Category: Real Estate News & Tips

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How to Get Preapproved for a Mortgage

Get Preapproved for a Mortgage

Preapproval differs slightly from prequalification, but knowing how both work can be helpful.

Setting a budget and checking your credit are important steps in the mortgage preapproval process.

Key Takeaways

      • Preapproval is one of the first steps in getting a mortgage and involves a credit pull and a financial review.
      • You will need a collection of financial documents showing your income and payment history, such as W-2 forms, pay stubs and tax returns.
      • You can improve your chances of preapproval by making consistent payments on debts and paying more attention to your credit report.

When you’re serious about buying a home, one of the first steps you should take is getting a mortgage preapproval. It’s a relatively quick process that involves a lender pulling your credit and reviewing your financial situation to determine whether you qualify for a home loan and how much house you can afford.

You’ll need to give the lender several documents, including pay stubs, tax forms and bank statements, to verify your earnings, debts and assets. If you qualify based on that information, the lender will estimate the amount you can borrow and document it in a preapproval letter.

When you’re ready for preapproval, understanding how this step works and doing a little prep can be helpful.

Mortgage Preapproval vs. Prequalification

When you start researching mortgage rates, you may hear lenders use the terms preapproval and prequalification interchangeably. Both terms refer to a document that states a lender is tentatively willing to lend you up to a certain amount, based on information you provide. The key difference is whether the lender verifies that information.

Prequalification

A prequalification involves plugging some financial details into an online form or having an informal conversation with a lender. You’ll answer questions about your credit score and finances, and your lender uses that information to estimate your loan amount. “The lender doesn’t pull your credit report or verify your information to determine what you can afford,” says Melissa Cohn, regional vice president with William Raveis Mortgage.

The prequalification roughly estimates how much you can borrow and the interest rate you’ll receive, but it doesn’t carry the same weight as preapproval because the lender hasn’t verified your information.

Preapproval

A preapproval is more in-depth because “it says that the lender has put eyes on your tax returns, your W-2s, your pay stubs, your assets, your credit – and verified the accuracy of the information you provided,” says Nicole Rueth, mortgage advisor with Movement Mortgage. This puts you into a position where you can set a realistic housing budget and negotiate a purchase contract with a seller.

The preapproval letter is usually good for 60 to 90 days to show an agent or a seller that you’re working with a lender. Sellers typically require you to include a preapproval letter with your purchase offer, so having one from the start can put you ahead of other buyers who don’t have one.

Just keep in mind it doesn’t guarantee you a loan – you’ll still have to go through the underwriting process later – and it’s not a binding agreement. You can still shop around for lenders once you select a house.

How to Get Preapproved for a Mortgage 

Understanding the mortgage preapproval process can help you prepare your finances for it. What to do:

Set a Budget

A lender can preapprove you to borrow a certain amount, but you may choose to borrow less. One way to set a monthly mortgage budget is by using the amount you’re currently paying toward housing. Or you can start fresh: Subtract all of your nonhousing expenses from your take-home pay to estimate how much you can put toward a home loan.

Lenders do a version of this when checking your debt-to-income ratio, or DTI. Most lenders like to see that your combined debts equal less than 36% of your income before taxes, though you could be approved with a DTI of 45% to 50%.

Estimate Your Down Payment

The minimum down payment you need depends on the type of mortgage you get and the lender’s requirements, and it can vary from 0% to 20% of the home’s purchase price. You can choose to put down more, but consider your other needs. You’ll also need to cover closing costs, and it’s a good idea to have cash reserves in the bank.

Check Your Credit

Your credit history and credit score are major factors in determining whether you’re preapproved and what interest rate you receive. You can pull a free report from each of the three credit bureaus weekly at AnnualCreditReport.com. Read through the reports and check for errors, such as incorrect account balances and duplications, and signs of potential identity theft, like new accounts you don’t recognize. You can dispute these errors and report identity theft to the credit bureaus.

If your score has room to improve, you can do so by paying down debt and making on-time payments every month.

Collect Your Documents

Lenders will look at your credit history, income, assets and debts to see whether you should be preapproved for a mortgage. Before applying for preapproval, gather the following:

  • W-2 forms from the last two years
  • Pay stubs from the previous 30 days
  • Tax returns from the last two years
  • Personal bank statements for the last two to three months
  • Identification, such as a driver’s license
  • Name and contact information for employment verification
  • Other forms of income verification, such as a Social Security award letter, alimony letter or pension pay stubs
  • Documents supporting your current housing arrangement, such as copies of 12 months’ worth of canceled rent checks or a letter from a family member that states an informal agreement
  • Divorce decree, if applicable

The lender also pulls your credit scores and credit reports to check for current debts. When going through your bank statements, the lender “confirms you have the assets to cover your down payment and closing costs, then looks for additional debts that aren’t reporting to the credit bureaus,” Rueth says. These may include alimony, child support and payments for buy now, pay later services.

