Category: Real Estate News & Tips

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How Much Does It Cost To Renovate a House?

Cost To Renovate a House

Average Home Renovation Costs for Bathrooms, Kitchens, and Beyond…

Home renovations and remodeling costs may be a hard pill to swallow after shelling out the purchase price of a new home, but if you’re the proud homeowner of a fixer-upper (or even if you’re the proud owner of an older home that needs some work), you may be itching to make some updates.

And that will get you wondering: How much does it cost to renovate a house? Knowing your numbers ahead of time is crucial, lest you end up with plans that are bigger than your budget.

So, before you take a peek at a tile sample, check out this detailed breakdown on how much your dream home renovation will set you back, plus average home renovation costs and your potential return on investment (ROI).

Average home renovation costs

Your exact cost to renovate a house will depend on its square feet, the region you live in, and just how much of a face-lift your home needs. But to get a rough idea, Than Merrill, founder of FortuneBuilders.com, gave us an estimate of what the average costs associated with different remodels look like:

  • Low ($25,000 to $45,000): A small remodel would likely include interior and exterior painting, small repairs (like refinishing cabinets), and new landscaping.
  • Medium ($46,000 to $75,000): A more involved remodel would include the low-cost upgrades above, plus a total kitchen remodel (depending on appliances) and minor bathroom remodel.
  • High ($76,000 and up): Low- and medium-cost upgrades, plus fixing any foundation issues, and roof and sewer line problems.

The largest home renovation costs

Sure, paint can play a big part in a remodel, but gallons of semi-gloss will be a drop in the bucket compared with big-ticket items for certain rooms (we’re looking at you, kitchen and bathroom).

Remember, it’s the appliances and cabinets in those rooms that eat up the biggest chunk of money. Here’s what homeowners can expect to pay in terms of the national average of home renovation costs, according to Remodeling.com and HomeAdvisor.com.

  • Kitchen: The national average cost of a kitchen remodel is $27,492. If a kitchen only needs minor upgrades, renovations should start at around $10,000. A full gut can reach more than $79,982, depending on the quality of materials and appliances installed.
  • Bathroom: A mid-range bathroom remodel typically costs about $25,251 and tops out at $78,840 for an upscale reno. (Of course, you could spend more by adding such spalike touches as a steam shower.)
  • New roof: The cost of protecting all your upgrades from the elements will run you around $30,680.
  • New floors: You might want to top off your renovation by taking up that old carpet. Installing new wood floors will cost between $2,474 and $7,031, while laminate, which is less expensive, will set you back between $1,472 and $4,638. Of course, the exact cost will depend on how many square feet you have in the kitchen.
  • Electrical updates: If you’re replacing an old panel (and a home’s worth of outdated wiring) as a part of your remodel, expect to spend $3,000 to $5,000.
  • Replacement siding: Any great remodel includes an exterior upgrade. Putting new exterior siding on your home runs to an average of $20,619.
  • Replacement windows: If you plan to replace windows and frames to save on your energy bill (you might need the savings after this renovation), the cost will range between $21,264 (vinyl) and $25,799 (wood).
  • The contractor: Unless you plan to oversee the renovation yourself, a budget should include the cost of a general contractor. They usually charge 10% to 15% of the project’s total budget. So for a $50,000 renovation, expect to pay a contractor $5,000 to $7,500.

One easy way for homeowners to save money on home renovations is to negotiate to pay actual builder costs on finish materials, says Jesse Fowler, president of Tellus Build, a green custom-build firm in Los Angeles and Santa Barbara counties.

The contractor you choose should be getting a discount on retail prices, and Fowler says that this can benefit you, too, in that you can “capture some or all of those savings.”

Home renovation costs and return on investment (ROI)

Ah, the magic words that make homeowner’s pain of parting with thousands of dollars more palatable, as those big checks you write for home renovation costs today may pay dividends if you ever sell your home.

A typical mid-range kitchen remodel typically yields an 96% return on investment. If you plan to go big with a major, upscale remodel however, you can only expect a 49% ROI.

Meanwhile, a mid-range bathroom renovation boasts an ROI of 74.%, with that figure dropping to 45% for an upscale remodel. Check here for the home additions that offer the best return on investment.

Source: realtor.com ~ By: Margaret Heidenry ~ Image: Canva Pro

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Housing market predictions: 5 year forecast

housing market predictions

It’s been a wild real estate ride over the last few years. After a red-hot market characterized by very low interest rates and frenzied bidding wars, mortgage rates increased to their highest level in more than 20 years. The average rate for a 30-year mortgage more than doubled between August 2021, when it was just 3 percent, and October 2023, when it reached 8 percent. (Rates have now dipped a bit and were back below 7 percent as of August 2024.)

As you might imagine, this trend has led to a slowdown in buying activity. Even so, with inventory still scarce, home prices have hit new records and remain unaffordable in many parts of the U.S.

Real estate forecasts for the next 5 years

There are plenty of predictions about where the housing market is going this year. But what about further out? After all, buying a home often requires long-term planning. We asked several industry experts to peer into their crystal balls and give us their real estate forecast for the next five years. Here’s looking at you, 2029.

The current housing market
  • Home sale prices: The country’s median existing-home sale price in June 2024 was $426,900, according to the National Association of Realtors (NAR) — the highest median price NAR has ever recorded. For new-construction homes, National Association of Homebuilders (NAHB) data shows that June’s median sale price was only slightly lower at $417,300.
  • Inventory: The supply of homes for sale is increasing, but remains too low to meet demand. Per NAR data, the inventory of unsold existing homes was at a 4.1-month supply in June. It’s typically believed that a balanced market would require a 5- to 6-month supply.
  • Days on market: With high prices and mortgage rates putting a purchase out of reach for many, homes are taking longer to sell. In June, the median length of time homes spent on the market was 22 days, up from 18 days one year earlier, per NAR.
  • Homes sold: Nationwide sales of existing homes fell 5.4 percent in June 2024, per NAR. Meanwhile, the pace of new single-family home sales fell 16.5 percent in May 2024 from a year earlier, per NAHB data.
  • Mortgage rates: According to Bankrate’s weekly survey of large lenders, the average 30-year mortgage rate as of August 7 was 6.59 percent.

Forecast for mortgage rates and types

Lawrence Yun, NAR’s chief economist, says mortgage interest rates have likely crested, at least for the rest of 2024. “I believe we’ve already reached the peak in terms of interest rates,” he told attendees at a November NAR convention. Within two years, he says, the rate should return to 5.5 or 6 percent, assuming the federal budget deficit does not put permanent upward pressure on all borrowing costs.

Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.

A fixed-rate mortgage provides the certainty borrowers want.— Greg McBride, Bankrate Chief Financial Analyst

Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “A fixed-rate mortgage provides the certainty borrowers want,” he says. “It is the best gauge of affordability, and there is very little upfront advantage to taking an adjustable-rate mortgage, as those rates aren’t much lower than fixed rates right now,” he says.

Predictions for home prices

Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. Overall, in five years, he expects prices to have appreciated a total of 15 to 25 percent.

McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.

Will the housing market crash?

While it may show bubble-like characteristics, Yun does not expect the residential real estate market to burst. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027.

Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent or even 10 percent next year, that’s not anywhere close to crashing, which he says is characterized by about a one-third drop.

A crash happens with oversupply. It will not happen, because there isn’t enough inventory.— Lawrence Yun, Chief Economist, National Association of Realtors

“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen, because there isn’t enough inventory.” He believes the housing supply will balance out within five years.

Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Mortgage lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low. And those who do borrow have excellent credit: a very high median score of 772, according to the Federal Reserve Bank of New York.

Will we shift into a buyer’s market?

Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.

Caroline Feeney of Narrative Bent, a former director of content and executive editor at real estate site HomeLight, says the shift away from a seller’s market has already begun. She also expects a balanced market within a few years, and says that 55 percent of HomeLight agents surveyed said the markets that heated up the fastest during the pandemic — including Austin, Phoenix and Boise — would likely be the first to cool down. This scenario may already be playing out: The median home sale price in Austin was down 6.2 percent year-over-year, according to June 2024 Redfin data, and homes there were taking a long 50 days to sell.

Where will new homes be built, and what kind?

With hybrid work schedules now common and commuting no longer as relevant, Yun predicts the suburban market will remain strong. He expects growth in Sun Belt areas with rising populations, including the Carolinas, Florida, Texas and Tennessee.

Backing up his prediction, Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, says 50 percent of new single-family construction is in the South. Southern markets scored big in Bankrate’s 2023 Housing Heat Index as well.

