Buying a home is a big goal many families have. However, a purchase that can easily reach six figures limits the ability of most people to pay cash. That’s why it’s important to figure out how to qualify for a home loan.
Gone are the days in which anyone could walk off the street and leave with a “liar loan.” Instead, it’s necessary to provide proof of income before qualifying for a home mortgage. Banks want to know that a borrower is likely to have the means to pay off a loan. Therefore, saving few pay stubs and having access to previous tax returns is a necessity. These documents will help lenders assess the relative ability of prospective borrowers.
Build A Good Credit Record
Banks will pull a borrower’s credit report before giving her a budget for buying a new home. This will have a list of outstanding debts, and it might also show some debts that are paid in full. Banks want to see that prospective borrowers have a relatively low debt-to-income ratio. Those who have high levels of debt before a mortgage will likely be riskier borrowers for the bank. Paying debts by the due date is the most important component of building a good credit record. It’s important to remember that those with higher credit scores will secure loans with lower interest rates.
There are some government-backed lending programs that allow borrowers to get into a home for no money down. However, these are not always the best option. They can come with mortgage insurance that’s intended to protect the lender while doing nothing other than raise the cost of borrowing for the borrower. Those who are able to put at least 20% toward the purchase of a new home will avoid mortgage insurance, and this will cut down on their monthly payment. Additionally, those who have a good down payment will have equity from the beginning. A borrower who puts no money down will have no equity to protect them from owing more than the value of their residence if the market drops.
A mortgage is a requirement for many families to purchase a home. Shopping around can be a good idea that can sometimes provide lower interest rates. However, the most important steps to take toward getting a mortgage are building a nice income and down payment while also working to achieve a high credit score. Those who pay attention to these goals will likely qualify for a mortgage with a relatively good rate.
With an ever increasing number of online tools available for home buyers, it can be easier than ever to buy a home without the guidance of a seasoned real estate agent. That still doesn’t mean it’s a good idea, however. This is particularly true for first-time buyers. There are just so many variables to buying a new home and so much that a seasoned real estate agent brings to the table. Here are three questions first-time home buyers should ask their agent.
- Where should I look?
When buyers begin to look at homes, they generally think about where they want to live in terms of commute times, walkability or maybe school districts. What they don’t always think about are things like tax rates, traffic, parking or zoning. Sometimes living on the north or the south side of a certain street can make a huge difference or living just a few blocks east or west may save you thousands of dollars or millions of headaches.
- What additional expenses can I expect?
It is a common misconception that owning a home is much cheaper than renting. The truth is, when you rent, your landlord is responsible for any number of expenses that suddenly become yours once you own your own home. These can include things like HOA fees, sewer, water and trash collection, property taxes, mortgage insurance and an entire plethora of upkeep and maintenance expenses. The big difference between owning and renting, however, is that all that money you spend on a home is building equity, while rent never will. By asking your real estate agent what additional expenses you can expect, you will have a much better idea of what you can realistically afford to spend on a mortgage.
- Would you buy this home?
Real estate agents have to walk a thin line between keeping their clients happy in the short term and making sure they will be happy with their purchase in the long run. Sometimes clients fall in love with a home that an agent can see a million problems with, but if that’s the home the clients decide they want, that’s the home the agent will help them get. Before you get too fixated on a home, ask your agent if they would buy it and why or why not.
If you want to start investing in real estate, you’ll probably start with homes in the low to moderate price ranges. This will help you build up some capital, but you won’t make a good profit until you start dealing in luxury housing. When you’re ready, it’s important to know where to find high-end homes that will earn you a better profit. While you can search listings, there are a few more efficient strategies for finding your next investment property.
Socialize With the Wealthy
In any career path, your advancement will depend as much on who you know as it does on your specific expertise. This is equally true when it comes to investing in luxury real estate. You can meet wealthy individuals by joining health spas, country clubs, and other places where the social elite are more likely to congregate. Developing friendships and acquaintances with the wealthy will give you the inside track on luxury real estate. You’ll be among the first to find out who will be selling their properties in the near future.