If you’re self-employed or you have other special circumstances, you will need more documents, such as:

  • Business tax returns for the last two tax years
  • Business bank statements for the last two months
  • Year-to-date profit and loss statement (may require a CPA signature)

Contact a Lender

Make a list of lenders that operate in your state, offer the type of home loan you need and have a strong reputation. Call one of the lenders and ask any questions you have, such as the loans it offers and closing costs it charges. If you feel comfortable with the lender, ask for a preapproval. You can get more than one preapproval to shop for the best rate, but it depends on your situation.

“Getting several preapprovals could help you speed up the closing time line if your offer’s accepted,” Rueth says. “I would do the work upfront. I wouldn’t want to wait until I’m under the gun and feel trapped.”

Get Preapproved

The lender will get consent to pull your credit and ask questions about your financial situation. It may ask you to upload your documents in an online portal or to email them. Once you have the preapproval letter, you can shop for homes within your price range and submit your purchase offer.

Improve Your Chances of Getting Preapproved

Take these steps to avoid being denied a mortgage preapproval:

  • Fix errors on your credit report. Credit reports aren’t perfect, and errors that affect your score can happen. Find and fix errors on your credit report before you ask for a mortgage preapproval.
  • Pay down debt. Debt can hurt your credit and is a factor in the loan amount you could receive. Eliminating as much debt as possible can put you in a better position for mortgage preapproval.
  • Save more. Saving is a sound move for your finances, but it will also make you a better loan candidate in the eyes of the lender. Strive to tuck away at least three months’ worth of mortgage payments to help cover financial emergencies without going into debt. If you can save up to six months’ worth of your monthly expenses, that is even better in the long run.

Source: money.usnews.com ~ By: Kim Porter ~ Image: Canva Pro

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What Is a Starter Home?

What Is a Starter Home

Prospective first-time buyers face some tough decisions. Should you buy a starter home now or save to purchase your forever home?

Key Takeaways:

    • Starter homes are smaller, more affordable homes designed to get first-time buyers into the housing market.
    • In the current real estate market, starter homes are more expensive than they were a few years ago and more difficult to find.
    • The definition of a starter home is beginning to change as priorities shift.

Most homeowners begin with a starter home, a smaller home that needs a little TLC in a more affordable price range. But these days, starter homes are hard to come by.

Starter homes are much more expensive than they were a few years ago, and the ones that do go on the market face fierce competition. This has left many first-time buyers wondering if a starter home is worth it, and whether they should wait to purchase their forever home instead.

A starter home is the first home someone can typically afford to buy. Starter homes are smaller, lower priced homes that help first-time buyers get their foot in the door of homeownership.

According to Michaela Cancel, senior vice president of Neighborhood Development Company, a starter home can be a condo, townhouse or stand-alone structure with limited bedrooms and is often under 1,500 square feet. Homeowners usually live in these dwellings for three to five years or until they see a return on their investment.

“(Starter homes) typically are either new middle market construction grade units or are much older housing stock that come with substantial maintenance costs,” Cancel says. “Either way, they don’t have a lot of bells and whistles as older housing stock doesn’t reflect today’s preferences and middle market construction grade units are budget-conscious/friendly for first-time homebuyers.”

Because of the low supply in the current housing market, starter homes are challenging to find and much more expensive than they were a few years ago.

“The definition of a starter home hasn’t necessarily changed; it just isn’t available in the traditional sense,” says Kurt Carlton, co-founder and president at New Western, a real estate investment marketplace. “With roughly 4 out of 5 homeowners holding onto a mortgage under 5%, no one is moving or putting their home on the market.”

Thanks to higher home prices, starter homes aren’t necessarily starter homes anymore. According to Redfin, buyers need to earn about $80,000 to afford a median-priced starter home.

In December 2019, the national median existing-home price for all housing types was $274,500, according to National Association of Realtors data. Since then, home prices have skyrocketed. In August 2024, NAR reported that the median existing-home sales price was $416,700 – a 52% increase since 2019.

In 2023, there were only 352,500 affordable listings, down 40.9% from 596,135 in 2022, according to Redfin. “That means that what we used to call the starter home has become an endangered species,” Carlton says.

A listing is considered affordable if the estimated monthly mortgage payment is no more than 30% of the local county’s median household income. The national share was calculated by taking the sum of affordable listings in the metros Redfin analyzed and dividing it by the sum of all listings in those metros.

New housing starts have always been significantly behind demand, Cancel says, but the U.S. fell even further behind in housing supply during the financial crisis of 2008, when homebuilders saw demand drop as consumers began to fear overpaying for a crashing real estate market. “The last decade saw marginal improvements in the supply-demand imbalance, but the shortage took another major hit from the pandemic,” Cancel adds.

Carlton says affordable housing is also harder to come by because there are currently about 15 million vacant homes in the U.S. that need renovating to become habitable. “The good news for housing supply is that independent investors are finding these homes, fixing and flipping them in the middle-income range and getting them back on the market,” Carlton says.