The number of multi-family homes under construction has increased over the last few years — Feeney credits this growth in part to their lower price tags and the pressure on municipalities to relieve shortages and provide more affordable housing. Still, with high mortgage rates and inflationary building material prices, Nanayakkara-Skillington expects the multi-family market’s growth to stabilize within a few years, with the number of new housing starts decreasing.

Tips for preparing to buy a home

Buying a house is a major commitment, and starting to save five years in advance is perfectly reasonable. Here are some strategies to get your finances in shape and save for a down payment so you can be a homeowner by 2029.

1. Think about earning power

Switching jobs is usually the fastest path to a significant salary bump, so be willing to look for other opportunities to increase your earning power. According to a 2022 study from the Pew Research Center, 60 percent of workers who switched jobs earned more money in their new roles, even accounting for inflation. If a new job is not an option, think about the best ways to ask your employer for a raise.

2. Decrease your debt

Saving up to purchase a home isn’t just about growing your bank account. It’s equally important to focus on paying down the amount of money you owe on credit cards, student loans and car payments. By lowering your debt-to-income ratio, you’ll be in a better position to qualify for a mortgage down the line.

3. Improve your credit score

The higher your score, the lower mortgage rate you’re likely to qualify for when you’re ready to buy. Most mortgage types require a minimum score of 620 to qualify, but higher is better. So pay your bills on time and do what you can to raise your credit score before you start house-hunting — it could save you a lot of money in the long run.

4. Focus on your local area

Real estate is hyper-localized, varying greatly not just by region or state but even within the same city. Broad national trends are important to bear in mind, but as you budget and save to buy a house, focus on conditions in the specific neighborhood where you’re looking. This is where a knowledgeable local real estate agent can really shine: Agents are experts in their markets, so find one you like and let their expertise work for you.

It’s been a wild real estate ride over the last few years. After a red-hot market characterized by very low interest rates and frenzied bidding wars, mortgage rates increased to their highest level in more than 20 years. The average rate for a 30-year mortgage more than doubled between August 2021, when it was just 3 percent, and October 2023, when it reached 8 percent. (Rates have now dipped a bit and were back below 7 percent as of August 2024.)

As you might imagine, this trend has led to a slowdown in buying activity. Even so, with inventory still scarce, home prices have hit new records and remain unaffordable in many parts of the U.S.

Real estate forecasts for the next 5 years

There are plenty of predictions about where the housing market is going this year. But what about further out? After all, buying a home often requires long-term planning. We asked several industry experts to peer into their crystal balls and give us their real estate forecast for the next five years. Here’s looking at you, 2029.

The current housing market
  • Home sale prices: The country’s median existing-home sale price in June 2024 was $426,900, according to the National Association of Realtors (NAR) — the highest median price NAR has ever recorded. For new-construction homes, National Association of Homebuilders (NAHB) data shows that June’s median sale price was only slightly lower at $417,300.
  • Inventory: The supply of homes for sale is increasing, but remains too low to meet demand. Per NAR data, the inventory of unsold existing homes was at a 4.1-month supply in June. It’s typically believed that a balanced market would require a 5- to 6-month supply.
  • Days on the market: With high prices and mortgage rates putting a purchase out of reach for many, homes are taking longer to sell. In June, the median length of time homes spent on the market was 22 days, up from 18 days one year earlier, per NAR.
  • Homes sold: Nationwide sales of existing homes fell 5.4 percent in June 2024, per NAR. Meanwhile, the pace of new single-family home sales fell 16.5 percent in May 2024 from a year earlier, per NAHB data.
  • Mortgage rates: According to Bankrate’s weekly survey of large lenders, the average 30-year mortgage rate as of August 7 was 6.59 percent.

Forecast for mortgage rates and types

Lawrence Yun, NAR’s chief economist, says mortgage interest rates have likely crested, at least for the rest of 2024. “I believe we’ve already reached the peak in terms of interest rates,” he told attendees at a November NAR convention. Within two years, he says, the rate should return to 5.5 or 6 percent, assuming the federal budget deficit does not put permanent upward pressure on all borrowing costs.

Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.

A fixed-rate mortgage provides the certainty borrowers want.— Greg McBride, Bankrate Chief Financial Analyst

Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “A fixed-rate mortgage provides the certainty borrowers want,” he says. “It is the best gauge of affordability, and there is very little upfront advantage to taking an adjustable-rate mortgage, as those rates aren’t much lower than fixed rates right now,” he says.

Predictions for home prices

Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. Overall, in five years, he expects prices to have appreciated a total of 15 to 25 percent.

McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.

Will the housing market crash?

While it may show bubble-like characteristics, Yun does not expect the residential real estate market to burst. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027.

Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent or even 10 percent next year, that’s not anywhere close to crashing, which he says is characterized by about a one-third drop.

A crash happens with oversupply. It will not happen, because there isn’t enough inventory.— Lawrence Yun, Chief Economist, National Association of Realtors

“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen, because there isn’t enough inventory.” He believes the housing supply will balance out within five years.

Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Mortgage lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low. And those who do borrow have excellent credit: a very high median score of 772, according to the Federal Reserve Bank of New York.

Will we shift into a buyer’s market?

Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.

Caroline Feeney of Narrative Bent, a former director of content and executive editor at real estate site HomeLight, says the shift away from a seller’s market has already begun. She also expects a balanced market within a few years, and says that 55 percent of HomeLight agents surveyed said the markets that heated up the fastest during the pandemic — including Austin, Phoenix and Boise — would likely be the first to cool down. This scenario may already be playing out: The median home sale price in Austin was down 6.2 percent year-over-year, according to June 2024 Redfin data, and homes there were taking a long 50 days to sell.

Where will new homes be built, and what kind?

With hybrid work schedules now common and commuting no longer as relevant, Yun predicts the suburban market will remain strong. He expects growth in Sun Belt areas with rising populations, including the Carolinas, Florida, Texas and Tennessee.

Backing up his prediction, Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, says 50 percent of new single-family construction is in the South. Southern markets scored big in Bankrate’s 2023 Housing Heat Index as well.

The number of multi-family homes under construction has increased over the last few years — Feeney credits this growth in part to their lower price tags and the pressure on municipalities to relieve shortages and provide more affordable housing. Still, with high mortgage rates and inflationary building material prices, Nanayakkara-Skillington expects the multi-family market’s growth to stabilize within a few years, with the number of new housing starts decreasing.

Tips for preparing to buy a home

Buying a house is a major commitment, and starting to save five years in advance is perfectly reasonable. Here are some strategies to get your finances in shape and save for a down payment so you can be a homeowner by 2029.

1. Think about earning power

Switching jobs is usually the fastest path to a significant salary bump, so be willing to look for other opportunities to increase your earning power. According to a 2022 study from the Pew Research Center, 60 percent of workers who switched jobs earned more money in their new roles, even accounting for inflation. If a new job is not an option, think about the best ways to ask your employer for a raise.

2. Decrease your debt

Saving up to purchase a home isn’t just about growing your bank account. It’s equally important to focus on paying down the amount of money you owe on credit cards, student loans and car payments. By lowering your debt-to-income ratio, you’ll be in a better position to qualify for a mortgage down the line.

3. Improve your credit score

The higher your score, the lower mortgage rate you’re likely to qualify for when you’re ready to buy. Most mortgage types require a minimum score of 620 to qualify, but higher is better. So pay your bills on time and do what you can to raise your credit score before you start house-hunting — it could save you a lot of money in the long run.

4. Focus on your local area

Real estate is hyper-localized, varying greatly not just by region or state but even within the same city. Broad national trends are important to bear in mind, but as you budget and save to buy a house, focus on conditions in the specific neighborhood where you’re looking. This is where a knowledgeable local real estate agent can really shine: Agents are experts in their markets, so find one you like and let their expertise work for you.

Source: bankrate.com ~ By: Dina Cheney ~ Image: Canva Pro

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What Is an FHA 203(k) Loan?

What Is an FHA 203(k) Loan

If you want to purchase and restore a fixer-upper, this loan might be the ideal choice.

These loans have more lenient down payment and credit score requirements than most conventional loans.

Key Takeaways

    • FHA 203(k) loans are a unique home loan option that allows you to borrow funds for both your home purchase and renovations.
    • Because FHA 203(k) loans are government-backed, they can be easier to qualify for than conventional loans.
    • These loans are designed for more significant costs like structural repairs or major remodels, rather than minor updates.

If you’re looking to buy a home that needs a lot of work, you might be able to get it for a discounted price. However, the short- and long-term repair costs could still end up breaking your budget.

That’s why a Federal Housing Administration 203(k) loan might be something to consider. It allows you to combine home purchase and renovation costs all in one loan. After completing the renovations, you’ll have created instant equity based on the increased value.

