit—had few options for financing. Now, traditional lenders and crowdfunding firms are increasingly willing to put up the money.

Luxury-home flips can be lucrative, but risky. “With one flip, you could make the same amount that you could with 10 deals of a lower-end property,” says Daren Blomquist, senior vice president of Attom Data Solutions, an Irvine, Calif.-based real-estate data provider. “But you’re putting many more eggs in one basket and counting on that one property to deliver.”

Jeff Pintar, founder of Pintar Investment Co. in San Juan Capistrano, Calif., is one of the most active luxury flippers in the nation, according to Attom Data. Last year, Mr. Pintar says he purchased 65 homes priced at $500,000 or more, and he’s averaging returns on equity of about 12% to 15% per flip.

Mr. Pintar, 47, says he uses multiple sources for financing. He has established business lines of credit at local banks with about a 5% interest rate that he can draw against to acquire homes. He also works with private-investment companies, which he says charge higher rates but are able to respond quickly. “The banks have trouble keeping up with the pace that we need,” says Mr. Pintar.

Many small-scale home flippers still rely on so-called hard-money loans—short-term, high-interest loans provided by private investors. David Dweck, a hard-money lender from Boca Raton, Fla., will finance up to 60% of the estimated after-repair value of homes purchased for over $500,000. That means if a house costs $600,000 but will be worth $750,000 after repairs, Mr. Dweck will lend up to $450,000, with the flipper putting down $150,000 in cash.

“Most people can’t walk into a bank and get a loan for one of these deals,” says Mr. Dweck, who also flips homes. His terms: an interest rate of between 11% and 14%, with two to four points—a point is equal to 1% of the mortgage amount—and up to one year to repay the loan.

Another source of capital for luxury flippers: crowdfunding, where the funds to finance a deal are raised through the contributions of a large number of people, usually via the internet. “The biggest benefit we offer is flexibility and a national focus,” says Nav Athwal, chief executive officer of RealtyShares, a San Francisco-based company that finances investment properties in 35 states. Funds come from more than 38,000 high-net-worth individuals who invest in a specific transaction for as little as $5,000.

RealtyShares funds up to 70% of the estimated after-repair value of a property in as little as 10 days. Interest rates vary from 8% to 11%, with the average loan term on luxury flips 12 months. RealtyShares also does preferred-equity deals, where they take a partnership interest in the property and benefit from both the interest paid and the potential upside of the transaction.

Jumbo Jungle Tips

Here are some things luxury flippers should consider.

The numbers are critical. Make sure your budget is realistic and your contractor has a record of finishing on time. Luxury flips take more time than lower-cost ones—an average of 208 days, compared with 181 days for all flips, according to Attom Data. A delay of just days can bring additional costs that will eat into profits, so make sure your budget includes reserves for contingencies, such as delays in getting construction permits.

Details count. Luxury buyers are demanding when it comes to high-end finishes. Hire a good designer and pay attention to the details when renovating a property. Factor in the cost of luxury upgrades a buyer will expect.

Beware of defaulting. Like banks, hard-money lenders and crowdfunders secure their loans with a mortgage on the property you’re flipping. If you default, they can foreclose on that mortgage. They may also report your failure to pay to the credit bureaus, which can affect your credit score.

4 Ways to Survive Future Real Estate Market Crashes

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BY LARRY ALTON

The real estate market may be very healthy compared to what it was five years ago, but that doesn’t mean we’re in some sort of eternal bliss. There will be rough patches ahead — and likely a couple more crashes in your lifetime — but how can you as an investor safeguard yourself against them?

4 Ways to Protect Yourself

“Historically, economic activity rises and falls in marked business cycles,” senior market strategist Susan Green explains. “Periods of recession appear and recede approximately every 5-10 years.” Thus, it’s reasonable to expect that we’ll encounter some economic issues in the next few years. They may not be as dramatic as what happened in 2008, but reverberations will likely be felt in the real estate market.