Interest rates are another affordability challenge, Cancel says, and homeowners locked into a mortgage rate under 5% cannot afford to trade up. “And, to add insult to injury, the shortage of these resale homes on the market has caused entry-level homes to surge in value, where new homebuyers are already competing with developers paying all cash for teardowns,” Cancel says.

Is It Cheaper to Build a Starter Home?

Prospective buyers can always build a starter home, but it can be difficult finding a company that builds more affordable homes. Data from the Census Bureau shows that 40% of homes constructed in 1980 were considered entry-level homes. In 2019, only 7% of homes were entry-level, according to a 2021 report from Freddie Mac, and almost every state is building fewer starter homes.

Clint Jordan, realtor at The Jordan Group and founder of Mil-Estate Network, says builders have focused on higher-end homes due to the increased profitability. “Building material costs have risen dramatically in recent years, labor shortages are rampant and zoning laws in some areas make it tough to develop smaller, more affordable homes,” he says.

Most of these costs are being passed along to buyers.

According to Jordan, prospective buyers may have better luck in the existing-home market. “Existing homes, on the other hand, often come at a more affordable price point because they don’t carry the same upfront costs that new builds do,” he says. “Plus, you can move in much faster and start building equity right away.”

While some builders have recognized the demand for starter homes and are trying to meet it, Jordan says it’s not happening quickly enough. “Even if the supply is increased, it doesn’t necessarily mean those homes will be as affordable as buyers are hoping,” Jordan explains.

Unlike a starter home, which focuses on the basics, a forever home is a larger single-family home where you can see yourself living for at least 10 years, according to Zillow. Forever homes are roughly double the price of starter homes, with about 2,000 square feet of living space, three bedrooms and two bathrooms. Forever homes have more space to accommodate life-changing events like a growing family.

Homeowners in forever homes have stable jobs and like the area where they live. Forever homes don’t necessarily have to be forever, but homeowners usually don’t have any plans to move in the near future.

“A forever home is one you intend to stay in for decades, whereas a starter home is often viewed as a stepping stone on your real estate journey,” Jordan says.

Prospective first-time buyers face some tough decisions. Should you buy a starter home now or save to purchase your forever home?

“I am a huge fan of buying now if you are ready. Waiting costs and loses you money,” Jordan says. “Every month you pay rent, you are throwing away money, losing equity and not gaining from the home’s appreciation.”

Buying a home instead of renting gives you the chance to build valuable equity. However, buying a home is only good if you’re in the financial position to do so. This means you need a realistic understanding of how much it costs to purchase a home, including the down payment, closing costs and ongoing costs associated with homeownership.

You can also take steps to make yourself a more creditworthy borrower, which increases your chances of securing a lower interest rate on your mortgage. Saving for a larger down payment can also reduce your monthly mortgage payment, often the biggest challenge for first-time buyers.

Carlton says first-time buyers still want a starter home they can afford, but instead of sitting on the sidelines, they’re shifting their priorities as far as what they want in their first home.

“They are living with aging parents or with adult siblings or friends to get more house for their money and adding a mother-in-law unit to accommodate more people,” Carlton says. “The definition of a starter home is evolving and expanding to satisfy the middle-income buyer rather than changing altogether.”

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

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Can You Get a Mortgage If You’re Self-Employed?

Can You Get a Mortgage If You're Self-Employed?

If you’re self-employed and want to buy a home, you’ll likely face a bit more scrutiny than borrowers with traditional wages. That’s because mortgage lenders routinely require proof of consistent income for mortgage approval, which can be tricky when you can’t show a W-2 or recent paycheck. Self-employed borrowers should be prepared to provide evidence of active income – simply put, the money you earn for your work.

Determine If You’re Self-Employed

First, you should understand what it means to be classified as self-employed. In general, lenders will consider you self-employed if a significant portion of your income comes from being a gig worker, freelancer or independent contractor.

If you receive 1099 tax forms rather than a W-2 from an employer, that will also indicate self-employment. Lastly, if you own 25% or more in a business, then you’re self-employed as far as the lender is concerned.

While self-employed borrowers are held to the same lending standards as W-2 workers, the mortgage process itself can be more challenging.

Why Are Self-Employed Home Loans More Complex?

In general, lenders are concerned whether all applicants, including self-employed workers, can consistently repay their loans. They’ll need to see that your income is high enough to pay for your mortgage, that it’s likely to remain high, and that you have a good track record of repaying your debts. This is easier to do when income is steady and predictable, which isn’t always the case for self-employed people.

Proving the stability of your business requires documentation, including evidence of work, payments and activity supporting business operations, such as a business website. “Every customer is so uniquely qualified and their businesses are so different, so each one needs to be looked at differently,” says Ashley Moore, community lending manager at JPMorgan Chase.

How Self-Employment Income Is Calculated

Lenders typically look at your income for the past two years – and for the self-employed, it will be your net profit, not your gross income. That is, they will look at the total income you have left after your deducted expenses.

If you earned more in Year 2, they will take an average of the two years. If you made less in Year 2, they will go by the lower-earning year. Lenders might be wary if your income drops significantly, so expect to provide an explanation if that’s the case.