Although fewer lenders offer government-backed loans – because of the added oversight and paperwork – here is a look at how these loans operate and why it might be worth the extra legwork to find one.

How Does a 203(k) Loan Work?

The loans, which are officially called 203(k) Rehabilitation Mortgage Insurance, allow homebuyers to finance the cost of the purchase plus the renovations in one loan, or for homeowners to finance the rehabilitation of their current home.

The loans can be especially attractive to first-time homebuyers because the credit score and down payment requirements are more lenient than for most conventional loans. If you have a credit score of more than 580, you can finance up to 96.5% of the purchase and renovation. If your score is in between 500 and 579, your down payment would have to be at least 10%.

Also, if the home needs some work before the homebuyers can move in, the loan gives them a chance to “customize and personalize their home the way they want it,” says Brad Smith, senior vice president and director of renovation lending at CrossCountry Mortgage.

There are two types of 203(k) loans:

    • Limited. The loan allows up to $75,000 in financing for nonstructural repairs and upgrades, and there is no minimum amount you have to borrow. The money can be used toward property repairs or to prepare the home for sale. Examples of upgrades would include a kitchen remodel or new carpeting. You won’t be able to do a major renovation with this loan. The rehabilitation period for the limited program is nine months.
    • Standard. A wider range of remodeling options is possible with this loan, including structural repairs. It requires a minimum loan of $5,000 and must also involve a 203(k) consultant who will work with the lender and borrower. There is no specific dollar limit on the loan, but the combined home purchase and renovation loan cannot exceed the FHA mortgage limit for the area. The standard program has a longer rehabilitation period of 12 months.

Limited 203(k) Loan

Standard 203(k) Loan
Loan Limit $75,000 None
Type of Renovation Non-structural renovations Major renovations
Rehabilitation Period Nine months 12 months
Consultant Required No Yes

With a standard 203(k) loan, part of the loan goes to pay the home’s seller, and the rest is kept in an escrow account to pay for the repairs.

Who Qualifies For an FHA 203(k) Loan?

Qualifying for an FHA 203(k) loan is similar to getting any other mortgage, though it might be easier since it is a government-backed loan. Like other FHA loans, 203(k) loans have lower credit score and down payment requirements.

“FHA loans can be approved with credit scores as low as 500, but some lenders may have higher qualifications,” explains Will Doty, certified financial planner and executive advisor at Modern Wealth Management. Other factors, such as your debt-to-income ratio, will also be considered.

Even if you qualify for an FHA 203(k) loan based on your creditworthiness, you’ll have to follow specific criteria when it comes to the renovation projects you plan to use funds for and have a certified inspector review the property if you choose the standard option.

What Projects Can a 203(k) Loan Be Used For?

According to Mason Whitehead, branch manager with Churchill Mortgage, FHA 203(k) loans are best used for more extensive renovations rather than small updates.

“I typically only recommend these loans in cases where significant renovations/remodeling is needed because there are higher fees and rates involved,” Whitehead says. “So this is not a project you want to use if you just need to do some paint and carpet updates.”

The types of work that could be done with a 203(k) loan include:

    • Addressing health and safety issues
    • Putting on a new roof, gutters, and downspouts, or adding to them
    • Replacing floors
    • Making structural changes or reconstructing parts of the house
    • Allowing for better access for a person with a disability
    • Improving energy conservation
    • Landscape work
    • Home modernization and appearance improvements

“If the repairs are minor and not health/safety issues or things that an appraiser will notate as deferred maintenance, then I suggest you just save and budget for those repairs after you close on the house,” Whitehead adds.

How to Get a 203(k) Loan

If you’re interested in a 203(k) loan, your first step will be to find a lender who offers one. Not every lender offers FHA loans, or, if it does, the lender might not provide the 203(k) option.

Check the Department of Housing and Urban Development lender search, which will give you a list of all lenders who have offered a 203(k) in the last year.

You will work with the lender on the next few steps, as you review what needs to be renovated on the house and determine the size of the loan and scope of the project.

Conduct Inspections

Inspections are vital for homes purchased with a 203(k) loan because you have to identify the necessary health and safety upgrades as well as other updates that you would like to make. If you’re pursuing a standard 203(k) loan, you’ll need to bring on a HUD-certified consultant to ensure FHA standards are met. Consultants are optional for the limited program. For both programs, however, you can finance consultant fees in your mortgage.

“The ideal process is to include that HUD consultant to conduct the upfront inspection on the property to identify all the repair items,” Smith says.

A certified consultant’s duties include visiting the home, detailing the work that needs to be done, and performing inspections.

The inspection is key to itemizing all the home repairs needed because “you only have one chance to do it right,” Smith says. You can’t add money for additional repairs once the initial financing is done. If you have to reallocate project funds to pay for a health and safety issue identified once the renovation has started, it could take away funds for something else, such as a bathroom upgrade, he adds.

Get an Estimate and Hire a Contractor

Use the consultant’s report to get bids from contractors, Smith says. You’ll usually hire a general contractor who can work with as many subcontractors as needed to complete the work, or you can hire individual specialty contractors such as a roofer, plumber, and electrician.

“You need to hire somebody who understands the type of renovations you’re looking to do and has done those in the past,” says Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America.

Conduct an Appraisal

Once you have defined the scope of the renovations, the lender will hire an FHA-approved appraiser who will estimate the home value based on completion of all repairs and upgrades. The value will be either the property’s value before rehabilitation plus the cost of the renovation or 110% of the appraised value after the upgrade – whichever is less.

An appraisal that is much higher than the current value of the home indicates that the repairs will pay off for the homeowner. If you buy a home that needs a lot of work in a neighborhood that has excellent homes and make the necessary repairs, you can create some equity for yourself after closing, Smith says.

Once the value is set, the money reserved for the renovations is set up in the borrower’s name in a custodial bank, Smith says. Disbursements to the contractor are made as work is completed and inspected. The amount will also include a contingency reserve, which could be about 10%.

Set Aside Funds For Additional Problems

“When you go into it, you’re thinking one thing,” says Haynie. “As the project progresses, it will change, and you need to be prepared for that. That might mean you need to have more reserves on hand.”

If the work on the home is so extensive that you can’t live in it during renovations, you’ll be able to finance up to six months of mortgage payments so you won’t have to pay for your current home and the new one at the same time, Haynie says.

Refinancing With an FHA 203(k) Loan

FHA 203(k) loans can also be used to refinance your home and make renovations, in addition to new home purchases. The process is largely the same, with the same qualifications for limited or standard 203(k) loans.

Rather than some cash being used to pay the home’s seller, it will be used to pay your existing mortgage. The remainder is similarly kept in escrow to pay for repairs as they are completed.

Pros and Cons of 203(k) Loans

Pros

    • FHA loans, including 203(k) loans, are particularly attractive for first-time homebuyers thanks to their more relaxed credit score and down payment requirements.

    • FHA loans sometimes have lower closing costs than traditional mortgages.

    • FHA 203(k) loans allow you to access funds for repairs rather than have to take out an additional loan.

Cons

    • For most FHA-insured mortgages, you’ll need to pay a one-time upfront mortgage insurance premium and an annual insurance premium that’s collected in monthly installments.

    • An FHA 203(k) loan can only be used for a primary residence.

    • You must work with a HUD-certified inspector and FHA-approved appraiser during the renovation process.

Alternatives to an FHA 203(k) Loan

If you’re a first-time homebuyer, you might be caught up in visions of HGTV-like renovations for the home you plan to buy, but it could be overwhelming to move into your new home while dealing with a major reconstruction project.

“Anybody who does any kind of renovation in their home quickly realizes the project grows beyond what you thought it was going to be,” says Haynie. “When you start tearing down walls, you’re going to find all kinds of stuff that changes your original plan.”

One option some lenders would prefer to a 203(k) loan is a separate, dedicated construction loan to fund renovations. For example, community banks do a lot of construction lending and might keep the loan in their portfolio, which gives the borrower more flexibility, Haynie says.

A separate construction loan also allows the homeowner to avoid FHA rules – which include the payment of home mortgage insurance during the loan. Because you won’t need to start renovations right away, you’ll get time in the home to figure out what you really want to change.

A standard refinancing is another option for homeowners who want to pay for a major renovation, rather than a 203(k) refinance. A bank could arrange a cash-out refinance with the homeowners and help them manage the process of paying for the project, Haynie says.

Homeowners who don’t want to refinance could:

    • Tap home equity. Take out a home equity loan or get a home equity line of credit. If you have enough equity in your home, this could be an ideal option because of current low interest rates. The interest might also be tax-deductible.
    • Consider a personal loan. The interest rates are generally higher on unsecured personal loans than home equity loans, but it’s a good option if you don’t have enough home equity but can handle the monthly payments.

