With interest rates reaching historic lows and with many properties listed as foreclosures and short sales, more and more investors are coming out of the woodwork. Indeed, there are several wonderful investment opportunities available for investors and first time home buyers alike. The irony is that with today's state of affairs and new mortgage guidelines, many homeowners looking for additional properties may not qualify. Should you be a homeowner looking to purchase an additional/investment property, you might want to keep the following in mind:
1. You are going to have to put over 20% down.
2. Expect a higher interest rate than your typical market rate. In retrospect, with interest rates still hitting historic lows, you should still be able to get a decent interest rate.
3. In today's market a mere lease agreement does not serve as enough proof that your existing property is rented. You may have to rent your existing property for a year and reflect the rental income in your tax returns.
4. It may also be helpful to make copies of rental checks received each month. The more information you can provide, the better your chances of qualifying.
5. Another trend we are seeing these days is that most lenders are more likely to finance your investment property if you have enough verifiable income and assets(income varies from lender to lender) to pay both mortgages each month.
6. If you already have a loan for four or more properties, you may not be able to finance your next purchase. Most lenders today are shying away from investors who have financed more than four properties.
Remember, qualifying for a loan is granted on an individual basis so do not be discouraged should you wish to apply. Despite these few challenges, with the right investor mindset and professionals, you can still continue to legally purchase homes to create your long term wealth.
Wednesday, December 15, 2010
Home Price Indicators? Follow The Rents!
A leading indicator for home prices? Follow the rents!
The big question for home buyers and sellers today is: "Where are home prices headed?" People want to know if now is a good time to buy or sell, or if they should wait. We all need to stay on top of trends in real estate values -- so what's a good way to analyze the situation?
Yale economist Robert Shiller states it bluntly: "If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure." Shiller is the co-developer of the S&P Case/Shiller Home Price Indicates that monthly track residential real estate values nationally and in 20 metro areas.
Traditionally, people have been willing to pay a modest premium to own a home rather than rent it. Recent studies report that in 1999 rents averaged 87% of the after-tax mortgage payment for houses and condos of similar size in the same neighborhood.
When home prices took off, this percentage changed. By mid-2006, rents had fallen to less than 60% of after-tax mortgage payments. In some markets, owners were paying twice as much as renters for a similar property in the same neighborhood. In a few places, owner monthly payments were three times average rents.
The 87% ratio of rent to ownership cost for 1999 is a good benchmark because it stayed around that level throughout the 1990's and the steep rise in home prices hadn't really begun.
With that as our guide, we can conclude that home prices at last appear to be stabilizing. By the end of October 2009, rents on average were up to 83% of ownership costs!
Conditions vary from market to market, so check your own area. But with historically low mortgage rates, plus the homebuyer tax credit, this could be a great time to be buying or selling....
The big question for home buyers and sellers today is: "Where are home prices headed?" People want to know if now is a good time to buy or sell, or if they should wait. We all need to stay on top of trends in real estate values -- so what's a good way to analyze the situation?
Yale economist Robert Shiller states it bluntly: "If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure." Shiller is the co-developer of the S&P Case/Shiller Home Price Indicates that monthly track residential real estate values nationally and in 20 metro areas.
Traditionally, people have been willing to pay a modest premium to own a home rather than rent it. Recent studies report that in 1999 rents averaged 87% of the after-tax mortgage payment for houses and condos of similar size in the same neighborhood.
When home prices took off, this percentage changed. By mid-2006, rents had fallen to less than 60% of after-tax mortgage payments. In some markets, owners were paying twice as much as renters for a similar property in the same neighborhood. In a few places, owner monthly payments were three times average rents.
The 87% ratio of rent to ownership cost for 1999 is a good benchmark because it stayed around that level throughout the 1990's and the steep rise in home prices hadn't really begun.
With that as our guide, we can conclude that home prices at last appear to be stabilizing. By the end of October 2009, rents on average were up to 83% of ownership costs!
Conditions vary from market to market, so check your own area. But with historically low mortgage rates, plus the homebuyer tax credit, this could be a great time to be buying or selling....
Short Sale Rules!
The good news is that borrowers who went through a recent short sale may be eligible for FHA financing if:
1. They were current on their mortgage and other debts at time of short sale.
2. The proceeds from the short sale serve as payment in full.
Borrowers in default on their mortgage at the time of short sale or pre-foreclosure unfortunately have to wait 3 years from the date of pre-foreclosure sale to be eligible for FHA financing.
Borrowers that went through a recent short sale may be however be eligible for FHA financing if:
1. They were current on their mortgage and other debts at time of short sale.
2. The proceeds from the short sale serve as payment in full.
Borrowers in default on their mortgage at the time of short sale or pre-foreclosure have to wait 3 years from the date of pre-foreclosure sale to be eligible for FHA financing.
A few exceptions can be made such as:
1. The default was due to circumstances beyond the borrower’s control such as death of primary wage earner, long term un-insured illness, etc. and
2. Credit was good prior to the exceptional circumstances.
Unfortunately most short sales will damage the credit of the seller/future borrower but can be a better alternative to bankruptcy. The words "Short sale" also doesn't show up on credit reports. They instead record "Paid and Settled". A property that has been in good standing and paid off shows up as "Paid and Satisfied". Notice the difference.
1. They were current on their mortgage and other debts at time of short sale.
2. The proceeds from the short sale serve as payment in full.
Borrowers in default on their mortgage at the time of short sale or pre-foreclosure unfortunately have to wait 3 years from the date of pre-foreclosure sale to be eligible for FHA financing.
Borrowers that went through a recent short sale may be however be eligible for FHA financing if:
1. They were current on their mortgage and other debts at time of short sale.
2. The proceeds from the short sale serve as payment in full.
Borrowers in default on their mortgage at the time of short sale or pre-foreclosure have to wait 3 years from the date of pre-foreclosure sale to be eligible for FHA financing.
A few exceptions can be made such as:
1. The default was due to circumstances beyond the borrower’s control such as death of primary wage earner, long term un-insured illness, etc. and
2. Credit was good prior to the exceptional circumstances.
Unfortunately most short sales will damage the credit of the seller/future borrower but can be a better alternative to bankruptcy. The words "Short sale" also doesn't show up on credit reports. They instead record "Paid and Settled". A property that has been in good standing and paid off shows up as "Paid and Satisfied". Notice the difference.
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