General Requirements for Self-Employed Mortgages

Generally, borrowers need at least two years of self-employment income to qualify for a mortgage, as per Fannie Mae and Freddie Mac guidelines. In some cases, borrowers who are self-employed for just one year may still qualify if they meet other criteria, like working in the years prior in the same occupation with comparable or higher income.

Without two years of business records, you can expect a higher level of scrutiny, and any prior employment will have to be verified, as well.

How to Get Approved for a Mortgage If You’re Self-Employed

Qualifying for a mortgage when you’re self-employed means showing the lender that you can make payments for the entire length of the loan.

Here’s what lenders want to see from self-employed mortgage applicants:

  • Stable or increasing income. Some fluctuation is acceptable, but that’s why lenders like to see two full years of tax returns. Lenders are looking for the worst-case scenario, so they will probably consider the lower of the two years when crunching their numbers. Be mindful that significant decreases in income from year to year might raise additional questions during underwriting because the lender may see that as a sign that your business is declining. Self-employed mortgage applicants may also be asked to provide a year-to-date profit-and-loss statement as well as business deposit account statements for the most recent months.
  • Consistent work. Ideally, you should have at least two years of self-employment income in the same industry. If you’re newly self-employed, some lenders will make an exception if you have one year of self-employment tax returns plus W-2s from an employer in the same field. Still, a short history of self-employment may make it more difficult to assure lenders that your income will remain consistent.
  • Good credit. You’ll need a track record of repaying your debts. Foreclosures, delinquencies, collections, repossessions and bankruptcies increase risk for the lender. Lenders will review the type, age, use, status and limits of your revolving credit accounts as well as how often you applied for credit in the last year. “There are a lot of different loan programs and products that require different credit criteria, and that’s going to look the same for a borrower whether they are self-employed or have a W-2,” says Moore.
  • Low debt-to-income ratio. Lenders typically look for a debt-to-income ratio – the percentage of your monthly income you put toward paying your debt – to be 43% or lower. If your debt payments are perceived as unmanageable for your income, you might not qualify for the amount you need to purchase a home or receive an offer at all.You’ll also want to be careful if you’re self-employed and tend to deduct a fair amount of business expenses. This can hamper qualification since mortgage underwriters typically look at income after expenses. “The problem that we run into is a self-employed borrower can write a lot of things off,” says Sean Cahan, president of Cornerstone First Mortgage in San Diego. So those savvy deduction moves that help at tax time could end up reducing your bottom line, which can then impact the DTI.

    However, Cahan notes that loan officers who have experience working with this type of borrower should know how to interpret a tax return and run the proper calculations in these cases. He recommends that self-employed people simply ask the loan officer to show them the actual worksheet the officer used to come up with the effective income amount. “If they don’t know how to break it down for you, move on to the next lender,” he says.

  • Cash reserves. Your mortgage payment is due every month, even when work has dried up or if your business goes through a seasonal slump. Lenders may want to see that you have an emergency fund to get through months when you’re not earning as much. But again, that doesn’t mean self-employed borrowers are held to a higher threshold. “Compensating factors are going to help any borrower,” says Moore.
  • Significant down payment. A hefty down payment of 20% or more can offer more assurance to lenders, but down payment requirements for self-employed workers with good credit and enough income are usually no different from other borrowers. However, a larger down payment can be helpful. “Putting more money down will help your DTI ratio,” says Cahan. But if the loan is not likely to be approved because of other challenges, a larger down payment probably won’t tip the scales to an approval.

Document Requirements for a Mortgage When You’re Self-Employed

Lenders require complete financial documentation for a mortgage application. When you’re self-employed, you’ll need to provide both business and personal financial documents. Many lenders will require income verification early in the mortgage timeline and then again just before closing. Although requirements will vary by lender, be prepared to submit:

  • Government-issued identification.
  • Complete personal tax returns for two years.
  • Business tax returns for two years.
  • IRS Form 4506-T, which gives third parties permission to access your tax records.
  • Earnings statements.
  • Business and personal bank statements.
  • Asset account statements, such as retirement or investment accounts.
  • Business name verification.
  • Business license.
  • List of your debts and expenses, both business and personal.
  • Canceled checks for your rent or mortgage.
  • Any additional income, such as Social Security or disability.

Some lenders may require further documentation, such as statements from your accountant and clients. Be sure your documents are up to date and organized before you submit.

Mortgages backed by government-sponsored enterprises Fannie Mae and Freddie Mac require verification of business operations, so you may need to provide evidence of work, such as invoices, business payments or active websites. These measures are normally required 120 days before closing on a mortgage, but self-employed borrowers may have to offer proof of steady income again as the closing date approaches.