Whether you’re a prospective or current homeowner, you might find a major renovation to be too expensive. With many homeowners deciding to expand their current homes to get extra space for offices and other needs, the price for workers and materials is going up, Haynie says. The best option might be to buy a home that has everything you want already.

“Look at all your options,” says Haynie. “Ask yourself: ‘What is it I really need to get out of this renovation, and is it worth it?'”

Source: money.usnews.com  ~ By: Bob Musinski ~ Image: Canva Pro

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What Is Real Estate? A Definition And A Guide

What Is Real Estate? A Definition And A Guide

Interested in buying a home so you no longer have to send rent checks to your landlord each month? This thought isn’t surprising: real estate is attractive to both investors and those who want to swap renting for owning.

But while real estate is an attractive alternative or addition to stocks, bonds and mutual funds, it does come with risks and challenges.

Here’s a look at how real estate works, what makes it an attractive investment and the steps and research you need to take whether you’re buying a home for you and your family or making an investment to boost your bottom line.

Real Estate Definition

When you boil it down to the basics, real estate has a simple meaning. It’s a piece of land and the property – such as a house, office building, apartment, strip center or warehouse – that sits on it. These structures can be both above and under the ground. For instance, if you own a strip center with an underground parking lot, that parking lot would be part of your property.

Real Property Definition

If you’re buying real estate, you should also understand what the term real property means. Real property is the land and any structures affixed to it that are factored into the value of the property. For instance, if you own a home, its garage would be considered part of its real property. A movable picnic table in your backyard, though, wouldn’t. Real property also gives you the right to use your property, including selling it or leasing out space in it, as you wish.

Multiple types of real estate are available – whether you’re buying a home for yourself or to rent out to others. No matter what type of real estate you purchase, the hope is that it appreciates with time so that when you do sell, you earn a profit. Be careful, though: While real estate can be a sound investment over time, appreciation isn’t always guaranteed.

Residential Real Estate

As its name suggests, residential real estate is any type of real estate where people can live, including single-family homes, townhouses, condominiums and multifamily homes.

Many people purchase residential real estate as a place to live. But you can treat residential real estate as an investment, too. You might buy a single-family home, renovate it and then sell it for a higher price. You can also buy a single-family home and rent it to tenants, collecting monthly payments to pay off the mortgage.

Even if you buy residential real estate primarily as a place to live, your home might still turn out to be a solid investment if it’s worth more when you sell than when you purchased it.

Commercial Real Estate

Commercial real estate is any property that provides a business service and isn’t used as a living space. This kind of property includes everything from office buildings and shopping malls to restaurants, clothing stores, movie theaters, gyms and gas stations.

You can earn money by holding onto the commercial property until it increases in value, then selling for a profit. Or you can earn money by leasing space in your property to business tenants. For example, if you owned a retail strip center, you’d charge that pizza restaurant monthly rent to lease space in it. If you owned an office building, you’d charge companies to lease space in the building.

You can also use commercial real estate as a home base for your own business. You might own an office storefront if you run an insurance business, for example.

Land

You can also buy land, which can be defined as real estate that has no buildings or structures on it. If you purchase land, you can then develop or build whatever you want on it, as long as you follow the local zoning codes and regulations for that lot.

Industrial Real Estate

Industrial real estate is any structure or piece of land primarily used for manufacturing facilities, warehouses, distribution centers and factories. This type of real estate can be pricey, but it’s also valuable.

As people spend more time shopping online, and as they expect the products they buy to show up at their doors in less time, the demand for industrial real estate has only grown. This makes this property type especially valuable since the odds of it appreciating in value are high.

Make Your Offer Stand Out!

If you’re ready to buy real estate – whether as a primary residence or an investment – it’s important to understand the basics of how this business works from start to finish.

Development And Construction

New buildings – everything from homes and office buildings to apartment towers, distribution centers and shopping malls – get their start during the development and construction phase of real estate. This is when development companies, municipal officials, architects, contractors, engineers and builders work together to create a new real estate project.

If you want to buy a home, it’s usually easier to purchase one already built. Buying land and building a new home on the site, though, can leave you with a home that more closely meets your housing needs. After all, you can tell your architects and builders exactly what you want.

Working With Brokerages And Real Estate Agents

You can purchase or sell real estate on your own. But navigating this process – finding the right property, qualifying potential buyers, signing documents and handling negotiations – can be time-consuming and confusing. So, this is where real estate brokerages, real estate agents and REALTORSⓇ come in.

Real Estate Agents And REALTORS®

Real estate agents are professionals who work with both buyers and sellers. Real estate agents who are members of the National Association of REALTORSⓇ are known as REALTORSⓇ.

Real estate agents help market properties, handle the buyer and seller negotiations and make sure all the right paperwork is signed during a real estate transaction. They don’t do this for free; they usually get paid a percentage of a property’s sale.

Real Estate Brokers

All real estate agents must work under a real estate broker. A real estate broker holds a real estate license and has extensive knowledge of the real estate industry. The term “brokerage” and “broker” often get confused with one another, but a broker is a real estate professional, and a brokerage is a real estate firm.

Property Management

If you buy real estate as an investment, you might opt to pay for a property management service. As the name suggests, such services manage rental properties that you purchase but don’t live in. They handle everything from maintenance and rent collection to emergency calls from renters at 2 a.m.

Let’s say you own an apartment complex in another state. You might hire a property management company to handle the maintenance of that property. This company would hire a landscaping service, cleaning service and security service. Your property management company might also screen potential tenants, market units when they come up for rent, and handle evictions if tenants stop paying their monthly rent. If a renter’s furnace conks out, one of your property managers would take the call and send out a repair service.

Working With Mortgage Lenders

Few people can purchase real estate with cash. Most people will have to take out a mortgage loan. This is where mortgage lenders come in.

If you want to buy a single-family home for a primary residence but lack the cash to make this purchase, you’ll work with a mortgage lender. You’ll provide this lender with income-verifying documents such as your most recent paycheck stubs, bank account statements and tax returns. Your mortgage lender will also check your three-digit credit score and your three credit reports, all to make sure you can pay back the money you borrow.

If you’re approved for a loan, your lender will pay the sellers of the property you’re buying. You then pay back your lender every month with a mortgage payment. You’ll have to pay interest on these payments, which is how lenders make a profit.

Lenders don’t originate loans for free but charge a range of fees to close your mortgage loan. Fees vary, but you can expect to pay 3% – 6% of your home’s purchase price in closing costs. On a home costing $200,000, then, you may expect to pay $6,000 – $12,000 in closing costs.

Investing In Real Estate

Ready to tackle real estate investing? Be prepared to do your research.

The key to maximizing your real estate investment is to study your local market. If you want to purchase a single-family home, for instance, you should study housing market indicators such as the median sales price of homes in your neighborhood, how long it takes homes to sell and whether home values are on the rise.

The same is true if you want to invest in commercial real estate such as a warehouse, office building or strip mall. You’ll need to research how much other owners are charging tenants for rents, how much traffic pours through retail areas and how high the vacancy rates are for neighboring office buildings or strip centers.

The more research you do, the better your odds of investing in a property that’ll increase in value over time and bring in a steady stream of rental income.

Ways To Invest In Real Estate

Of course, you can employ different strategies for investing in real estate. Let’s take a look at a few:

House Flipping

When some investors purchase single-family homes for a low price, they then flip these properties and sell them for a higher price. The key is to purchase a home for a low enough price and avoid overspending on improvements so you make a solid profit when you sell.

Rental Properties

You can buy a rental property and rent out apartment buildings, single-family homes, condo buildings and commercial properties. Your monthly rent collections might cover part or all of your mortgage payment, offsetting the costs of holding onto real estate while you wait for its value to rise. If you collect enough rent, you might make a monthly profit without having to sell your investment.

REITs

Buying into REITs – real estate investment trusts – is an easier way to invest in real estate. REITs are companies that own real estate, both residential and commercial. When you buy into a REIT, you purchase a share of these properties. It’s like investing in mutual funds, but instead of stocks and bonds, you’re investing in real estate. You earn money from REITs through regular dividend payments and when the value of a REIT increases. If the value goes up, you’ll earn a profit when you sell.

Real Estate Crowdfunding

In real estate crowdfunding, investors pool their money and then use it to invest in REITs, giving people who might struggle to come up with enough money to invest on their own a chance to invest in real estate.

The Pros And Cons Of Real Estate Investing

It’s easy to look at the advantages of investing when a big payout could be waiting in the end. But before you make an investment, let’s take a look at both the advantages and disadvantages of real estate investing.