Luckily, there are a few ways you can protect yourself.

1. Buy properties that rent below the median.

You have to think one step ahead of the market. While it’s a good rule of thumb to have the best property on the street, you don’t want to be stuck charging a rent that’s higher than the median in the area. This may be fine during times when the market is healthy, but you’ll get swallowed up when the market falters.

People still need a place to live in a down market, but they’re naturally going to gravitate towards what they can afford. By purchasing properties that rent below the median, you can maintain steady occupancy rates, regardless of what’s happening in the larger economy.

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2. Be the best landlord possible.

It pays to be a good person. When you’re a likeable landlord who works with people, deals with maintenance issues in a swift manner, and charges affordable rent, people are more likely to stick with you when the market turns.

Related: How to Make Money in Real Estate — Whether You’re in an Up OR Down Market

On the contrary, if you’re a jerk and tenants are just renting from you because you were the only option at the time, they’re going to bolt the moment they can. Focus on building a strong reputation now so that you’re better equipped to survive a potential crash.

3. Be realistic with cash flow numbers.

When purchasing a new property, it doesn’t do anyone any favors to plug in vague numbers to determine monthly cash flow. Be conservative and honest.

“You should sit down at the computer, open a spreadsheet, and factor in all your expenses,” real estate investor Jason Hanson says. “What is insurance going to cost? Is there an HOA fee on the house? Are you getting a home warranty? You want to know down to the penny what your cash flow will be on a property.”

When the market does eventually take a downturn and rental rates decrease, you’ll at least know that you have some play in your numbers. On the other hand, if you were liberal with your computations, you’ll find yourself underwater in very little time.

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4. Pay down mortgages when possible.

There’s always the question of whether it makes more sense to pay down on an existing mortgage or put that money into a new piece of real estate. While there are schools of thought that apply to both, consider paying down rental property mortgages when you can. This gives you some leverage if the market crashes and you have difficulty making payments.

Related: The Best and Worst Markets for Residential Real Estate Investors, 2016

 

Never Put All of Your Eggs in the Same Basket

At the end of the day, financial diversification is your friend. Real estate may be one of the more stable and appreciation-friendly investments you can make, but don’t put everything you have into real estate. Spread yourself out a bit and diversify as much as possible. This mitigates your risk and provides more tolerance in a down market.

Sanity Check: 5 Numbers to Consider Before You Buy a House

by Anand Chokkavelu

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IMAGE SOURCE: GETTY IMAGES.

On the life decision scale, buying a house is often closer to marriage than it is to the purchase of a car. It can be one of the best decisions you make or something you bitterly curse forevermore.

And like marriage, the rent vs. buy decision is unique to the individual, requires you to try to predict your life for the next few decades, and depends on too many factors to summarize in one article.

But fortunately, with housing there are five fairly simple numbers we can look at to help suss out when buying a home is clearly a bad financial idea. I’ve rank-ordered them, starting with…

1.) Housing (and savings) as a percentage of your income

The first and most important metric to check is whether you can afford it. Duh, right? But believe it or not, too many people mess this up. Instead of thoughtfully considering what they can afford for themselves, they go with whatever their banker tells them they’re approved for. Or blindly buy something comparable to a friend or rival. Big mistake!

What you’ll mostly see online and from bankers is a rule of thumb to keep your housing costs below 30% of your gross income — basically, what your employer reports on your W-2.

Let’s say your job pays you $50,000 a year, or $4,167 a month, and you expect to make at least that much in future years. Using 30%, that means your monthly mortgage and any home equity loans (or rent if you don’t own), taxes, insurance, condo or homeowners’ association fees, and utilities should add up to $1,250 or less.

For context, about half of renters and a third of homeowners with a mortgage fail to get to 30% or less. But please don’t use “Tommy’s mom let him spend 50% of his earnings on a condo” as an excuse to overspend — remember, WAY too many people are pretty darn awful with their money. That’s why the majority of folks who receive Social Security depend on it (vs. income from savings) as their primary source of income.