How to Plan for a Mortgage When You’re Self-Employed

If you’re self-employed and considering a home purchase in the next few years, take these steps to make yourself a more attractive borrower:

  • Establish a track record of self-employment work. Maintain consistent work as much as possible. Try to time your mortgage application after two to three years of consistently strong earnings. At that point, lenders are less likely to be concerned about income instability, and you may qualify for a higher loan amount.
  • Improve your credit. Check your credit report to identify any problems you may need to fix before a mortgage lender pulls your credit. Lenders may reject your application or charge you a higher interest rate if you have a low credit score, so contact the credit bureau to correct any errors you find. Look for other concerns, such as high credit limit use, and work to improve those areas.
  • Pause other credit activity. Do not apply for other loans or credit cards in the months leading up to your mortgage application, as this will harm your credit rating.
  • Pay down debt. You can boost your credit score by paying off some or all of your debt. This will also lower your DTI, which will make getting a mortgage easier.
  • Save as much as possible. Don’t drain your savings on the down payment. A healthy emergency fund can put lenders at ease; they like knowing that you can still make payments during work droughts or that you can afford surprise home repairs.
  • Maintain clean business records. Make it easier for lenders to understand your business income. Separate your business and personal finances by using business checking and savings accounts as well as credit cards. Keep track of invoices and monthly expenses, and create an updated earnings statement at least quarterly. Be sure to retain your records when you file taxes each year.
  • Don’t believe the misconceptions. Though there may be more paperwork, lenders are open to working with self-employed borrowers. “We look at each individual based on their entire financial picture,” says Moore.

Types of Self-Employed Home Loans

If you’re self-employed, you can explore the same mortgage programs as others – including conventional loans, Federal Housing Administration loans, Veterans Affairs loans and U.S. Department of Agriculture loans. You’ll still need to meet each program’s criteria in order to qualify, as well as provide any additional documentation related to your self-employed status.

What If You Don’t Qualify?

If you’ve only been in business a short while or have a past line of work that doesn’t qualify as related to your current business, you might consider an alternative loan program called a nonqualified mortgage. Because these loans do not follow government guidelines as a qualified mortgage does, a non-QM offers more leeway when it comes to underwriting them for business owners.

In order to make a non-QM mortgage work, you’ll likely need a large down payment and may have higher interest rates or fees than standard home loans. Because you don’t have two years of business tax returns, lenders will look at your bank statements instead to get a sense of your cash flow. Using those documents, they can determine how much income you have coming in on a regular basis. Once you eventually have enough business history to qualify for a regular mortgage, you might try refinancing your non-QM loan.

However, be sure to work with a reputable lender if you decide to pursue a non-QM loan, since these aren’t as regulated as traditional home loans.

Source: money.usnews.com ~ By: Dawn Papandrea ~ Image: Canva Pro

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Is Your House Priced Too High

Is Your House Priced Too High

Every seller wants to get their house sold quickly, for as much money as they can, with as few headaches as possible. And chances are, you’re no different.

But did you know one of the biggest things that could jeopardize your success is the asking price for your home? Pricing your house correctly is one of the most crucial steps in the selling process.

So, how do you know if you’re missing the mark? Here are four signs your high asking price might be turning potential buyers away—and why leaning on your real estate agent is the best way to course correct.

1. You’re Not Getting Many Showings or Offers

One of the most obvious signs your house may be overpriced is a lack of showings. If it’s been on the market for several weeks and only a few buyers have come to see it—or worse, you haven’t gotten any offers—it could be a clear indication the price isn’t matching up with what buyers expect. Because buyers who have been looking for a while can easily spot (and write off) a home that seems overpriced.

Your real estate agent will coach you through this, so lean on their experience for what you may want to try to bring more buyers in, including considering a price cut.

2. Buyers Have Consistent Negative Feedback after Showings

And if after the showings you do have, comments from the potential buyers aren’t great, you may need to course correct. Feedback from showings is an important part of understanding how buyers see your house. If they consistently say it’s overpriced compared to other homes they’ve seen, it’s time to reconsider your pricing strategy.

Your agent will gather and analyze this feedback for you, so you can look at how your house stacks up in the market. They can also suggest specific improvements or staging changes to better justify your asking price, or recommend one that aligns with today’s buyer expectations. As the National Association of Realtors (NAR) explains:

“Based on all the data gathered, agents may make adjustments to the initial price recommendation. This could involve adjusting for market conditions, property uniqueness, or other factors that may impact the property’s value.”

3. It’s Been on the Market for Too Long

And that lack of interest is ultimately going to lead to it sitting on the market without any serious bites. The longer it lingers, the more likely it is to raise red flags for buyers, who may wonder if something is wrong with it. Especially in today’s market with growing inventory, a long listing period means your house is stale – and that makes it even harder to sell.

Your real estate agent will be able to give you perspective on how quickly other homes in your area are selling and walk you through what’s working for other sellers. That way you can decide together if there’s something you want to do differently. As a Bankrate article says:

“Check with your agent about the average number of days homes spend on the market in your area. If your listing has been up significantly longer than average, that may be a sign to reduce the price.”

4. Your Neighbor’s House Sold Without an Issue

And here’s the last one to watch out for. If similar homes in your area are selling faster than yours, it’s a clear sign that something is off. This could be due to things like a lack of upgrades, outdated features, or a less desirable location. Or, it may be priced too high.