The Pros Of Investing In Real Estate

Investing in real estate has plenty of potential advantages. By investing, you can:

  • Expand your investment portfolio
  • Bring in passive income
  • Live in your real estate investment
  • Get tax breaks

The Cons Of Investing In Real Estate

While investing in real estate can prove profitable, it can also:

  • Be expensive to start
  • Require selling property to gain funds
  • Lack guaranteed profits

Real Estate FAQs

Keep reading below for answers to some frequently asked real estate questions.

What is a real estate broker?

As mentioned above, a real estate broker is essentially a step above a traditional real estate agent. They have additional education and have passed the broker license exam, allowing them to employ other real estate agents under their license.

How can I finance a real estate purchase?

Real estate is most often financed through a mortgage. There are many different types of mortgages and lenders, so if you’re thinking about purchasing real estate, be sure to research your options and find the ones that best fit your situation.

What is digital real estate?

Digital real estate is any website or other online asset. This internet property can be bought and sold similarly to traditional real estate.

The Bottom Line

Real estate involves many terms that are important to understand, and investing is one of them. Investing in real estate can be a smart financial move if you understand your market, are willing to take on the risks, and borrow only what you can afford to pay back.

Source: rocketmortgage.com ~ By: Dan Rafter ~ Image: Canva

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How to Sell Your Home Super Fast

Sell Your Home Super Fast

The more work you do before you tell the world you have a house to sell, the faster it will likely happen.

Experts say one home improvement that can really help is a new paint job.

Key Takeaways:

  • You may be able to sell your house fast, but you can’t close fast. Expect that to take at least a month.
  • The more work you do before you tell the world you have a house to sell, the faster it will likely happen.
  • There are some corners you can’t cut, even if you try to sell quickly. You have to be upfront about any needed home improvements.

Some people need to sell their home, like, now. Maybe you are moving yourself, or you need money quickly. Perhaps there’s been a death in the family, a divorce, or you found your dream house, but you can’t move forward unless you sell your current home first. Whatever the reason, you’ve got to sell your home now, and there’s simply no time to upgrade, fix up the home or add curb appeal.

How do you sell your home super fast – and still get a reasonable deal?

Those two goals are sometimes incompatible. It’s also important to realize that due to the laws in your state and how your lender works, you may make a sale in a day or less, but you won’t be able to actually close on a the deal for weeks or even months – generally about 30 to 45 days, according to Rocket Mortgage. But if you’re looking to make a quick sale, here’s a roadmap.

Do a Lot of Work Beforehand

This advice doesn’t help somebody who found out yesterday they need to sell their home, and they’d like to do it today. But if you’re buying and selling a home in the same window, and you have some time before you start this game of musical houses, it will go faster and more smoothly if you can do some work beforehand.

The more prepared you are, the faster your home should sell. In theory.

Adie Kriegstein, a licensed real estate salesperson at Compass in New York City, has some suggestions for any home seller who wants to sell their home fast:

  • Make home improvements before you even list your home. You want your home “in the best possible condition for both marketing purposes and for those who will come to view it in person,” Kriegstein says. One home improvement that can really help is a new paint job, she says. You should consider painting the rooms white, she adds, if the walls aren’t already “naturally colored.”
  • Clean. Scrub everything, including the windows. “Make sure to declutter,” Kriegstein says. It’s hard for a buyer to imagine living in your house if your stuff, including your old CD collection and a pile of laundry, is everywhere.
  • Think about how you’re going to market your home. “You want to win the beauty contest,” Kriegstein says. She suggests hiring a professional photographer, possibly someone who can also shoot video. “In this digital age, marketing is a must,” she says. “People will start their search online, so it’s important to have a floor plan, stunning photos and a video.”

San Francisco real estate agent Ying He agrees that preparation is the best way to sell a home fast.
“All the painting, landscaping, and staging need to be finished before we go alive to best present the property,” she says. “Also, on the paperwork front, we need to make sure all the disclosures are ready to go.”

Pricing Is Vital

As insight goes, this is about as obvious as it gets. Still, you want to be smart about how you choose your price. You could slash the price of your home by 50% to try to sell it in a hurry, but your goal isn’t to sell your home fast and also go broke fast.

“You’ll need to price your property at what we refer to as the compelling price point or even slightly under that – depending on how fast you need or want to sell,” says Sabrina Conti Erangey, a real estate broker associate with Baird & Warner who is based near Chicago in Elmhurst, Illinois.

The “compelling price point,” Erangey says, “is slightly below the market value pricing but just enough to ramp up demand and drive up the sales price.”

This is the sweet spot where buyers spot a good deal, and they descend upon your home to take advantage of the deal and begin offering bids. This drives the price up, so you still end up doing well.

Timing Is Crucial

“Timing is extremely important. We don’t want to waste a single day on the market,” He says. “When it comes to timing, there are several layers. The first is seasonality. In San Francisco, the best time for sellers to go on market is actually the very beginning of the year. Spring and fall are good. Summer and winter are less ideal due to a smaller buyer pool.”

You also want to think about other factors, like holidays, the weather or an election. You can start selling your home in the dead of winter or during the rainy season, but “weather can be extremely important, especially for houses with a view,” He points out.

She suggests that the best day to have your property go live is on a Thursday to maximize weekend open house traffic.

Decide What Matters More – a Fast Sale or the Best Price?

You can sell a house fast and get an excellent price, real estate agents say. But if your house needs a lot of work and you won’t budge on selling as soon as possible, you may not get the best price. One way or another, you’ll need to bow to reality.

That includes trying to fix some of the issues with your home, Erangey says.

“In a fast sale, you want to do your due diligence as a seller and do what we refer to as a pre-listing walkthrough,” she says. “During this walkthrough, we will bring up factors that could be raised during the inspection and connect our clients with our vendors to make appropriate adjustments and changes to avoid concerning buyers.”

That might mean something simple, like digging up recent receipts showing that you had your heating, ventilation, and air-conditioning system fixed, Erangey says. If those need replacing or fixing, Erangey would encourage the seller to do that. You’ll sell your house faster and take less of a hit on the price, she says, if the worst of your home improvement projects are addressed.

“Price and condition determine everything,” Erangey says.

He puts it this way: If you try to sell your home quickly and cut corners, such as not fixing obvious problems or making subtle but critical repairs, you could defeat your own purpose. You may find yourself with a ready-to-sign contract and then realize, thanks to issues your buyer or the buyer’s home inspector has discovered, your interested party is now less keen and wants to negotiate your price downward – or even back out of the sale altogether.

If you have to start over, you won’t sell your home super fast, but possibly super slow.

Source: realestate.usnews.com ~ By: Geoff Williams ~ Image: Canva Pro

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These Are the Tax Breaks You Can Get When You Buy a House

Tax Breaks You Can Get When You Buy a House

Buying a home is expensive, but these tax credits and deductions can help you recoup some costs.

Key Takeaways:

  • There are several tax breaks for homebuyers that can help make homeownership more affordable.
  • Tax credits apply to the tax owed, while tax deductions reduce taxable income.
  • Some tax benefits extend beyond the initial purchase of a home.

One of the biggest benefits of homeownership is tax breaks. If you’re a homeowner, tax credits and deductions could save you thousands of dollars per year. But are there tax credits for buying a house? And what about deductions?

To help you come next tax season, here are tax credits and deductions you can get when you buy a house, and additional tax breaks that come with homeownership.

Both tax credits and deductions can help a homeowner save money on their tax bill, but they work differently. “Both lower one’s taxes, but a credit applies to the tax owed, while a deduction applies to one’s income that is subject to tax,” says Asher Rubinstein, partner and tax, asset protection and trusts and estates attorney at Gallet Dreyer & Berkey in New York City. “In other words, it’s a matter of timing and when the tax discount is applied.”

There are also refundable and nonrefundable tax credits. According to the IRS, if your tax bill is less than the refundable credit, then you get the difference back in your refund.

Credits are typically much more valuable than deductions. “For example, someone with a $1,000 tax credit in the 20% tax bracket will see their tax bill reduced by $1,000. Someone with a $1,000 tax deduction will only see $200 in tax savings,” explains Eric Presogna, founder and CEO of One-Up Financial and a certified financial planner public accountant.

There are two types of deductions available to all taxpayers: standard deduction and itemized deduction. If you take the standard deduction, you reduce your taxable income by a set amount. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. “There is no need for the taxpayer to keep records of individual tax deductions if the taxpayer takes the standard deduction,” Rubinstein says. Itemized deductions are individual tax deductions that could potentially add up to more than the standard deduction.