So if you value your financial independence, get as far under 30% as possible. Under 20% is a tough goal in many housing markets, but if you can achieve that with a 30-year fixed mortgage, you’re probably in really good shape unless your income takes an unexpected hit.

Looking at it another way, here’s your gut check: How much of your gross income are you saving?

The average American saves less than 5% of gross income. The median is likely much worse given that 41% of people don’t even have a $500 emergency fund and that the millennial generation as a whole has a negative savings rate(!).

What should you be saving? At a bare bones minimum, 10% of your gross income (ideally not including principal payments on your mortgage). A gold star if you can get to 20%. Using that $50,000 a year income, 10% puts you at $416 a month and 20% puts you at $833 a month.

If you’re buying a house that has you saving less than 10%, you’re either paying too much for the house or you need to reassess other expenses like transportation, vacations, food, child care, etc. Alternatively, you can think about how you can increase your income without proportionally increasing your expenses. That could include sharing the house with a renter.

Rules of thumb necessarily abstract away from your personal situation. A single person in their 20’s is treated the same as a couple in their 40’s with three kids. And there will always be compelling-sounding, I’m-a-special-flower excuses to put off saving till tomorrow. Regardless, though, living below your means should be an always-on phenomenon and the 10% savings minimum holds. That’s even more so the longer you wait.

 

2.) Price-to-rent ratio

While your housing costs as a percentage of your income helps you figure out if you’re spending too much on housing, it doesn’t tell you whether you should be renting or buying.

The price-to-rent ratio helps here.

Simply take the price of the house you’re looking at and divide it by what you could rent it for on an annual basis (Sites like Zillow can help you get a ballpark estimate quickly).

If a house costs $200,000 to buy and you could rent it for $12,000 annually ($1,000 a month), the price-to-rent ratio is 16.7.

Put another way, it would take 16.7 years’ worth of rent to buy the house in cash today.

I used this example because monetarily that 16.7 figure is roughly the indifference point between renting and buying. When you get much lower than 16.7, buying becomes more attractive. When you get much higher than 16.7, renting becomes more attractive.

Don’t get too carried away with the decimal places, though. There are many more financial and non-financial factors to consider, so 18.2 doesn’t mean an automatic rent and 13.7 isn’t an automatic buy. But at some point, the numbers get compelling. For instance, at 10 times rent, I’d be very tilted toward buying. At 25 times rent, I’d be very biased toward renting.

What might surprise you is the variability of the price-to-rent ratio, both across the nation and within metropolitan areas.

SmartAsset recently compiled the ratio by U.S. city. San Francisco tops the list at an otherworldly average of 45.9, over seven times higher than Detroit at 6.3.

If you live in high price-to-rent cities like San Francisco, New York, or my home area of Washington, DC, extreme caution is warranted if you choose to buy. Fortunately, even in these areas, there’s a lot of variability. In these “sellers’ markets,” you may have to use bargain hunting tactics — trolling less desirable areas, foreclosures/short sales, extreme patience — just to get to a somewhat reasonable price. Or you may be better off renting. Nothing wrong with that… and don’t let anyone socially pressure you otherwise.

3.) Size of your down payment

Mortgage is just a fancy name for debt — usually the largest debt we’ll take on in our lives. Fortunately, the larger the down payment, the less scary that debt becomes – for both you and your lender.

That’s why lenders require you to pay private mortgage insurance (PMI) of as much as 1.5% of your original loan amount per year until your skin in the game (i.e. equity) reaches 20%.

Not paying that extra fee alone is reason enough to do a 20% down payment. But also remember that you’re committing to 360 months of payments, so saving up 20% of the price of the house helps ensure you have the discipline to see it through, is a check against buying beyond your means, and is just a smart, conservative thing to do.

In fact, in an ideal scenario, you save at least 30% of the price of the house — 20% for the down payment and 10% as a cushion against unexpected expenses. A leaking roof or an unexpected electrical problem can eat into that cushion quickly.