Your agent will keep you up to date on your competition and what changes, if any, you need to make your home more competitive. They’ll offer advice on small updates that could increase your home’s appeal or how to adjust your strategy to reflect the reality of the market today.

Bottom Line

Pricing a home correctly is both an art and a science. It requires a deep understanding of the market and buyer psychology. And when the price isn’t drawing in buyers, there’s no better resource than your agent on what you may want to do next.

Source: keepingcurrentmatters.com ~ Image: Canva Pro

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How Does Buying a House As-Is Work?

How Does Buying a House As-Is Work?

Key Takeaways:

  • When you buy a home as-is, you are assuming financial responsibility for the home in its current condition.
  • You can complete inspections and, if desired, cancel the contract within the inspection period without penalty.
  • Buying as-is is becoming more popular in today’s hot market and doesn’t necessarily signal issues with the home.

If you’re in the market to buy a home there’s a good chance you’ll come across a house being sold as-is during your buying journey. The term “as-is” indicates the owner’s desire to sell the property as it sits, making no repairs before closing.

While it could signal a red flag, this type of home sale is becoming a common transaction in today’s market, and in many cases could be a beneficial move for a buyer.

What Does Buying a House As-Is Mean?

Buying a house as-is means you purchase a home in its existing condition. There are different types of contracts sellers can use. One is the standard “repair limit” purchase and sale agreement, where the seller is required to fix any issues on the home totaling less than a specific amount before closing. The amount will vary depending on the contract and can be as little as $500 or as much as 1.5% of the purchase price.

The second type, the as-is contract, basically allows the buyer sole discretion to cancel the contract for any reason within the inspection period.

“With the as-is contract, the seller is not required to make any repair whatsoever, even if something is found in an inspection,” says Marcia Socas, a broker with Castro Realty Group in Orlando, Florida.

By allowing a buyer to withdraw their offer during the inspection period without penalty, gives buyers more flexibility and an easier exit.

What Types of Homes Are Typically Sold As-Is?

Bank foreclosures and other distressed properties in need of major repairs are exclusively sold as-is. Since as-is contracts were used with distressed homes in the wake of the Great Recession, many people believe homes being sold as-is need a lot of work.

“However, that’s shifted over the years. Now, it’s the standard way of selling regardless of home condition,” says Socas.

There are a few reasons a seller will sell as-is even if their home is in good condition.

  • The seller needs to sell quickly for relocation or other purpose.
  • It’s an inherited property and the heirs don’t want to deal with repairs to sell it.
  • There’s a divorce or other legal motivation.
  • The seller wants to get more competitive bids in a hot market.

Selling as-is more of an indication of the market and the fact that the owner would prefer not to make repairs, says Scott Beloian, broker and owner of Westcoe Realtors in Riverside, California.

“If it’s a completely hot seller’s market, a lot of sellers will sell as-is. In a buyer’s market, it doesn’t happen a lot,” says Beloian.

How Does Buying a House As-Is Work?

“A lot of first-time homebuyers are scared when they hear as-is. They think they can’t have an inspection,” says Beloian. “However, you’re not buying it sight unseen. You can still do your inspections, ask for repairs and have time to decide if it’s the right home or not. As long as it’s within the inspection period, the buyer can walk away without repercussions.”

The as-is purchase offer contract is customizable.

“Contracts are fill-in-the-blank, where you can add in the desired inspection period,” says Socas. If it’s left blank, the inspection period goes to the default period for the state, which is typically 15 days, but can be longer. For example, in California the default inspection period for as-is contracts is 17 days, says Beloian.

In a seller’s market, Socas advises her clients to include a 10-day inspection period. However, if it’s extremely competitive, “sometimes we lower that inspection period to three days or even one day,” says Socas.

If the contract is accepted, the buyer places the earnest deposit money with the specified closing agent or title company. The seller relays all required disclosures about the home and the inspection period begins immediately.

The contract says buyers can cancel at the “buyer’s sole discretion.” If they discover they can’t get the financing terms they wanted, there are more repairs than anticipated on the inspection report or possibly a large, expensive issue is discovered with the home, they can cancel the contract without forfeiting the deposit so long as its within the inspection period.

If buyers cancel outside the inspection period, however, the earnest money deposit is forfeited to the seller, even with an as-is contract. If the buyer proceeds with the purchase, the closing continues as usual with a title company and the buyer assumes financial responsibility for the home’s condition as it sits at closing.

Does Buying a House As-Is Save Money?

For most, buying as-is doesn’t really save money, Socas says. Rather, she adds, “You have more flexibility with your options and have a more attractive offer with negotiating power.”

If the inspection report comes back and has something that needs to be addressed, you can still ask the seller to fix it with an as-is contract.

Since you and other potential future buyers can cancel without repercussions during the inspection period, a seller might be willing to negotiate so you don’t cancel the contract. This is especially true over something small or that regards safety, Socas explains.