According to Presogna, homeowners should only take the standard deduction when they don’t have enough itemized deductions to exceed the standard. “With the SALT deduction (state, local, real estate taxes) currently limited to $10,000, a married couple would need more than $19,200 in mortgage interest, charitable donations and other qualifying deductions in order to warrant itemizing,” Presogna says.

The IRS has specific rules regarding how homebuyers qualify for certain tax credits. There are also credits that are only available to first-time buyers. You generally qualify as a first-time homebuyer if you’re purchasing your first home. However, you may still qualify if you’ve not owned a home for three years prior to the date of purchasing the new home for which the credit is claimed, according to the IRS. That home must be your principal residence.

One federal tax credit available to first-time buyers is through the Mortgage Credit Certificate (MCC) program. This program was designed to help lower-income families afford a home. The MCC program allows buyers to claim a dollar-for-dollar tax credit for a portion of the mortgage interest paid per year, up to $2,000. Eligible individuals must be first-time homebuyers, use the house as their primary residence and meet the program’s income and purchase price requirements.

There may also be tax credits available through your state. These buyer programs vary from state to state. You can research what may be available in your local area or look through the U.S. Department of Housing and Urban Development’s directory of local homebuying programs.

There are more tax deductions available to homebuyers and homeowners than there are tax credits, but Presogna says it depends on whether you itemize your deductions or take the standard deduction. Regarding homeownership, “If you have enough deductions to itemize, real estate taxes, home equity loan and mortgage interest are some of the larger deductible costs,” Presogna adds.

Keep in mind that not everything is deductible. According to Rubinstein, most costs associated with homeownership do not qualify for any tax benefits, including cosmetic upgrades, homeowners insurance and your mortgage principal, to name a few.

Here are several tax deductions buyers may qualify for after purchasing a home:

First-time homebuyer savings account (FHSA). Some states offer tax benefits to first-time homebuyers to open an FHSA. This is a specific type of savings account that helps first-time buyers save up to $15,000 or $30,000 per year for a down payment, closing costs and other expenses related to their home purchase. You can deduct the annual savings from your state-taxable income, but limits vary by state.

Mortgage interest deduction. This is a deduction for interest paid on mortgage debt, but you will need to itemize your deductions to qualify for this tax break. “Under current law, this applies to loans up to $750,000,” Rubinstein says.

Property tax deduction. Through 2025, taxpayers who itemize their tax deductions can claim a deduction on their federal tax return up to $10,000 each year for local property taxes paid, according to Rubinstein. “When the tax law changed in 2017, this was very controversial, because taxpayers previously had an unlimited deduction,” he says. “The $10,000 limit is significant for taxpayers in high-tax states like New York and California.”

Mortgage points deduction. Per IRS guidelines, mortgage points are fees paid to take out a mortgage. This also includes origination fees or discount points purchased in order to reduce the interest rate.

Home office deduction. “If you’re a business owner or self-employed and work from home, you may be entitled to a deduction for the portion of your home used for business,” Presogna says. However, Rubinstein warns that this is the most audited deduction due to the amount of taxpayers who try to claim this deduction. “The IRS has specific rules to follow. For instance, you can’t work from home for an employer. You have to use a dedicated room and you have to use it regularly. And there are square footage limitations,” Rubinstein explains.

Many tax benefits extend beyond the initial purchase of a home. The IRS offers some tax benefits for certain capital improvements, such as renovating your home office, making energy-efficient improvements or making changes due to a medical condition. If you take out a home equity loan to buy, build or improve your home, you could qualify for the home equity loan interest deduction. The IRS would classify the interest you pay on the borrowed funds as home acquisition debt, which may be deductible.

First-time homebuyers could also potentially qualify for a traditional or Roth IRA penalty waiver. If you meet IRS qualifications as a first-time buyer and take out $10,000 or less, you can use those funds toward a down payment without a 10% tax penalty if you close within 120 days. However, the actual withdrawal may still be considered taxable income.

One of the biggest tax breaks for a homeowner is the exclusion of capital gains when they sell their home. Capital gains are the profit from the sale of the home. For married couples, the first $500,000 in capital gains are not subject to tax. For individuals, the first $250,000 in capital gains are not subject to tax. “However, the home has to be used as one’s personal residence for two out of the last five years in order to get this tax break,” Rubinstein says.

Source: realestate.usnews.com ~ By Josephine Nesbit ~ Image: Canva Pro

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15 questions to ask before purchasing farmland

questions to ask before purchasing farmland

Record land values are making buying decisions tougher. Here are 15 questions to ask before purchasing farmland.

Growing demand for farmland has driven land values to record highs in many areas. Whether you’re considering using cash or borrowing money to purchase new farmland, the buying process should include a well-researched financial plan.

“Farmers should consult their banker throughout the land buying process, to ensure decisions made today best position them to prosper and obtain credit in the future,” said John Blanchfield, senior vice president of agricultural and rural banking at the American Bankers Association. “When it comes to buying land, you cannot spend too much time researching all of the contingencies.”

ABA’s Agricultural and Rural Bankers Committee has developed the following recommendations for buying farmland:

  1. What is your business’s financial condition? Consider needed investments, expected expenditures, and crop conditions to determine if buying land is the best use of your cash. Are there other opportunities that can provide a better return?

  2. Have you created a pro forma cash flow? Research sales trends and expected revenue of a potential plot of land to determine how well the purchase fits within your plan. Does the potential return meet your objectives? Your banker can help you develop this essential planning tool.

  3. Given your revenue forecast, are you overpaying? If you are paying a premium, how long will it take you to recoup? Determine how much your business should prudently spend on a land purchase and the revenue needed to justify your purchase and stay within those targets.

  4. Have you thought long and hard about it? Never be rushed by a broker and never confide your best price or financial goals with a party working for the seller. Don’t buy impulsively or make a deal before visiting the property numerous times. Rework the standard broker’s purchase contract with your lawyer, deleting what you don’t like and adding what you want, before presenting the offer.

  5. Does it make more financial sense to rent the land rather than owning it? Rental rates are high but renting frees your cash for other activities. What will be your total land payment per tillable acre owned and how does this compare to cash rents in your area?

  6. Should you go all in with your cash? Talk to your banker about alternatives to using all cash in the transaction. Land is an illiquid asset and purchasing it will impact your farm’s liquidity. Your banker can work with you to structure a loan that will enable you to acquire the land you need while preserving some of your working capital for necessary expenditures.

  7. How much land are you acquiring? Sounds simple, but many times there is confusion about how much land is actually being purchased. Know exactly what you’re getting before making a bid. See if the land has been surveyed and make sure it matches the details of the offer. If the land has not been surveyed, work with your attorney to determine the acreage based on the legal description, or consider having the land surveyed and determine who will pay for it. Make sure that there are no special easements tied to the land. If there are, make sure you spend time studying them and understanding them completely.

  8. What does the land appraise for? Are there some comparable sales in the area? Appraisals are expensive, but they are the best way to establish value. Even if you do not get a full appraisal, attempt to find some comparable sales to determine if the purchase price is reasonable.

  9. What is the soil story? What is the capability of the soil you are buying and how does this impact your revenue forecast? Good soil is paramount. Know the type of soil you’re buying and the history of annual crop rotation. Any seller should be more than happy to provide you with a soil’s profile and information about past farming practices.

  10. What is the water source? Is the property irrigated? Do the water rights convey with the property? Adequate water is essential to establishing the value of the property. Account for water costs in your financial plan to ensure this cost doesn’t negatively impact your return. Make sure all water wells are registered with the appropriate authorities. Each state has its own water laws so make sure you are familiar with the state that you are doing business in.

  11. What do you know about the gas, mineral, and wind rights for the property? Do these rights convey to you as the purchaser? Have they been surveyed or severed from the surface rights? Are they currently under lease? If so, under what terms? Have a thorough knowledge of property rights, as mining and drilling can have an impact on surface and water quality, access to the property, and the viability of the farm or ranch.

  12. How is the property zoned? Will your plans for the property conflict with existing zoning restrictions? Are there conservation easements that could restrict the use of the property? This factor has a significant impact on your valuation of the property, particularly if your plans conflict with current zoning restrictions. Make sure that you understand the assured leases that may go with the property — many of the states in the west have a large percentage of their ground that falls into this category (Bureau of Land Management, Forest Service, state land, national grassland).

  13. How will you hold the deed to the property? Will you own it individually, jointly with a spouse, in a family-owned entity (corp., LLC, LLP), or in a trust? The pros and cons of how you own the land will depend on your long-term goals.

  14. Are there any environmental problems? The last thing you want to buy is a costly environmental problem. Paying for an onsite environmental audit before you buy the land may be worth the cost and will help ensure you are not buying into an expensive cleanup.

