March 28, 2014

Determining Your Mortgage Payment

When buying a home, one of the most important factors is price. How much you can spend on a home depends on how much cash you can put down on a down payment, and how much money you can borrow. Before you begin looking for a home, seek pre-approval, based on credit and income, from a lender. Additionally, determine what you, personally, are comfortable paying. Your lender will be much less familiar with your lifestyle and future plans, and therefore will not consider some pertinent factors when approving you for a loan. Are you saving up for a family? Do you travel often? These are just a couple of questions you should ask yourself when generating your housing budget. To estimate your ideal mortgage payment, you can assess your current comfort level with your rent payment and look at your monthly income and expenses.

As a homeowner, your housing payment includes:

  • Principal 
  • Interest 
  • Property taxes 
  • Homeowners' insurance. 

Additional expenses:

  • If you put less than 20 percent down on your home, you will have to pay mortgage insurance. 
  • At least 1 percent of the home price should be set aside for maintenance and repairs.
  • Some homeowners need to pay homeowner association dues (HOAs) or condominium fees. 

Lenders will look at your debt-to-income ratio when approving a loan. Most lenders won't approve loans with a ratio higher than 41-43%. You can use a mortgage calculator to help determine your debt-to-income ratio. Essentially, you'll want to divide your gross monthly income (all income documented by paystubs or tax returns) by your monthly debt payment (new housing payment and minimum monthly payment on outstanding debt, such as a credit card, a car loan, or child support).

Aside from income and debts, lenders will also look at:

  • Assets
  • Downpayment
  • Credit score 
  • Job history 

Your mortgage payment depends on your loan term and interest rate. A shorter loan term generally has a lower interest rate; however, it also means higher monthly payments. Interest is also affected by credit score. A higher credit score means a lower interest rate. Ultimately, a good lender can evaluate your personal circumstances and make recommendations for a loan program based on your individual financial needs. 


March 19, 2014

What is a CMA?


Overview:

"CMA" stands for comparative market analysis. This service can be prepared by licensed real estate agents, and it commonly used to price a home for sale. 

 How it works:

An agent gathers and analyzes property characteristics of homes currently for sale, homes recently sold, and listed homes that did not sell. These demonstrate what buyers actually pay in the marketplace, what owners of similar properties are asking, and the resistance level of buyers to overpriced listings, respectively. A CMA compares the subject property (property being appraised) and comparable properties--similar properties in the same market area that can be used to help estimate the value of the subject property. Agents adjust for differences between the subject property and each comparable property. Adjustments are always made to the comparable property. Adjustments are subtracted from the comparable property if the comparable is bigger or better, and added if the comparable is smaller or less desirable. Finally, the values given to each property are reconcilled. The property most similar to the subject will be most heavily weighted.

Example:

If a comparable property has one more bedroom than the subject, and a bedroom is valued at $10,000, then $10,000 will be deducted from the comparable property. Note: it may have cost more or less than $10,000 to build this room--a CMA considers value (what buyers and sellers believe a certain feature to be worth) rather than cost. This is illustrated when homeowners build pools: they often spend more on the pool than they can resonably expect to get out of it in resale. The value of the pool is, therefore, less than its cost. 

What it will cost you:

Nothing. I provide free, no obligation consultations to help you know what will help your home sell quickly and for the most money. Call, text, or email me to set a convenient time to meet.  

JackCurtis@kw.com / 614-893-8337.
Visit my website here.






March 14, 2014

Interested in Foreclosures? The Privatization of Foreclosure Auctions

Considering buying a foreclosed home? Private auction companies offer an alternative to sheriff sales, which can be inefficient and time consuming. Privatized sales are increasing in Ohio, as lenders experiment with them and are impressed by the results.

How it works: After a judge rules in favor of a bank's foreclosure suit, the lender petitions the sheriff to auction the property. However, the lender can instead ask the judge to appoint a private auction company. This little known state law explains why privatized foreclosures are still rare.

Benefits: Private auctions allow homes to be marketed in conventional ways, i.e., through advertising, open houses, and appearances on real-estate sites fed by the MLS. Potential buyers can see and inspect the inside of the home for themselves. By omitting the bank from the process, private auction sales speed up the process, which is more mainstream. It also allows a homebuyer's agent to earn a commission. Sheriff sales, on the other hand, neither market homes nor offer a commission. They attract few bidders, causing banks to buy back the properties to safeguard their investments.

The Numbers: Barry Baker, founder of Ohio Real Estate Auctions, shared that while 90% of properties auctioned at Ohio sheriff sales had to be bought back by banks, banks have bought back less than 5 percent of the 100+ foreclosed properties that his company has auctioned. Moreover, Baker's company sees many properties that have already, and unsuccessfully, gone through the sheriff-sale process.