On a $200,000 house, that means saving $40,000 for a down payment and an additional $20,000 as a cushion beyond your regular emergency fund.

If you think a 20% down payment plus a 10% emergency cushion is too onerous, consider that in the early 1900’s, down payments of 50% were commonplace. That’s $100,000 on a $200,000 house.

I’ll end this section with one real-world consideration that muddies the waters a bit. Folks who have a hard time saving for a down payment probably are poor savers in general. Those are also people who are often saved in retirement by the home equity they’ve built up for decades.

What this means from a practical standpoint for folks who have a hard time saving is that if you limit your housing costs to a low percentage of your income and ensure that your price-to-rent ratio is also low, it may make sense for you to buy with a lower-than-recommended down payment. You’ll want to make darn sure that you have a good 10% emergency cushion in any case, though. It doesn’t do any good to “buy” a house only to have the bank take it back from you in a few years.

4.) What’s the least amount of time you’re committed to staying in the house?

The longer you stay in a house, the more advantageous it is versus renting.

If you stay the full term, you’re locking in your mortgage payment against 30 years’ worth of inflation.

Meanwhile, every time you sell a house, you’re paying something on the order of 6% of the house price to real estate agents and then another 2% to 5% in closing costs. Not to mention any moving costs and potential double mortgage payments during the transition.

All-in, we’re talking something in the neighborhood of 10%, so $20,000 on a $200,000 house. That’s roughly as much as a late-model used car, five to 10 fantastic vacations, or maxing out your 401(k) for a year.

Also, on a 30-year fixed mortgage, you’re mostly paying interest in the early years. When you get a new mortgage or refinance, you reset the timeline.

For these reasons, a lot of people use five years as the minimum you’d want to stay in a house you buy. That’s not an awful rule of thumb, but I’d likely push for an even longer time period.

Let’s say a couple I’m friends with is in the market for a house. Let’s say further that they know for a fact they are going to sell the house in five years — either because it’s a starter home or otherwise. Unless the price-to-rent ratio is amazingly low, I’d ask them to really think about whether the costs, risks, and pain of owning a house are worth it versus just saving up more money to buy when they’re ready to fully commit.

At 10 years, I get much more bullish on buying.

There is an exception and a caveat, though.

The exception: If you are willing and able to rent out your house to cover your mortgage, insurance, taxes, homeowner fees, maintenance, and any property management costs, it could make sense to buy at five years or even fewer.

The caveat: We’re all pretty bad at predicting our futures, even five or 10 years hence. Just be as honest as possible with yourself based on your history and really consider worst-case scenarios.

5.) Your credit score

Here’s one a lot of people don’t consider. For obvious reasons, lenders give lower interest rates to people who have a strong history of paying back what they owe. On a mortgage, the difference can currently be as much as 1.5%.

On a $200,000 house with 20% down, that means someone with a credit score of 740 or higher (850 maximum) could save about $140 a month versus someone with a low-but-approvable credit score. $140 a month may or may not sound like a lot to you, but that’s a whopping $50,000 discount over the life of a 30-year mortgage.

For that reason, it may make sense to delay a home purchase until you can get your credit score to 740 or above. On a more game theory note, if you’ve had poor credit in the past, you may want to prove to yourself that you can handle a mortgage. Living with foreclosure constantly hanging over your head isn’t the American Dream.

Good luck!

Could you come out ahead buying a house that costs you 50% of your gross income, that’s 30 times a comparable annual rent, and that sports a 5% down payment? Absolutely. And you could win a million-dollar game of Russian roulette, too.

But I wouldn’t advise it.

Getting safely on the right side of each of the five numbers we’ve discussed above — especially the first two — will get you far in disaster-proofing your housing decision.

I wish you all the best as you weigh the options. If any of the above helped you in your housing decision or if anything above could be better, I’d love to hear from you on Twitter.

