Have You Considered Investing In Real Estate?

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Have you ever considered buying a property as an investment? The property market is not reserved for experts and millionaires – you too could use it to make the most of your hard-earned savings.

A lot of people only buy a house as a family home and find paying off their mortgage before they reach retirement a big financial burden. Sound like you? However, buying a house as an investment (not living in it and instead renting it out) can make you a lot of money. In fact, it’s been shown that property outperforms other investments such as stocks, shares and savings accounts to bring you a nice fat profit in the long-term.

Yet somehow we’re all too cautious about hopping on the property investment train. Why? There are a few common apprehensions, questions and ‘buts’ people have when first looking at property, but there are good answers to all of them. So, before the words ‘finance’, ‘invest’ and ‘mortgage’ turn you off, have a read of the below to get clued in on what property investment can do for you and your piggy bank

But I don’t have the money to invest in property!

It’s a common misconception that you need to have all the cash up front. US banks may lend up to 75% of the property purchase price for investors, so for a $250,000 purchase (the average housing price in Lewisville according to Zillow) the total capital you need is $62,500. IRA’s and 401K’s are ways to get the down payment.

But I don’t want to take out another mortgage!

Before you panic about taking out a second mortgage, remember that the tenants who will be renting at your property will be paying off the mortgage for you, and that taking out a mortgage to pay for your investment means making more money.

But isn’t it risky?

As with all investments, there are low-risk and high-risk options.

But how can I make money from my investment if all my pennies are tied up in the property?

1) The increase in the property’s value over time. A well-chosen property and market will see the value of your investment jump up significantly over the course of five-to-ten years. You can then choose to resell at that higher price, keep it for longer to increase profits further or pass on the investment to your children.

2) The rent your tenants will pay you. This can cover the mortgage and/or provide you with an additional regular income – remember, rents will also increase over time as the area you invest in becomes more popular.

But I don’t want to be a landlord!

You don’t have to be! There are property management companies that exist to take that responsibility off of your hands. They can handle everything, from decorating and tenanting to taxes and reselling, and you’ll still be able to make a healthy profit.

When you’re ready to learn more or if you’re already clued in and want some more in-depth market advice, contact Jim Trump & Associates today! (214) 609-7123 or jtrump@kw.com

10 Simple Steps to Losing Your House!

Open New Lines of Credit

Lenders must adhere to strict debt-to-income ratio requirements.  If you add a new car payment or credit card payment to the mix after you have been pre-approved, you debt-to-income ratios may now be too high to qualify for the proposed housing payment.

Run Up Balances on Current Credit Cards

Even if you don’t open new lines of credit, charging a substantial amount on a current card will raise the minimum monthly payment on that card your lender is using for financing. Again, this could throw your debt-to-income ratios completely out of whack!

Spend Down Payment Funds

Even if your lender verified down payment funds prior to your pre-approval, if your balance decreases to less than what you will need at closing and your lender requires new bank statements, this could cause a major delay in your closing date.  If you’re closing on a short sale with a hard deadline, you could end up losing the house if you cannot close in time and aren’t able to obtain an extension.

Lose or Switch Jobs 

Not much explanation needed here. If your qualifying income is no longer coming in every month, closing on your house isn’t going to happen unless you have a co-borrower who can carry the payment on his or her own.

Make a Late Payment on Your Credit Report

If your credit score is barely meeting the minimum threshold, one late payment could knock you out of the qualifying range.  If your credit score expires before closing and your lender needs to re-pull credit, then you would be in trouble if this has happened to you.

Failure to Communicate Alimony or Child Support to Your Lender

This information is important and will affect the amount for which you qualify. If it comes up too late in the process, there’s a chance you could lose the house, so please share this information with your lender, even if he or she doesn’t ask.

Failure in Communicating That You Are in the Market for a Condo

If you are purchasing a condo, the lender must factor in condo association dues, which can be very pricey. If your lender isn’t factoring a cushion for this into your pre-approval, you may find out that your debt-to-income ratios are too high once you are already under contract.

Getting a 10 Minute Pre-approval

Yes, I know you are busy, but getting a pre-approval shouldn’t be a 10 minute process with some online lender that you heard about on the radio.  Obtaining a mortgage loan is very complicated and your lender should spend time interviewing you, learning about your employment history, and reviewing the standard documents required for a mortgage pre-approval.  Just because you are supposed to receive court-ordered child support doesn’t automatically make that money qualifying income.  A lender must be able to show a history of receiving these payments on time, if not; the underwriter will not allow your lender to use the income.

Failure to Communicate an Employment Gap 

A lender should ask for your two-year work history upfront, and, if a large employment gap arises that your lender was unaware of, you could have issues if you don’t have a good letter of explanation.

Failure to Submit Lender-Required Documentation

Your lender may ask you for documentation several times throughout the process–in order to make sure he or she can submit your story to underwriting in a timely matter and close you on time. They aren’t doing this to be spiteful! You must be available via phone and email to respond to these requests in a timely manner.  If you aren’t, your loan won’t make it to final approval, and you will not be able to close on your home.

