Temporary Buy Down

There is an infrequently-used mortgage program available that could be the solution to a buyer's or seller's problem.

A temporary buydown is fixed rate mortgage that the seller has prepaid interest at closing to lower the payments for a number of years.  The borrower must qualify at the note rate but gets the benefit of lower payments for the early years.

A 2/1 is a common buydown that the first year's payment is calculated at 2% lower than the note rate and the second year's payment is calculated at 1% lower than the note rate.  The third through thirtieth years' payments are the note rate.

Let's set the scene.  A buyer is using their available cash for down payment and closing costs to get into the home.  They'd like to put their own touches on the home when they move in but may not be able to for a year or two since most of their cash was used.

In this example, a $250,000 home is purchased with a 3.5% down payment and a 4% mortgage for 30-years.  Normally, the principal and interest payment would be $1,151.76 for the full 30-year term.  If the seller will pay the lender $4,736 at closing, it can be applied to pre-pay part of the interest for the first two years.

The first year, the buyer's P&I payment will be $891.71 for 12 months based on a 2% interest rate or 2% lower than the 4% note rate.  It is $260.06 lower per month in the first year.  The second year, the buyer's P&I payment will be $1,017.12 for the next 12 months based on a 3% interest rate or 1% lower than the 4% note rate.  It is $134.64 lower per month in the second year.

A bonus for the buyer will be that the cost of the buydown paid at closing by the seller becomes prepaid interest that is deductible by the buyer in the year of purchase.  The buyer gets lower than normal payments for the first two years and a sizable tax deduction.

This type of program can be very beneficial to a seller who wants to offer terms to improve the marketability of their home rather than lower the price.  The challenge will be explaining it to not only potential buyers but even agents who are not familiar with this program.

Tips for Buying Rentals

Buying rental property can be an excellent decision and the better informed you are, the more likely you'll have favorable results.  The following suggestions can help you with your decisions.

Real estate is a long term investment affected by supply, demand and the economy.  It isn't an investment that is easily converted to cash.  The costs to acquire and dispose of real estate are sizable and need to be spread over years to minimize their effects on the rate of return.

Invest in average price homes or slightly below average price to appeal to the broadest market not only when you are renting but later on when you sell it.  The average price is relative to the market you are in and those specific prices.

Lower-priced homes will rent for more relative to higher-priced homes.  There is an inverse relationship between rent as a percentage of the price.  As the price increases, the rent as a percentage of the price decreases.  For example, a $200,000 home might rent for $1,750 a month or 0.88% where a $400,000 home might only rent for $2,250 a month or 0.68%.

Choose predominantly owner-occupied neighborhoods because when you sell the home, it will appeal to a homeowner who will most likely pay a higher price for the home.  Homes in predominantly tenant-occupied neighborhoods tend to sell to investors who pay lower prices and will not be emotionally involved with the purchase.

Purchase a property with the idea of selling it in mind.  You may be able to get a property for a bargain price today but if it is due to a functional obsolescence like a bad floorplan or not enough bathrooms, that problem will still be there when you're ready to sell the property.  Identify what the problem is and what solutions are available.  The property may rent fine in that condition but before you sell, it will need to be corrected.

Get the home inspected before you purchase it.  Having the property checked out can save thousands in unanticipated expenses. 

Consider getting a home warranty on your rental.  The annual premium can limit the out of pocket expenses for repairs and maintenance.

Risk can be minimized by understanding the investment and what is involved in the acquisition, operation and disposition.  For the typical homeowner, rental property is something that they can relate to because of the similar attributes of the home they live in.

How Earnest Are You?

"If I tell you it's going to rain, you can put the buckets on the porch." If you grew up in the south, you may have heard this expression when a person is testifying to the veracity of his word. If you know a person and/or their reputation, you know whether you can trust their word or not.

However, with a stranger such as a buyer, the seller doesn't know whether they'll live up to the terms of the contract or not. Buyers submit earnest money along with a contract to demonstrate their commitment to the terms of the offer.

The more earnest money that the buyer deposits indicates to the seller a higher level of commitment to the contract. Except for stated contingencies in the sales contract, if the buyer fails to close on the sale, the earnest money may be forfeited. Significant earnest money makes the seller feel more secure that the contract will close.

There certainly are a lot of things that can dictate how much earnest money is appropriate. Local customs, price of the home and type of mortgage can all help to determine the proper amount. In some areas, it may be common for it to be 1-5 percent of the purchase price. In other areas, it might be a specific amount like $1,000 to $10,000 depending on the sales price. It really comes down to whatever the buyer and seller agree is the proper amount.

Another strategy is to put up an adequate amount initially until you get through the inspections or contingency period and then, to put up an additional amount when the contingencies have been removed.

The earnest money demonstrates the buyers' sincerity in making the offer and proceeding according to the agreement so the seller can take their home off the market and start making plans to move and give possession of their home. Ultimately, both parties want to close as anticipated according to the contract and the earnest money helps facilitate that.