  15. How long will you actively farm?  Make sure your financing plan matches the rest of your intended career as an active producer. Will you fully retire all debt from the acquisition before you retire? Do you have sufficient life and disability insurance?

    Source: farmprogress.com ~ Image: Canva Pro

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5 Things to Not Ignore At a Home Showing

Don't ignore these at an open house

There are common things you should look for at a showing, like dripping faucets, but the less obvious things are sometimes revealing as well.

Looking at homes can be overwhelming, especially if it’s your first try at buying a place of your own. Most homes have some flaw, small or large, and sometimes you can pick up on them during a showing or an open house. While most problems can be corrected with enough money, time, and patience, being aware of these items will make the process – and your ownership – a lot easier.

Here are five things real estate agents say you should never ignore at a showing:

1. Clutter

Sometimes, clutter is just the end result of a busy life or too many things and not enough places to put them, but sometimes it’s covering up things you should really know about.

“Even though clutter is usually just clutter, it could be hiding some things,” says Laura Carroll Duckworth, a real estate agent with Flat Fee Redefined, an agency brokered by eXp Realty LLC in Springfield, Missouri. “I had one where the seller refused to move a lot of their stuff for the inspection, and then it turned out there was termite damage behind it.”

Termites are bad enough, but they’re not the only bugs you may come across living in a cluttered home. They’re all going to require an exterminator at minimum, and the problem could be a lot worse than you imagine.

“I was showing a foreclosure and they didn’t do a trash out of the property,” says Tammy Nevin, real estate agent with First Weber Inc. in Tomah, Wisconsin. “There was debris and garbage everywhere. It looked like they just picked up and walked out. The stench was a combination of cigarettes and cats. As I was walking through and I looked closer, I noticed lots of little bugs jumping around – they were fleas. We ran out of there pretty quickly.”

2. Room Deodorizers

Homeowners often will use plug-in deodorizers or other air fresheners to make their home smell welcoming to a potential buyer. But if you smell something more than just the air freshener, it’s time to look a little closer.

“Some people have air fresheners and room sprays and the buyer might wonder, ‘Oh, what are they trying to cover up?’” says Duckworth. “Sometimes they’re not trying to cover up anything, they just want the house to smell good for the buyers. Other times, there are layers to that scent that might indicate problems with mold, rodents or insects.”

3. Area Rugs

While it might not occur to you that a seller could be hiding damage in plain sight, it’s not uncommon. Area rugs should always be considered suspicious until you’ve seen what’s underneath.

“One of my clients purchased a home about seven years ago and it had beautiful hand-scraped hardwood floors throughout,” says Neil Brooks, real estate agent with My Home Group in Scottsdale, Arizona, and an agent within the Veterans United Realty Network. “During the showing, the owner was there and took us on a tour. When shown the living room, he pointed out the area rug and mentioned that it was expensive and placed it there so their grandchildren could play comfortably. He added that he would leave it for my client because it fits nicely in the room.

“My client decided to purchase the home, and upon moving in, moved the carpet to buff the floors to find out that the rug covered a three-foot area where the previous owners’ dog chewed the floor down, exposing the slab.”

4. The Neighborhood

Most neighborhoods show well enough during the daytime when everyone is at work. It still pays to familiarize yourself with the neighborhood you’re considering, especially if a house is having trouble selling.

“One major red flag is not the house itself, it’s the neighbors,” says Bob Thompson, a real estate agent with American Homes Of Eastern VA, Inc., in Hampton Roads, Virginia. “I encourage all my buyers to do what I call the Friday night drive-by. Every neighborhood looks great at 3 p.m. on a Tuesday, but weekends are when you find out what people are really like. That’s important because no one wants to get stuck next to the loud drunk neighbors or racist neighbors.”

5. DIY Repairs

Homeowners often do home repairs, and to a high quality standard, because they care about their homes and want to take care of them to the best of their ability. But sometimes, no matter how hard someone may try, they might just not be cut out for DIY. When those repairs are obvious, it’s something to pay close attention to.

“When you can tell the homeowner did their own repair work on something and did a poor job on it, that’s important – what else did they attempt to repair?” says Thompson. “Also be sure to look at minor repairs on a rehabbed property. If they did poor work on the small things, did they do poor work on the big things?”

What if You Spot a Problem at the Showing?

A showing is just a chance to get to know a house that you might be interested in. It’s an opportunity to see all the home’s visible red flags and decide how much those things bother you. This is why it’s so important not to get too serious about a house right away, even if you think it’s your dream home.

“Try not to fall in love with a home initially, just date it until you have a thorough understanding of what you’re buying,” says Brooks. “It’s a Realtor’s duty to be the voice of reason and point out all of the potential issues and err on the side of caution in order to protect their client.”

Once you’ve identified the issues that may or may not be serious enough to fall out of love with a property, it’s time to put pencil to paper. Ignoring issues won’t solve them, but every problem related to a home can be fixed, if you go in with your eyes open.

“Every issue can be overcome with time, money, expertise or a combination of all three,” says Aimee Thayer-Garcia, broker-associate at Montalvo Homes & Estates in Santa Cruz, California. “Ignoring red flags at a showing can set buyer, seller, and their agents up for a challenging escrow. Every transaction has its own speed bumps – a huge part of the work as an agent for buyer clients is preparing for them and setting expectations.”

Source: realestate.usnews.com ~ By: Kristi Waterworth ~ Image: Canva Pro

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Escrow: What Is It And How Does It Work?

Escrow: What Is It And How Does It Work?

If you’re buying a home, you’ll probably hear the word “escrow” used in a few different contexts. Let’s look at what escrow is, how it works and how it can benefit you as a home buyer, seller or homeowner.

What Is Escrow?

Escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met – such as the fulfillment of a purchase agreement.

How Does Escrow Work?

It’s used in real estate transactions to protect both the buyer and the seller during the home buying process. Throughout the term of the mortgage, an escrow account will hold funds for taxes and homeowners insurance.

What Is An Escrow Account?

In real estate, escrow is typically used for two reasons:

  • To protect the buyer’s good faith deposit, so the money goes to the right party according to the conditions of the sale
  • To hold a homeowner’s funds for property taxes and homeowners insurance.

Because of the different purposes served, there are two types of escrow accounts. One is used during the home buying process, while the other is used throughout the life of your loan.

Escrow Accounts For Home Buying

When you’re buying a home, your purchase agreement will usually include a good faith deposit – (also known as earnest money). This deposit shows the seller that you’re serious about purchasing the home. If the contract falls through due to the fault of the buyer, the seller usually gets to keep the money. If the home purchase is successful, the deposit will be applied to the buyer’s down payment.

To protect both the buyer and the seller, an escrow account will be set up to hold the deposit. The good faith deposit will sit in the escrow account until the transaction closes.

Sometimes, funds are held in another type of escrow account past the completion of the sale of the home. This is called an escrow holdback. There are many reasons an escrow holdback may be needed. For example, perhaps you agreed that the seller can stay in the home an extra month, or there are outstanding bills on the home that the seller is responsible for (a water bill, for example).

If you’re building a new home, money may remain in escrow until you’ve signed off on all the work. Once the conditions are met, the money will be released to the right party.

Escrow Accounts For Taxes And Insurance

After you purchase a home, your mortgage lender will establish an escrow account to pay for your taxes and homeowners insurance. Each month, your mortgage servicer takes a portion of your monthly mortgage payment and holds it in the escrow account until your tax and insurance payments are due.

The amount required for escrow is a moving target because your tax bill and insurance premiums can change from year to year. Your servicer will determine your escrow payments for the next year based on what bills they paid the previous year. To ensure there’s enough cash in escrow, most lenders require a minimum of 2 months’ worth of extra payments to be held in your account.

Your lender or servicer will analyze your escrow account annually to make sure they’re not collecting too much or too little. If their analysis of your escrow account determines that they’ve collected too much money for taxes and insurance, they’ll give you what’s called an escrow refund.

If their analysis shows they’ve collected too little, you’ll need to cover the difference. You may be given options to make a one-time payment or increase the amount of your monthly mortgage payment to make up for a shortage in your escrow account.

Who Manages An Escrow Account?

Escrow accounts may be handled by a variety of third parties, including an escrow company, escrow agent or mortgage servicer. Where you are in the process will determine who manages the account.

Escrow Companies And Escrow Agents

When you’re buying a home, escrow may be managed by a mortgage servicing company or agent. The escrow agent or company is sometimes the same as the title company.

The escrow company not only manages the buyer’s deposit, but they may also be responsible for holding the deed and other documents related to the sale of the home.