 

 

 

How to Flip a House (and How Much Money You Can Make)

By Margaret Heidenry

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Stephan Zabel/iStock

Ah, the house-flipping dream. Buy a run-down home, fix it up, put it on the market—and profit, big-time! Flipping may have hit its peak in the bubble years leading up to the 2007 housing market crash, but this is one dream that definitely hasn’t died. However, just because you’ve watched a lot of HGTV doesn’t mean that you know how to flip a house.

Earlier this year, RealtyTrac reported that homes flipped in the first quarter of 2016 had yielded the highest average gross flipping profit—the difference between the purchase price and the flipped price, not counting renovation expenses—in 10 years. The magic number: $58,250.

But just how much money you make will hinge on taking the right approach—so be sure to check out these pointers on how to flip a house. For real.

How to find a worthy house to flip

“Stick with the age-old adage of buying the cheapest home in the nicest neighborhood,” says Eric Workman, senior vice president of marketing at Chicago-based Renovo Financial, a private lender specializing in the house-flipping space. But don’t pick just any old shack—look for a home with  “good bones,” Workman says. Translation: one that’s structurally sound, has a decent roof, newer windows, and an HVAC system that’s less than 10 years old, as well as modern electrical and plumbing.

Next, a flip should need only cosmetic changes such as new cabinets, countertops, flooring, and paint.

“These renovations can usually be done without the delays of permits, plus the upgrade costs will be relatively fixed, helping to eliminate unforeseen expenses,” says Workman. And always look for homes in neighborhoods close to public transportation or in good school districts as they tend to sell quickly.

How much should you pay for a house you’ll flip?

Your goal should be to make a 10% to 20% return on your investment. So how do you crunch the numbers? For starters, find out what your fixer-upper will sell for once you’re done with it by looking at the sales price for similarly sized homes in the same neighborhood that are move-in ready, says broker Bobby Curtis at Living Room Realty in Portland, OR.

Let’s say, for instance, that homes in tip-top shape in the area sell for $300,000. To get a ballpark figure for a run-down house, cut that price by three-quarters (75% of $300,000 = $225,000). Then subtract the cost of repairs (if repairs cost $30,000, that would be $225,000 – $30,000 = $195,000). That’s about the most you should pay for your flipped house without cutting too much into your profits.

As for financing a flip, it isn’t that different from buying a regular home. You’ll either pay cash or take out a mortgage—just consider going for a 10- or 15-year mortgage, which will offer a lower rate. After all, odds are you won’t own this home for long anyway.

How fast should you flip?

Don’t kill yourself (or more accurately, flip yourself into an early grave) to rush the flip. But also note, you don’t want this house sitting around for long. Curtis recommends looking for a place that will take four to six weeks to renovate. A short deadline ensures you’ll buy and sell the house in that same housing market. Plus, owning a house for less than two months keeps costs like interest and taxes at a minimum.

This means that finding contractors who do quality work quickly is key to your success. For that reason, it’s crucial that you do your due diligence before you hire one: Make sure to meet with at least a few contractors, get their license number, references, and an estimate of what they think renovations will costs. Keep an eye out for red flags—e.g., contractors who ask for money upfront or in cash aren’t playing by the usual rules, and might be trying to take your money and run.

That said, you should accept the fact that the cost of repairs will almost always run over. As such, “you absolutely, positively must overbudget” so you have a financial cushion for those inevitable cost overruns, says Joseph Chiera of The Realty Cousins of Poughkeepsie, NY. Design backups will also help with budget shortcomings.

“If you’re planning to use high-end hardwood flooring priced at $5 per square foot, have a nice backup at $2 per square foot.” Here’s a list of renovations and how much they pay off at resale.

 

Mortgage Refinance Options for People With Bad Credit

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Low mortgage interest rates have created a great opportunity for many homeowners to refinance their mortgages, resulting in lower monthly payments or extra cash to pay off debts.