Beloian says homes that need to be completely renovated can offer notable savings, but buyers will spend some or all of that savings on repairs to the home.

“A lot of times people can get a deal buying ‘borderline homes,’ where it’s not in complete disarray, is still financeable but needs some work,” says Beloian. “These can offer some savings, but in a tight market like we’re seeing today, these homes are few and far between.”

Who Is Buying a House As-Is Right For?

“Buying an as-is home can work for anyone as long as they understand the advantages and limitations of that type of contract,” says Socas.

Since you can cancel without reason within your inspection period, there isn’t a huge risk involved when making an offer. “But you are taking on more responsibility to repair the property after that period,” says Socas.

Pros of Buying a House As-Is

 

  • Buyers can cancel their contract within the inspection period for any reason without losing their deposit.
  • You can still conduct inspections and even ask for repairs, although the sellers aren’t required to agree to make them.
  • Using a short inspection period can help you have a stronger offer in a competitive market.
  • You potentially get a good deal on a home because it’s priced for its condition.

Cons to Buying a House As-Is

  • The home may need extensive repairs or be in uninhabitable condition.
  • The poor condition of the property might limit access to financing.
  • If you request repairs, the seller may deny them, leaving you financially responsible for repairs if you proceed.
  • You must cancel the contract in the inspection timeline or lose your earnest money deposit.
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Complete Timeline of the Mortgage Process

Complete Timeline of the Mortgage Process

Each mortgage runs on its own timeline, but you might need about three to five months to secure a property and a home loan.

If you’re using a mortgage to buy a home, here’s what to expect from start to finish

Key Takeaways

    • The homebuying process can last about three to five months, but how long it ultimately takes depends on your unique situation.
    • The biggest variable in the mortgage timeline is finding a home to buy – and having your purchase offer accepted.
    • Once you’ve found a property and decided on a lender, loan processing and closing typically lasts about a month.

Borrowing a mortgage to finance your home purchase can be complex and confusing, especially if you’re a first-time homebuyer. Thankfully, having the right professionals in your corner can make the mortgage process easier to understand, so you can focus on finding a home you’ll be happy living in for years to come.

Here’s what the mortgage timeline usually involves, keeping in mind that delays can arise from factors outside of your control:

Securing a Mortgage Preapproval: Up to 45 Days

When you’re in the planning stage of getting a mortgage, it’s a good idea to check your finances and set a budget. Then, get preapproved to see how much you can borrow. Here’s what to expect during each step of this part:

Review your finances. Your financial standing influences whether you qualify for a mortgage, how much you can borrow and your lending terms. Lenders usually give the best loan terms to borrowers with credit scores in the mid-700s or above and debt-to-income ratios of around 45% or less.

Before applying for a mortgage, consider checking your credit report for errors.

“People are often surprised by their credit score because it’s being dragged down by something on their credit reports they had no idea about,” says Lindsay Barton Barrett, a licensed associate real estate broker with Douglas Elliman in New York. “That’s something you want to dig into.”

You may decide to dispute errors on your credit report, work on raising your credit score or pay down your debts to qualify for favorable loan terms. This part of the mortgage timeline may take a few weeks or longer if you need to improve your finances.

Create a budget. Setting a budget upfront is a good idea to avoid falling in love with a home you can’t afford. One rule of thumb says to spend 28% or less of your monthly income on your total housing payment.

If you bring home $7,000 a month before taxes, then you can spend up to $1,960 on your monthly mortgage payment. That amount should cover your principal, interest, taxes, mortgage insurance and homeowners insurance, plus any HOA fees.

“The biggest mistake is spending what you’re fully qualified for instead of what your budget allows,” says Nicole Rueth, senior vice president of The Rueth Team Powered by Movement Mortgage. “I’ve seen a lot of first-time homebuyers overspend.”

A mortgage calculator can help you figure out which homes you can buy, based on your estimated monthly budget and how much you’ll put down at closing. A lender may say you can borrow more based on your financial situation, but only you know what you’re comfortable paying every month while still meeting your other obligations.

Get pre-approved. Once you have a budget in mind, contact a lender and ask for a preapproval in that amount. You’ll save time if you have the necessary documents handy:

    • W-2 forms from the last two years.
    • Most recent pay stubs.
    • Copies of tax returns for the last two years.
    • Personal bank statements for the last two to three months.
    • Identification, such as a driver’s license.

The lender reviews these documents and pulls your credit report to determine whether you qualify for a home loan. It’s a good idea to keep your mortgage shopping within a 45-day window to reduce the impact to your credit score.

If everything checks out, the lender gives you a letter saying how much you can borrow. Most preapproval letters are valid for 60 to 90 days.

This letter not only helps you define your budget but also shows sellers you’re a serious buyer who has lined up financing. “In some markets, there are properties you can’t even see if you don’t have a preapproval letter,” Barton Barrett says.

Finding a Property and Making an Offer: 10 Weeks

Homebuyers typically view homes for 10 weeks before finding a property to buy, according to Freddie Mac.