How Do You Make Sure This Doesn’t Happen To You? 

How can you be sure you won’t sabotage your own chances of closing on your dream home? Make sure you speak with a mortgage advisor who is knowledgeable, skilled, and thorough enough to make sure you’re not scaring underwriters away with your credit history, bank statements, and employment history.  A skilled loan officer will not conduct a 10 minute pre-approval or send you out to search for home without explaining closing costs and how to get to the closing table with ease. I have lenders that I work with that I trust implicitly, and will give you their information in order to streamline the lending process.

For professional real estate service, contact The North Texas Home Hunter at (214) 609-7123 or jtrump@kw.com

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Should You Buy Before You Sell?

It’s a question most homeowners will have lost sleep over: Do I sell my existing home before buying my new one, or do I buy my next home and then sell? Almost every home buyer will need or want to move location, upsize or downsize at some point.

So how do I decide if I should buy or sell first?

We asked the experts for the top three questions to ask when making the huge decision.

  1. Do I eat risk for breakfast?

Miriam Sandkuhler, Accredited Property Investment Advisor and Buyer Advocate, strongly advises starting with the question: “What is my risk comfort zone?”

“Working out if you should buy or sell first totally comes down to your own risk profile and risk management,” says the founder of Property Mavens. “If someone has a high risk threshold, buying first works best, particularly in a rising market and if you can negotiate a long settlement.”

If you have a high risk threshold, buying first works best, particularly in a rising market.

“If you are someone who is risk adverse, selling first will suit you better as, to a degree; there is lower financial risk because you know exactly what you have to spend.”

  1. Why are you buying and selling?

Are you trading homes to be near aging parents, or grandchildren, sooner rather than later?

If personal circumstances are pressing, it may be advisable to find a suitable property in a target area and buy it before selling your home.

Sandkuhler says supply and demand means that, in a tightly held area, you may have to wait many months to find another property.

“Consider your individual reasons for buying and selling, as this impacts the best order to buy and sell.”

  1. Is the tide rising or falling?

It can also be helpful if homeowners can access both their buying and selling markets’ cycles.

“If the market is hot and property prices are rising, you can have a little more confidence to buy first knowing your property is likely to sell pretty easily,” says Sydney-based Mike Mortlock, Director of MCG Quantity Surveyors.

Homeowners can make the most of both the buying and selling market cycles.

“If the market is falling and time on market statistics are painting a poor picture, you’d be less likely to sell your property in the short time-frame required.”

Pros and cons of selling before buying

Wally David, Certified Financial Planner from The Smart Money, says he usually advises his clients not to sign a contract to buy another home until a sale is secured on a current home “regardless of how marketable you think your current home may be”.

“I have witnessed this a few times and it can get ugly, causing unnecessary stress on those involved,” David says.

“It may necessitate the need to obtain bridging finance or the selling of other assets, which complicates things even further and can become very expensive.

“I do believe that for most people selling first is the best strategy for reducing stress and cost in the long run.”

Potential pros include:

  • If you can negotiate a delayed settlement it can give you time to buy another property and potentially move into the new place before settling your original property.
  • There’s less pressure to achieve the sale before a certain deadline.
  • It stops potential buyers trying to cash in on the fact that you have already bought and really need to sell.

Potential cons include:

  • If you’re too picky, nothing suitable is on the market or you simply miss out on a few properties, you could end up having to move out with nowhere to go. You can always rent short term, but there’s the added expense and hassle of having to move twice.
  • Prices might go up after you sell and you might be priced out of the market, or not able to find the dream home for the right price.
  • You’re at the mercy of what’s on the market at that time.

Pros and cons of buying before selling

Potential pros include:

  • The possibility of negotiating a conditional offer subject to the sale of your own property.
  • Not being bound by any financial pressure to commit until you find a property that ticks every box.
  • In a rising market you can potentially get more for your money, and make more from your subsequent home sale.

Potential cons include:

  • The extra cost and stress of bridging finance when you have to finance two mortgages at once.
  • Conditional offers can turn off vendors and make them unlikely to negotiate on price.
  • You might need to make a higher offer to convince an owner to hold the property while you sort out your circumstances.

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Why Is There SO Much Paperwork???

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I am often asked why there is so much paperwork mandated by the bank for a mortgage loan application when buying a home today.

It seems that the bank needs to know everything about us and requires three separate sources to validate each and every entry on the application form. Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.

There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

  1. The government has set new guidelines that now demand that the bank prove beyond any doubt that you are indeed capable of affording the mortgage. During the run-up in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their homes, and the government wants to make sure this can’t happen again.
  2. The banks don’t want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application!

However, there is some good news in the situation. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate probably below the 5% mark.

The friends and family who bought homes ten or twenty ago experienced a simpler mortgage application process but also paid a higher interest rate (the average 30 year fixed rate mortgage was 8.12% in the 1990’s and 6.29% in the 2000’s). If you went to the bank and offered to pay 7% instead of <5%, they would probably bend over backwards to make the process much easier.

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.