But what about people who have low credit scores and may have trouble qualifying for a new loan? We asked Roslyn Lash, an accredited financial counselor at Youth Smart Financial Education Services and a member of NerdWallet’s Ask an Advisor network, for tips on what consumers can do if they would like to refinance their mortgages but don’t have sparkling credit.

What can people with bad credit do to take advantage of low interest rates?

The options are limited. The 2008 housing crisis was a result of exceptions where loans were provided to clients that otherwise could not afford or qualify for a loan. The loans usually had inflated rates or were otherwise predatory. Since then, lending standards have tightened up considerably.

You may not be totally out of luck, though. The Federal Housing Administration has programs for people with less-than-desirable credit that include mortgage interest rates lower than that of conventional loans. To qualify, the applicant’s overall credit history must not consistently reflect late payments or delinquencies. Therefore, someone with judgments or delinquent federal loans such as tax liens and student loans may not qualify. A low credit score resulting from periodic delinquencies or a collection could still qualify, however.

What are the potential disadvantages of this option?

FHA loans require an Upfront Mortgage Insurance Premium. This amount is equal to 1.75% of the loan amount. In addition, a monthly mortgage insurance premium must be paid as well. The amount of the monthly premium will depend on the loan amount. When applying for an FHA loan, ask questions regarding the conditions in which these premiums can be reduced, refunded or canceled. For people already paying a monthly mortgage insurance premium, it’s possible that a refinance may actually eliminate it.

Are there any other steps people can take to improve their chances of being approved?

It’s important to show patterns of good credit, even if there are some negative marks on your credit record. A few delinquencies can be explained and won’t necessarily destroy your chances, especially if they are due to temporary drops in income or rate adjustments that increased your payment. In fact, even a bankruptcy will not automatically disqualify applicants. That being said, it’s important to re-establish your credit by having as many good lines of credit as possible.

It’s also important to minimize your debt and to be sure that your mortgage is affordable (no more than 30% of your income). An even better way to calculate affordability is to take into account not just housing debt but all debt — that means housing debt including mortgage, insurance, taxes and homeowners dues plus monthly debts such as credit cards and car payments. Using this kind of analysis, your overall debt should be no more than 43% of your gross income.

For example, if your monthly income is $2,850 and your monthly debt (including mortgage) is $1,150, you would still be in good shape to afford a mortgage, because your overall debt-to-income ratio is 40.35% ($1,150/$2,850). Please note that qualifying ratios are subject to change, and you should check with your lender.

14 Best Remodeling & Home Improvement Ideas To Increase Your Home’s Value

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If you’re looking to improve your home, of course you have to consider several things. First of all, will this improvement satisfy and fulfill a need? It’s important that you answer it truthfully because home improvements are generally expensive so at least make sure you are aware of your needs. In addition, will you be able to afford it? There are a lot of home improvement ideas, some affordable and some are expensive. The good thing is depending on your need, there’s usually an affordable and more expensive option.

Another Factor to Consider

The factors listed above are for the present. As a homeowner, you also have to consider the future. In this case, you have to consider how this improvement is going to help you in the future.

It’s not just about making sure that this investment will last a very long time. Hiring a reliable contractor can help make sure of that. You also have to consider how it’s going to affect your home’s resale value. This is true even if you’re not really planning on selling your home. Who knows what the future holds?

If you’re going to invest in a home improvement project, at least make sure that it will help increase your home’s resale value. This way, you’ll be able to recoup a good part of your investment when you do decide to sell your home later on.