Provide a Service
The wealthy have unique problems that affect their finances, and they’re always looking for that special professional who can help them alleviate their concerns. Whether you prepare taxes, sell insurance, or have experience in the lending industry, you have skills that the wealthy need. By using those skills specifically to help the wealthy, you can create a niche career for yourself. Additionally, you’ll position yourself to learn about luxury home sales before they hit the market.
Host Seminars to the Wealthy
You can solve a problem for several wealthy individuals at once by hosting a seminar. The event should provide comfortable seating, good quality snacks, and a secluded environment where they can focus on your lecture. Instead of giving specifics for solving the problem, your seminar should focus more on why you’re qualified to solve the problem for them. You can give some generalized information, but you want to ensure they will still need to hire you by the end of the lecture.
You can also work with a real estate agent who deals primarily with luxury real estate. They can help you find high-end homes that are new to the market. An agent can also keep you informed about open houses to help you explore more properties in the market. This type of professional assistance can make your search easier and shorter.
While you should work with a real estate agent to help you find your new home, it’s important to remember that the agent earns a percentage-based commission on the house you do buy. While most agents are reputable, you should still be prepared to do some of your own research. Knowing the fair market value of a home will help you get more house for your dollar.
Research Recently Sold Homes
You can do a little research by looking at recently sold homes that resemble the home you want to buy. If you’re looking at a 2,400 square foot home with two bedrooms and two baths, look for the same size homes that were recently sold. While the condition of the home and additional amenities may also affect the sale price, the home you want to buy should be priced within the same ballpark.
Look at Other Homes on the Market
You should attend open houses and tours of other homes that are for sale within the same area. This will give you a better understanding of the price ranges for comparable homes. By touring them, you’ll also see what amenities or features are affecting the prices of homes in the area. As you learn more about the market, you’ll gain the expertise to accurately judge home prices in your community.
Be Skeptical of Private Sellers
Many buyers don’t realize they’re overpaying when they buy a home from a private seller. When a seller hires an agent, the price of the home is marked up by about 3% to cover the agent’s commission. A seller who chooses to sell without an agent should mark their asking price down by that 3% to reflect that they’re not paying the commission, but many don’t take that into consideration.
In the end, you’ll have to trust your own instincts. If you think a seller is charging too much for their home, you can and should move on with your search. In many cases, the seller may lower their asking price rather than risk losing the sale. If they hold fast to their original price, keep in mind that there are more homes on the market. It may take a little longer, but you will find your ideal home at a more reasonable sale price.
There are two main types of real estate investments; residential real estate investments and commercial real estate investments. Residential real estate is the type of real estate that people traditionally think of when discussing the topic, such as single-family homes and duplexes. Commercial real estate, however, covers a broad range of real estate, such as office spaces and retail locations. Commercial real estate provides a great way for investors to maximize their leverage while controlling more property.
Commercial properties are valued differently than residential properties. When a lender assesses the value of a residential property, they use comparables, also referred to as comps, to arrive at their valuation. Comparables provide estimates for the value of a residential property by providing close references to that property.
Lenders use several methods when assessing the value of a commercial property. One of the main tools that a lender will use when they are determining the value of a commercial property is the property’s local capitalization rate. The capitalization rate, more commonly referred to as the cap rate, is a ratio that compares the property’s net operating income to the price that the property was purchased for. The cap rate allows the property to be valued based on the income that it is able to produce.
Lenders also take a property’s net operating income (NOI) into account when they are determining the value of a commercial property. A formula is used to determine the net operating income of a property. Ultimately, the net operating income provides an amount after expenses have been subtracted from the gross income of a commercial property.
Commercial Loan Types
There are a variety of commercial loans that are available for commercial real estate investors. Conventional commercial loans, construction loans, balloon loans, bridge loans, and seller financing are all types of loans that commercial real estate investors routinely use when making their investments.
Learning the ins and outs of commercial real estate takes time and experience. However, with patience and routine education, anyone can develop an in-depth understanding of commercial real estate. The best way for someone to learn commercial real estate is to immerse themselves in the field and surround themselves with people who are experienced and can provide invaluable lessons.