Components of a Credit Score

Credit scores are used by lenders to measure the credit worthiness of borrowers. While there are several different companies that offer scores, the FICO, Fair Isaacson Corporation, is the model that is used most often.

There are five key components that determine the overall score or rating. The most emphasis, 35% of the overall score, is placed on payment history which reflects whether the borrower paid on time and as agreed by the terms of the credit. Being late, missing payments or going into default would have adverse effects on this part of the score.

The second largest component, 30%, is credit utilization or the amount owed in relation to amount available. A person might have a $4,000 outstanding balance on available credit of $20,000. This would be a 20% ratio and would be considered acceptable. Owing $15,000 on $20,000 of available credit would be a 75% ratio and would negatively affect this part of the credit score. FICO says people with the best scores average around 7% credit utilization.

The length of time each account has been open and the account’s activity determines 15% of the total credit score. By having a longer credit history, the credit provider has a better indication of the borrower’s long-term financial behavior. Having an open account without activity doesn’t offer a provider much information.

New credit and types of credit each account for 10% of the total score. New credit can adversely affect a score because it is a new obligation without history of how it will affect the borrower’s ability to repay all of their liabilities. Types of credit include both revolving and installment debt. A good mixture of each can indicate less risk for lenders.

The combination of all five areas make up the total score which lenders use to determine credit worthiness. Another confusing issue is that all credit scores are not mortgage credit scores. This particular score determines not only whether the lender will make a mortgage but at what interest rate.

The best place to get your credit score if you’re planning on purchasing a home is from a trusted mortgage professional. This person will be able to suggest things to improve your score if necessary. Buying a home is one of the largest investments in most people’s lives; it is really not a do-it-yourself activity.

Tax Deductions & Credit for Homeownership

Content provided by Loan Officer, Jay Collins with Southeast Mortgage 678-488-1336. For mortgage info & questions, see Jay's contact info below. For tax questions, contact a tax professional. My tax professional is Jeffrey White of Pro Tax Service 770-979-7157.

Tax Deductions & Credit for Homeownership Lucrative Tax Breaks That Await... Purchasing a home is typically the biggest investment many people will ever make and part of the reason is because of the significant tax advantages available to homeowners. With tax season upon us, now is a perfect time to take advantage of the resounding tax benefits that can potentially reduce the cost of purchasing and owning a home, and prove financially beneficial when they decide to sell. For buyers who purchased last year who are now proud property owners, here are a list of the many home-related tax breaks that await them? Whether you are in the process of filing taxes or need one more reason to visit with a Realtor like myself, here's a list of the most common and favored tax benefits associated with homeownership – many of which come in the form of tax deductions: Tax Deductions: Property taxes, state and local Mortgage interest on a primary home as well as on a second home, boat or RV – as long as it has cooking, sleeping and bathroom facilities," according to Bank Rate. For most homeowners, a large portion of their monthly mortgage payment goes toward a deductible interest, making this one of homeowner's most lucrative tax breaks. If you sold your home and made a sales gain. If you lived in a recently sold home for at least two of the last five years before the sale, you can avoid paying tax on the sales gain from the sale of the residence – up to $250,000 if you're filing single and $500,000 if you're filing jointly. If you don't meet the resident requirements, you will owe tax on the profit unless you can prove that you were forced to sell before you could live in the property for two years due to unforeseen circumstances such as death, job loss, divorce or multiple births from a single pregnancy. The interest borrowed for a home equity loan, up for $100,000. Tax Credits: According to Fox, millions of people every year claim a home office deduction, meaning they regularly and exclusively dedicate a portion of their home to meet with clients or conduct work. The deduction is $5 per-square-foot of space up to 300 square feet. Home improvements that were required for medical care Energy efficient home improvements for new and existing homes. Possible energy efficient upgrades that qualify for tax credits include geothermal heat pumps, small residential wind turbines, solar energy systems and fuel cells. Depending on the improvement, the tax credit can be 10-30 percent of the cost. Federal tax credits in regard to energy efficient improvements expire every year until Congress approves a new set of standards, so these same tax credits may not apply next year. Visit Energy Star's website to learn more. What can't homeowners write off? According to Turbo Tax, homeowners cannot deduct the insurance on their home, appraisal fees, homeowners association dues or general home improvements. The financial benefits of owning a home are plentiful, including the resounding advantage of building equity over time and offering far greater long-term benefits over renting. However, at tax time, the financial benefits become even more apparent with homeowners given substantial tax breaks from the time they purchase a home until the time they decide to sell. *REMEMBER - Speak with a professional tax consultant before submitting taxes to ensure legal and financial accuracy.

_____________________________________________________

Looking to SELL or BUY a home? 

Let's chat and see if we'll be a good fit for each other!

404-857-2508

www.SOLDbyNat.com

-------------------------------------------------------------------------------------------------

Natasha Bazile is a Realtor & Home Stager. She prides herself in being a guide to her clients and finds fulfillment in helping them achieve their goals.

Direct Phone: (404) 857-2508 
www.SoldbyNat.com -  Email - Facebook - Twitter - YouTube