The Best Home Improvement Ideas

Here are the best home improvement ideas that not only satisfy and fulfill a specific need but also help increase your home’s resale value:

  • Garage door replacement
    This is actually something that you can do right now because it’s very affordable. On average, it will just cost you $1,595 to have a better looking (and functioning) garage door. It will increase your home’s resale value by $1,410 so that’s an investment well spent.
  • Vinyl siding replacement
    Curb appeal matters when it comes to determining a home’s resale value and vinyl is king when it comes to siding. Spend $12,013 on vinyl siding replacement and based on the national average, you can expect to recoup 80.7% of your investment when you sell your home later on.
  • Wooden deck addition
    A wooden deck is not only beautiful; it’s highly functional as well. This is why it’s not a surprise that it improves the home’s resale value by $8,085. Not bad for a $10,048 investment.
  • Minor kitchen remodel
    The kitchen usually makes or breaks a deal so make sure that you’ll have a kitchen that prospective buyers would love. Homeowners spend $19,226 on average for a minor kitchen remodel but they’re able to recoup 79.3% of their investment because buyers are generally willing to pay $15,255 more because of the remodeled kitchen. Here’s a REALLY minor kitchen remodel that yielded major results!

Other Ideas

Check out this infographic by Contractor Quotes to learn other home improvement ideas that can improve your home and increase its resale value.

 

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Read Before You Refi: 5 Tips For A Higher Home Appraisal

By Laura Agadoni | April 21, 2016

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A clean, uncluttered home isn’t just attractive for potential buyers: It can make an impression on your home appraiser too.

If you’re refinancing, these home appraisal tips can help.

If you’re hoping to refinance the mortgage on your home, there’s one big roadblock between you and that lower rate: the home appraisal. If your appraisal is low, you might not be able to refinance at all, or you might be facing less-than-optimal loan terms, including potentially paying for private mortgage insurance. If your appraisal results in a higher assessment, you’ll quite likely have more loan options available to you — often with lower interest and better payments.

To start your appraisal prep, make sure your home is clean (inside and out). Appraisers are human, after all, and can be swayed by how pristine (read: well-cared-for) a home looks.

Here are five more home appraisal tips to ensure your home appraises as high as possible.

1. Make those small repairs you’ve been postponing

Your house isn’t going to morph into a mega-mansion overnight, so some of the considerations for an appraisal (such as the number of rooms, square footage, and location) aren’t negotiable. But you can make the most of your home’s features. “Make sure that all the major systems have been serviced and that everything in the home appears to be maintained and functional,” says Ingrid Vincent, a Rhode Island and southern Massachusetts real estate agent. For appraisers, the condition of a home often matters more than the year it was built. Tackle any DIY home projects that you’ve put off.

2. Enhance your home’s curb appeal

You might not pay much attention to your home’s exterior, especially if you typically enter and exit through the garage or a side door. But curb appeal matters to potential buyers, and it matters to appraisers too. The Appraisal Institute states that properly maintained landscaping can enhance a home’s value. If you’re wondering what else you can do (besides mowing the lawn) to boost curb appeal, Cassy Aoyagi, president of FormLA Landscaping in California, gives these tips for a quick landscaping fix:

  • Strategically place container gardens
  • Mulch flower beds
  • Wipe down existing foliage and outdoor lights
  • Stage patios or porches with seating and pillows

3. Create a file of all recent improvements, upgrades, and tax documents

If you spend any money on your home, save all your receipts and keep them in a filing cabinet. (Or digitize the documents and store them on your computer.) It’s also a good idea to take before-and-after photographs of any improvements and upgrades. By staying organized, you can easily prove to the appraiser what you did to improve and upgrade your home, and how much you spent. Also be sure to include documentation for any permits that were pulled as part of home improvement projects.

4. Know the comps in your area

One of the best ways to determine the value of your home is to compare it with similar homes nearby that have recently sold. If you know the comps as well as or better than the appraiser, you can challenge any lowball comps they might use. “Don’t wait until the appeal process if you think you got a lowball appraisal,” says Gloria Shulman, a California mortgage broker. “You have almost no chance of succeeding because it would be an admission they were wrong.”

Instead, here’s the approach Shulman suggests: “Go to your local county offices and find out exactly what properties have sold in your area in the last six months and then go see them in person.” Too labor-intensive? Trulia makes it easy to find recently sold homes with a quick property search (like this one for recently sold homes in Charlotte, NC). “You might find out that the property with the lowest sale price was a teardown,” Shulman says — and that’s the type of information appraisers can use to best evaluate your property.

