What a Deal!

A 30 year fixed-rate mortgage hasn’t always been the standard. As part of FDR’s New Deal in 1934, the Federal Housing Administration was created to help Americans purchase homes with affordable terms.fdr.png

Prior to then, many loans had an amount due at the end of the term called a balloon. Most mortgages had adjustable interest rates even though some might be fixed for a short time. While banks would loan money on a home, they retained the right to call the note due at any time which could exert considerable stress on borrowers.

FHA, during this time, introduced mortgages that offered a fixed rate of interest to the borrower for a 30 year term. This fully amortized loan provided borrowers a financial vehicle that would help them achieve the American Dream while minimizing the risk of having a loan called without the resources to pay it off. It brought long-term stability to the housing market and helped stimulate the economic recovery at a very difficult time in our nation’s history.

Roughly, a third of the mortgages created in 2011 were less than 30 year terms. Many homeowners, similar to those after the Great Depression, would like to get their home paid for as soon as possible. Shorter term mortgages typically have a lower interest rate but higher payments due to fewer years to amortize the mortgage.

Rent or Buy?

The question plaguing every tenant who wants a home of their own is whether they should continue to rent or is it the right time to buy?

The combination of good prices and low mortgage rates make it considerably cheaper to own than rent in most markets. Assuming a person is qualified with a down payment and won’t be moving for several years, there may not be a better time to buy a home.

In the example below, the total house payment is $1,281.01 compared to $1,500 to rent the same home. Before you consider any of the financial benefits attached to home ownership, it’s cheaper to own than to rent.

The net cost of housing falls to $764 or just more than half the house payment when you consider the principal reduction due to normal amortization, a modest appreciation and the tax savings along with a reasonable maintenance expense that a tenant would not have to pay.

One of the biggest benefits is the growing equity. As the value goes up, the unpaid balance goes down. A favorable leverage causes their low down payment to grow to $40,609 in a short seven years based on a modest 1% appreciation.

There’s an expression often heard in real estate circles: “Whether you rent or buy, you pay for the house you occupy.” You’re either buying it for yourself or you’re helping the landlord buy it.

Check out a Rent vs. Own to see how your numbers will compare to this example or call me to do it for you.

Contributing Factors

Rental properties have four primary factors that contribute to a return on investment. Based on market conditions and investor strategies, the individual motivating factor can change for property owners.

There was a time when the benefit of tax savings to offset income from other sources was considered important to some investors. However, in today’s environment, they are more likely valued as incidental benefits.

Some investors expect appreciation to deliver the satisfactory results which can be reasonable over time if a reliable appreciation rate is used. Savvy investors today are using conservative estimates for long-term holding periods.

Leverage occurs when borrowed funds are used to control a larger asset. Positive leverage can actually increase the yield on an investment.

The fourth component that contributes to a property’s yield is the cash flow. When the rents are greater than the expenses of operating the property and servicing the debt, there is a positive cash flow. A property with a good cash flow doesn’t have to go up in value to justify the investment.

The combination of lower prices, incredibly low mortgage rates and rising rents are attracting investors to rental properties that include single-family homes in predominantly owner-occupied neighborhoods.

Even if you were to ignore the benefits of tax savings, potential appreciation and leverage, the attractive cash flows make rental property a very smart investment alternative. If you’re curious, contact me for more information.

Who Do You Call?

While the Internet is a great resource to locate information about food, travel and a number of other things, it isn’t necessarily the best place to find a local service provider.

Sure, you can run the search, get quick results and may even see some fairly impressive websites. The problem is that sometimes, those sites are run by companies that sell the leads to providers who may not be as experienced as you’re expecting.

Instead of taking a chance on a total stranger, a personal recommendation could yield you more satisfactory results. Most real estate transactions require some work to be done to the house either in preparation prior to the sale or to meet requirements from the buyer or inspector after the sale is made.

Looking for a service provider on the Internet is easy. Contact me for a recommendation is easier still and you can trust that they’ll be reputable and reasonable. I want to be your personal source of real estate information.

AMP UP CURB APPEAL

Buyers are quick to judge a home by what they see on the outside. Are your sellers ready for the scrutiny?