Disadvantages: Buyers may have to pay more for a foreclosure auctioned by a private company. The Columbus Dispatch provided one example. A Geauga County property was originally auctioned by the government with bids starting as low as $73,300--with no takers. The property was then given to a company, which marketed it, attracted over 20 bidders, and sold for $170,500--more than twice the original bid in the sheriff sale. While the price for the home mostly increased due to competition resulting from marketing efforts, private auction companies can charge a fee for their services and for the commission to the buyer's agent. Ohio Real Estate Auctions charges a 10% buyers premium to cover such costs. Another debatable disadvantage deals with the fact that a government function is being replaced by a private one. Executive director of the Buckeye State Sheriff's Association Robert Cornwell fears that private auction companies are mainly profit driven, whereas the government works for the people. He is also concerned that sheriffs may be reluctant to give up one of their long-standing duties.

Overall, private auctions market a home conventionally and allow for a quicker, more efficient process that differs much less from non-forclosures than sheriff sales do. For more information on how to buy a foreclosed home, watch the brief video, below.


March 11, 2014

The Inside Scoop on Rent-to-Own Agreements





What is a rent-to-own agreement? 
  • A rent-to-own agreement is a contract between a property owner and a renter in which a renter agrees to rent the property for a predetermined amount of time, usually 1-3 years. The renter pays an above-market rate and allocates excess rent towards a down payment.  At the end of this time period, the renter purchases the home at the price stated in the contract.  

Who do they benefit?
  • Rent-to-own leases can benefit both homeowners and renters. They are great for sellers who are eager to move out but have yet to sell their home.  Similarly, they benefit renters who are equally as eager to buy a home but lack financial preparedness. For example, renters may need additional time to save for a down-payment, improve their credit score, or pay off debt. Rent-to-own agreements allow renters to secure and settle into the home they want before having to actually but it. 

When is it a bad idea?
  • Renters who are not positive they want to remain in their rental should be wary of rent-to-own agreements. Because renters pay above-market rent in such contracts, it may be more practical to simply rent a home rather than sign a rent-to-own agreement. This is less expensive and offers the renter more flexibility when looking for a home after their lease is up. 

What should rent-to-own agreements include?
  • An attorney should be hired to draft a rent-to-own agreement. It's also advisable to consult a lender. Generally speaking, a rent-to-own lease should specify the following information:
    • Length of the lease period.
    • Rental rate.
    • Rent credit for down payment and how it will be held until the time of purchase.
    • Who will pay for maintainance, repairs, utilities, property taxes, insurance, and homeowner fees during the lease period.
    • When the title is transferred to the renter.
    • What happens if home values rise or fall between the time the contract is signed and the time of purchase. 
    • Who is responsible if something happens to the property during the rental period. 

Finally, I recommend that renters have a home inspection before buying any property, even if they have been living in it. Interested in renting or buying a home? Contact me.



March 6, 2014

What to Look for in Investment Property


Buying a piece of real estate as an investment property can be tricky. It can also be quite lucrative. Today more than ever, the rental market is booming. Increasing student debts have pushed back the median age of the first-time homebuyer. With inventory consistently low, many people who would have bought a home in other market conditions are deciding to rent, instead. If you are interested in buying a home to rent out, consider these factors:

Numbers. The most important aspect of investment property is profitability. It’s important to gauge profitability more on current performance as opposed to future predictions. In other words, if a property generates little income now but the area is “expected to appreciate,” it may not be your safest option. The ideal income property will offer appreciation value and cash flow. It’s better to use growth potential as a differentiating factor between areas that offer similar cash flow rather than a leading indicator. Does the neighborhood plan to build parks, malls, gyms, etc? This is not only important because it is a sign of growth, it also signifies growing employment opportunities (and thus a larger pool of tenants!).

Be weary of places with prices that are too good to be true—cheap properties are often accompanied by a high number of risks and problems. Look for something that is listed for a price similar to market value or above. You’ll also want to consider property taxes and rate of return, or “cap rate.” Research market conditions before you determine what a “good” cap rate is; this number continuously fluctuates.

Source. Be cautious of homes that have sat on the market for a long period of time. This is rather unique in today’s market, and there may be a good reason no one has yet bought that property. Likewise, a reduction in price may be a red flag.

Location. Considering price-to-rent ratios, you will want to avoid buying a rental property in a city’s nicest location. Aim more for average-priced neighborhoods, but remember that your tenants will reflect the quality of the neighborhood in which you buy. Homes in reputable school districts with low crime rates tend to hold value over time. Also consider vacancy rates and average income.

Condition. Ali Boone, an author of Bigger Pockets, advises that investors buy turnkey properties. At the very least, hire a home inspector to examine the actual condition of any property before you buy it.