5. Don’t be pushy

To present the appraiser with all the great information you’ve gathered, you need to do so diplomatically, or all your efforts could be wasted. “Meet the appraiser, and be as nice as possible but not overbearing,” says Antonia Barry, a Maryland broker. “State that you have some information to share with them before they get started.” You would then go over your intel (don’t forget to mention the brand-new shopping center nearby) and then let them do their jobundisturbed. If you hover, the appraiser might wonder what you’re trying to hide.

One the appraiser is finished, you have one last chance to offer assistance. “Ask the appraiser if they have any questions and if they feel there will be any issues with the appraisal,” advises Barry.

A Beginner’s Guide to Tax Credits and Deductions for Homeowners

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It’s tax time and if you’ve purchased a home, there are a few things to know about tax credits and deductions for homeowners.

By Seve Kale

If you’ve recently purchased a home in 2015 or 2016, you’ve probably heard about the tax credits and deductions available for homeowners.

“Tax-wise, this is a good time to buy – homeownership offers tax breaks that renters do not have,” says Yvette D. Best, CEO of Best Services Unlimited LLC, an income tax preparation firm in Fayetteville, Ga.

Though the thought of itemizing your taxes and figuring out what you qualify for may be intimidating, we’ve talked to the experts to come up with this helpful guide.

Mortgage Interest Write-Off

Let’s start with the basics: mortgage interest deductions.

According to TurboTax.com, the biggest tax break for most homeowners comes from deducting mortgage interest.  If you itemize, you can usually deduct the interest on a mortgage used to acquire a main or secondary home.

Mortgage Points

“In addition to the commonly known write-off for home mortgage interest, there are other deductions and credits for new homeowners,” says Amanda Kendall, president of True Resolve Tax, based in Northglenn, Colo. “In some instances, when buying a new home, you pay what is known as points (origination points and discount points), that the IRS views as being prepaid interest. They can be written off along with your mortgage interest,” Kendall says.

This deduction may be worth thousands. “The return on your investment is two-fold — you get to deduct the cost of the points and the amount paid in interest in the same year as the home purchase,” adds Best.

First-Time Buyers

“As a first-time buyer, the IRS will allow you to withdraw an amount up to $10,000 from an IRA (traditional or ROTH) penalty-free to help with the purchase of a home,” says Kendall. If you’re married, you and your spouse can withdraw a total for $20,000 penalty-free. You are also allowed a $10,000 withdrawal to buy or build for a spouse, kids, grandchildren or parents.

Property Taxes

You can also write off property taxes as an itemized deduction. However, if you’re using an escrow account to pay your taxes, you can’t deduct payments into that account as real estate taxes. “Homeowners often make the mistake of deducting the wrong year’s property taxes — this deduction is allowed in the year the taxes are actually paid,” says Kendall.

Energy Incentives

If your new home is built with energy-efficient appliances and/or energy-efficient technology, you are likely eligible for a tax credit. Green technology such as geothermal heat pumps, small wind turbines and solar energy systems make you eligible for a tax credit of 30 percent of their cost, while a credit of up to $500 is available for energy-efficient HVAC systems, windows or doors.

Home Rentals or Improvements

If you’ve done any renovating, keep your receipts. All improvements will be added to the purchase price of your home. If you track your home-related expenses, you can reduce the capital gains amount you must pay tax on when you decide to sell. “These days, with AirBnB, homeowners may rent their home out or rent a room, in which case all expenses related to the house can be deducted against rental income,” says Ryan Saltz, a licensed tax professional at Jacksonville, Fla.-based Tax Defense Network, LLC.

This guide only covers a few of the deductions available to homeowners, so sure to do your research. “If you take a credit you’re not allowed to take, the IRS is going to make you pay it back, but not before they add interest and penalties,” says Kendall. She recommends consulting with a tax professional.