Because the escrow company is working for both the buyer and the seller in the real estate transaction, the fee for their services is usually split evenly between the two parties.

Mortgage Servicers

Your mortgage servicer manages your mortgage, from closing until you pay off your loan. Mortgage servicers are responsible for collecting your mortgage payment, maintaining the records of payments and managing your escrow account.

Your mortgage servicer is sometimes your originating lender – but not always. Sometimes, lenders sell the servicing rights to your loan. It’s a good idea to know ahead of time whether your lender typically services their own loans. Not all mortgage servicers provide the same level of service.

With your mortgage servicer taking care of your escrow account, you don’t have to worry about your tax or insurance bills – your servicer will make sure they know who to pay, and when.

The only exception is if you change insurance providers or policies. You will need to provide the new policy information to your servicer.

The Benefits Of An Escrow Account

The biggest benefit of having a Rocket Mortgage® escrow account is that you’ll have peace of mind knowing you’re being taken care of by the most awarded mortgage company ever, based on J.D. Power’s consumer surveys.*

For Home Buyers

An escrow account is key to protecting your deposit during a home sale. For example, say you have a purchase agreement, but the sale falls through due to a problem found during the home inspection.

If you’d given your deposit directly to the seller, there’s a chance they wouldn’t return your deposit. But since the deposit is being held by a third party, you can be confident it will be returned according to your agreement.

For Homeowners

An escrow account takes the pressure off you to come up with a lump sum to cover taxes and insurance. Since you’re paying for your taxes and insurance throughout the year, the payments are much more manageable.

Another bonus is that you don’t have to keep track of all the different due dates. When your tax bills and insurance premiums are due, your mortgage servicer will make sure those bills are paid on time, every time. That way, you’re not responsible for any late payments. Your servicer will even cover bills for you if your escrow account is short on funds – but, as mentioned above, you’ll be responsible for making up the shortage later.

For Lenders

Lenders have a vested interest in making sure your property taxes and insurance get paid:

  • If your tax bills don’t get paid, the tax authority could put a lien on your home – which could end up costing the lender money if the tax authority chooses to foreclose.
  • If your homeowners insurance coverage lapses, significant damage to or loss of the home could lead to extreme loss of value of the home.

Having an escrow account on the loan allows the lender to ensure the bills get paid.

The Disadvantages Of An Escrow Account

Although there really aren’t any disadvantages of having a mortgage escrow account, here are some that could be considered as such:

Higher Monthly Mortgage Payments

As stated before, an escrow account is funded through your monthly mortgage payment, making your monthly bill higher than it would be without escrow. But this also means that you don’t have to pay your taxes or insurance in a lump sum when they are due, so this is hardly a disadvantage when you think about it.

Lower Escrow Estimates Than Actually Required

Again, the amount needed for your escrow depends on your property taxes and homeowners insurance costs, which can change from year to year. Your servicer will determine the amount needed based on the previous year’s bills. But here’s the thing: When you first move into your home, your property is reassessed for tax purposes. This may cause your property taxes to increase substantially, especially if the home value has risen. When a servicer estimates the escrow, they may not be able to predict an increase in your property taxes.

Because of this, your escrow may come up short. If that happens, you’ll have to pay the difference with an increase in your monthly escrow payment. On the flip side, if there’s any money left over in your escrow after paying the taxes and insurance for the year, your servicer will refund you the excess funds.

Changes To Your Monthly Payment

Escrow is reassessed each year and, depending on if you were short or had excess money, your servicer will come up with a new estimate for the year. If you’re short, your mortgage payment will go up because the estimate will increase. This higher estimate is an effort to prevent another shortage. If you had too much money in the account, your mortgage payment may go down and you’ll receive a refund each year.

What Escrow Accounts Don’t Cover

Escrow accounts don’t cover all the expenses related to homeownership. Your lender or servicer won’t collect money to pay your utility bills or homeowners association (HOA) fees, for instance.

Supplemental tax bills also aren’t covered by escrow accounts. These are one-time tax bills that are issued due to a change in ownership or new construction.

Do You Need An Escrow Account?

It may be possible to pay for property taxes and insurance yourself instead of using an escrow account. Doing so will lower your monthly mortgage payment, but you’ll have to save for tax and insurance payments on your own. Plus, you may incur a fee for managing your own taxes and insurance. And because managing escrow accounts is a free service provided by servicers such as Rocket Mortgage, it doesn’t make financial sense to opt out of escrow for your mortgage.

Truthfully, not everyone even has an option for opting out of an escrow account on their loan. Escrow accounts are a requirement on certain loans. For VA loans, for example, you’ll need 10% down and a strong credit profile to opt out of having an escrow account. For conventional loans, you’ll need to have a down payment of 20% or more. FHA loans require all borrowers to have an escrow account.

It’s also possible to use your escrow account for some expenses and not others. Sometimes, lenders require escrow for property taxes but not homeowners insurance.

Source: rocketmortgage.com ~ By: VICTORIA ARAJ ~ Image: Canva Pro

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How to Price Your Home to Sell

pricing your home for sale

Pricing your house to sell requires a “Goldilocks” frame of mind. A price that’s “just right” is the one that attracts a buyer, is in line with the market, and puts the most money in your pocket.

It took Goldilocks some time to find exactly what worked for her, but you might not have that luxury when selling your house. So here are some do’s and don’ts for pricing your home to sell.

Don’t price it too high

When selling a home, first impressions matter. Your house’s market debut is your first chance to attract a buyer and it’s important to get the pricing right. If your home is overpriced, you run the risk of buyers not seeing the listing.

Let’s say you want $299,000 for your home, but you list it at $315,000 to see if anyone will pay the higher price. A buyer with a budget of $299,000 may search online only for homes priced through $300,000. Because of the way it’s priced, your home won’t appear in any of those searches, and you could miss out on a potential buyer.

Don’t price it too low

Listing a home below its market value is a strategy some sellers use to generate interest in the property and possibly spark a bidding war. It’s also used by sellers who need to sell their property quickly.

But price your house too low and you could end up leaving some serious money on the table. A bargain-basement price could also turn some buyers away, as they may wonder if there are any underlying problems with the house.

Do consider the comps

Comparable sales or “comps” are recently sold homes that are similar to yours in size, location, and features. Armed with comps, your listing agent can put together a comprehensive report called a comparative market analysis, or CMA. A CMA can help you determine a realistic listing price.

“One of the challenges we have as a seller’s agent is to really pull back the curtain and show data,” says Michael J. Franco, a licensed associate real estate broker at Compass in New York City. “You have to prove to the seller that their place isn’t really different unless it really is unique, then it deserves a premium.”

Don’t overvalue your home’s upgrades

Spending $70,000 to renovate your kitchen and install a swimming pool means you can add $70,000 to your home’s selling price, right? Not always.

While some renovations may increase your home’s value, it’s unlikely you’ll get back the full dollar amount that you put in. Before investing in any improvements, look at comparable homes for sale near you to see if upgrades are in line with the neighborhood and if they appear to have an impact on resale value.

Don’t let your emotions get the best of you

Market research should be your guide when pricing a home to sell, not your emotions. A buyer doesn’t care what you paid for the house, the sweat equity you’ve put into the property, the years of memories you’ve created in the home, or how much profit you hope for.

“You have to separate yourself emotionally from the property,” Franco says. “Yes, hold on to your memories and the experiences you’ve had in the home. But when you’re selling, you have to focus on it as a business transaction. Chances are, it’s your biggest asset and you have to do what’s right.”

Do adjust the price or approach as needed

If, despite your efforts to identify the “just right” price, your home isn’t attracting offers, regroup with your agent as soon as possible. Try to figure out why your home isn’t selling and be open to making adjustments that will fix the problem.

Pricing: While it’s unlikely in a hot market, if your home is languishing without an offer, it may be necessary to drop the price. Perhaps the market has changed since your agent conducted the CMA. Take a look at some more comparable properties and adjust accordingly.

Marketing: Make sure there aren’t any errors in your listing. Confirm with your agent that the home is being shown in all of the appropriate places. Your agent may need to boost marketing efforts to increase the number of people who see your listing, like offering more open houses or posting 3D tours on social media.

Alternate ways to sell: If your home isn’t attracting a traditional buyer, you may have to look into other options, like selling to an iBuyer. An iBuyer is a real estate company that uses technology to buy homes with cash. While the process is typically faster and you don’t have to get your house ready to sell, iBuyers don’t operate in every market and you may need to have a specific style of home to qualify.

Condition: Talk with your agent about what improvements may improve the salability of your home, including necessary repairs, staging, or curb appeal upgrades. A little TLC can go a long way.

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