   September 2012 | By Melissa Dittmann Tracey

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A property’s curb appeal naturally makes a critical first impression. “If everything within the front space is well-chosen and in perfect repair—from the mailbox and house numbers to the walkway and landscaping—buyers will think, ‘This house is obviously well-cared for,’ ” says Lisa Grant Vail, a real estate professional with Keller Williams Atlanta Perimeter and coauthor of Creating Curb Appeal (Schiffer Publishing, 2009). “This message is imprinted on their brains, even if the rest of the house is actually not as well cared for. It’s very hard to change a first impression.”

While most real estate professionals advise their clients to tend to the yard work, trim the trees, and put out a new welcome mat, they may miss other opportunities to help sellers improve a home’s curb appeal. Staging and real estate professionals offer some compelling ideas for sprucing up exteriors.

Front door

A front door can be a home’s focal point—but you don’t want that to be because of its peeling paint or dinged hardware. Replacing an entryway door with a new steel door (which costs about $1,200) actually offers among the biggest bang for the buck at resale (an average of 73 percent of the cost may be recouped, according to Remodeling magazine’s 2011–2012 Cost vs. Value Report, which analyzed 35 remodeling projects’ payback potential).

Sometimes a front door can be salvaged with a fresh coat of paint. Just don’t overdo it: Vail recalls when her clients went too bold with their door’s hue—a vivid blue that didn’t complement the home. It had dated brass handle and lock hardware, too. (Satin nickel and black or oil-rubbed bronze are more the trend these days.)

Windows

Wash them—inside and out—and remove the screens for added sparkle. Then, try dressing up the windows with flower boxes, suggests Peggy Johnson, owner of Redesign + More, a Charlotte, N.C., interior design and staging firm. Also, consider a new color for shutters. The trend is a shift away from high-contrast green, red, or black to more monochromatic palettes that blend with the rest of the house, according to the Paint Quality Institute.

Garage

Depending on its orientation to the house, a garage can make a huge impact. Does the door need paint or repairs? Should it be replaced? While sellers might not be willing to spend on a stylish new cedar wood door, they can find more budget-friendly options in metal or fiberglass. A new steel garage door can cost about $1,500, but sellers, in average, recoup nearly 72 percent of that investment at resale, according to the Cost vs. Value Report.

Front porch

Don’t overlook this key selling point. “It’s an iconic symbol of American living,” Vail says. “‘Sell’ your front porch as additional square footage by staging it with as much care as you would other rooms. Invite buyers to ‘sit a spell’ with a pair of rocking chairs, Adirondacks, a porch swing, or even an outdoor living suite.” And don’t forget to “add a coffee and a side table for writing up contracts,” Vail notes.

Driveway

Is the driveway covered with cracks and oil stains? If sellers can’t afford a complete resurfacing (which may cost about $2,000 for concrete driveways), encourage them to look into patching up cracks using premixed concrete materials, Johnson says. Driveway cracks a quarter-inch or smaller may be able to be filled with asphalt or concrete that comes in caulk-like tubes. A patching compound for asphalt can be used for larger cracks. Some experts recommend kitty litter for removing oil stains, though hardware stores offer designated products, too.

After dark

Evening curb appeal also matters. “Conceal a couple of portable outdoor lamps and aim them at the house or a beautiful tree for low-cost, high-value impact,” Vail says. Have outdoor lights on a timer so they’re always on for nighttime showings. Interior lights, too, work to create a warm glow from the curb. If the home isn’t wired outdoors, line a pathway to the door with solar lights. “The technology has improved considerably over the past few years, and solar lights are much cheaper to install than hardwired lights,” Vail says. “Plus, sellers could probably take the lights with them when they move.”

Refinancing Too Soon?

Some people believe they shouldn’t refinance more often than once every two years. The determining factors are if you’ll lower your payments and plan to stay in the home long enough to recapture the cost of refinancing. If so, you should consider refinancing.

Interest rates have actually come down significantly in the past 12 months and even more in the past 24 months. According to the Freddie Mac Primary Mortgage Market Survey®, rates on a 30 year fixed rate mortgage are down to 3.6% in August, 2012 compared to 4.27% one year earlier.

Refinancing in the example below would save the homeowner $67.04 per month and they would recapture the cost of refinancing in 3 years and 9 months based on approximately $3,000 of closing costs.

Click Here to make your own projection on a Refinance Analysis calculator.