The timeline for finding a property and making an offer vary with each homebuyer, but a real estate agent can help speed things along. The right agent will be familiar with homes in your market that are within your budget and guide you through the whole process.

“If you see a property and it’s not quite right, you can communicate what you liked and didn’t like to your agent, which will help guide your search,” Barton Barrett says. When that property closes, “Take note of what it listed for and what it closed for. That can help you set expectations.”

Once you find your dream home, you will work with your real estate agent to create an offer. This document includes a price, a suggested closing time frame – typically 30 to 90 days from the accepted offer – and conditions that allow you to cancel or renegotiate the contract. For example, you might make the offer contingent on mortgage financing and a satisfactory home inspection.

When you and the seller agree on price and terms, you will both sign a purchase agreement.

Applying for a Mortgage: One Week

Once you’ve had your purchase offer accepted and you’re under contract for the property you want, you can get official loan estimates from the lenders you got preapproved with. Compare their closing costs and interest rates, using the best offer to try to negotiate your loan terms because some lenders will match interest rates or offer discounts.

You could save thousands of dollars just by doing this. For instance, if you buy a $400,000 home and put down 10%, you save $117 a month with a 6% interest rate compared with 6.5%. This adds up to over $9,000 in interest savings over the first five years of the loan.

Once you’ve found the right lender, tell the loan officer that you’d like to move forward with the mortgage application. This is called your “intent to proceed.” At this point, you’ll be able to lock in your interest rate and purchase mortgage discount points to buy down your rate

Underwriting and Loan Processing: Three to Four Weeks

The underwriting phase starts as soon as you’ve signed a purchase agreement and applied for a mortgage. This part varies from a few days to a couple of weeks, according to loan software firm ICE Mortgage Technology. The timeline depends on how busy the underwriters are and how quickly you answer questions and submit documents.

Here’s what to expect during loan processing:

Review documents. Your lender will send your mortgage application to the underwriting department to review all of your supporting documents. Underwriters confirm that you meet eligibility requirements for the mortgage, make sure your income and employment are stable, and check that you have money for closing costs and a down payment. Respond quickly to questions and requests for additional documents, such as a letter that explains the source of a large bank deposit, to keep your closing date on track.

Order a home inspection. If your purchase offer includes a home inspection contingency, you will hire a professional to check the home’s physical attributes, mechanical systems and major appliances.

“A home inspection is so critical to understanding what you’re buying,” Rueth says. “They are getting in the crawl spaces and up in the attic and the roof, and looking at the electrical panels. They are really looking at the bones of that home.”

Based on the walk-through, the inspector creates a report that lists any problems. Depending on the terms of your contract, you may be able to walk away from the purchase if the report reveals significant damage you don’t want to deal with.

Get a home appraisal. Your lender will order an appraisal to verify the home’s value, which is based on its condition and selling prices of similar homes in the area. Lenders do this to ensure they can sell the home and recoup their investment if you default on the loan.

If the appraised value of the home is higher than the selling price, then that means you’ve found a good deal. But the reverse could create problems because the bank won’t lend more than the appraised value of a property. In that case, you have a few options, including:

    • Pay the difference in price yourself, although it may be risky if the home isn’t worth the selling price.
    • Negotiate with the seller to lower the home price.
    • Walk away from the deal, depending on the terms of your contract.

Complete a title search. During the title search, a title company or attorney researches public records to confirm the property’s legal owner and ensure it has no pending claims or liens. Title insurance is a policy you can buy to protect against future claims on the property. You’ll be required to buy lender’s title insurance, but an owner’s policy is optional.

Closing on the Property: One Week

If your finances and the property you’re buying meet the lender’s underwriting requirements, you will be “cleared to close” on the mortgage. You have only a few days to go until you sign the mortgage agreement and get the keys to the home.

Your lender should send you a closing disclosure, which is a five-page document that sums up the terms of your loan and what you will pay at closing. You’ll have at least three days to review this document and compare the numbers to the loan estimate. You shouldn’t find significant changes between these two documents unless there’s a legitimate reason or you’ve agreed to certain changes.

You’ll be responsible for choosing a closing agent to gather the legal documents for your loan and handle the money for the purchase. Once you schedule the closing, ask your closing agent what to bring. This usually includes a valid ID and your cash to close payment, typically a cashier’s check.

On closing day, you will go for a final walk-through of the house with your real estate agent to make sure the seller addressed repairs and to check for new damage. Then, you’ll sign the final sales contract at closing.

After Closing on the Mortgage

Now that you’ve settled into your home, you’re on a new timeline: making mortgage payments for the life of the loan. To protect against future financial problems, work on stashing away about six months’ worth of mortgage payments in a savings account, Rueth says.

“When you’re late on your mortgage, it can really affect your credit score for a long time,” Rueth says.

Your lender or loan servicer can declare your loan in default, the first step in the foreclosure process, if you’re behind.

Your savings can help you through financial emergencies, but you will also need it to maintain and repair your home.

Source: money.usnews.com ~ By: Kim Porter ~ Chart: US News & World Report

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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