FSBO Jane

I found this article from the Chicago Tribune to be interesting, but from a different perspective than it meant to portray. According to the article, one-fourth of all people with mortgages find themselves to be underwater, or in other words, paying mortgages higher than what their houses are worth. That’s approximately 27 million people. Because of this, online sites are starting to accommodate for buyers and renters. Apartments.com, a rental site, said they have seen a significant increase of traffic to their sites and follow-through calls to landlords. With so many people “underwater,” why wouldn’t more people opt to rent rather than own right now?

I found this to be interesting from the landlord point of view. If so many people are underwater, out of work, struggling financially, etc., why not take advantage of this surge in rental interest? Why not fill this up-and-coming market? I say go purchase a home at an exceptionally low price and then rent it out to tenants! It’s the perfect time for that, and your opportunities are seemingly endless.

Buy Owner is a good place to start searching for affordable property that you could purchase and then rent. Not only can you search for cheap houses, but you can also search for apartment buildings and multi-units for sale, vacant land, manufactured homes and more. You can choose your budget and stick to it. You can choose a location that is surging in rental interest and search only in that location. It’s never been so easy to purchase a cheap home, and then decide to rent it out.

I found this article to contain valuable insight on where real estate is heading in the future. My job is complete in sharing this insight with you. It’s up to you now to decide your next move!

What does it mean to have a preapproval on a mortgage loan?

To be preapproved for a mortgage loan means that you, the borrower/potential buyer, has completed a loan application and is approved for a loan. In order to do this, you will provide debt, income and savings documentation to an underwriter (aka lender or bank) that will pre-approve you for a specific amount.

Why do I need a preapproval?

A preapproval is not needed, but it is recommended by many real estate professionals. Say you find the home of your dreams and you want to put in an offer to the owner. Before you do that, you’ll need to figure out how much you can spend on the property. This is done based on the debt/credit/income/savings info you provide, as well as assumptions about interest rates, property taxes and insurance. Also, a seller will be pleased to know that you are serious about the property and already have a payment plan already in the works.

Example: After everything is examined, you are pre-approved for a mortgage loan totaling between $225,000 and $275,000. The home you want is listed at $290,000, and the seller won’t budge on price. Unless you come up with a down payment of $20,000, you will not be able to afford the property.

When obtaining a mortgage loan, it’s important to find a lender who is willing to offer a rate lock. A rate lock, also referred to as a lock-in, means that the lender issues a commitment to a specific interest rate for a specific period of time. During that period of time, the interest rate cannot fluctuate. This is especially important during the time it takes to file your application, process the loan and approve the loan, which could add up to a few weeks. If you don’t have a locked rate, the interest rate could increase by the time the process is complete. However, with a rate lock, it usually means that you will also not benefit if the interest rate decreases. Your mortgage lender may also require that you pay a fee to lock in your interest rate. Talk to your mortgage lender about what they offer and what rules they follow.

Thinking of buying a new home? Worried about getting the best rate on your mortgage?

Take a look at the GuaranteedRate.com and Zillow.com!

Here’s how they work:

GUARANTEED RATE.COM*
1. Choose loan: purchase or refinance.
2. Pick the state in which you live.
3. Enter an estimated loan amount.

ZILLOW.COM*
1. Choose loan: refinance or home equity
2. Type in the purchase price of the house.
3. Enter your zip code.

In order to find the best rate, you begin the process the same way on each site entering the type of loan, your location and the estimated amount needed. However, while Zillow provides a list of lenders (leaving you to do all of the work), Guaranteed Rate does the work for you by giving you their result in addition to offering its competitors’ information up front to ensure that you’re getting the best rate possible.

*Neither service requires your Social Security Number.

Have you ever wondered where, exactly, mortgage lenders get their money? And did you know that you can actually make money off of mortgages? While I don’t advise newbie investors rush to take their chances on an endeavor such as this, I will explain the basics of mortgage-backed securities.

A mortgage-backed security is an interest in a pool of money that is issued and sold by larger mortgage lenders and government agencies like Fannie Mae, Freddie Mac, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) to the financial markets. Essentially, groups of mortgages are packaged into a bond purchased by investors. These bonds are generally priced at $25,000 at least, thereby generating new loans for future borrowers.

Because the housing market is not doing well, and foreclosure has been on the rise for a few years, investing in mortgage-backed securities is more risky these days. You should keep in the mind that it’s a risk, in general, to invest in other peoples’ money. This system is intended to work well as long as people (homeowners/loan borrowers) pay their debts. And if these people cannot afford to pay their mortgages, thereby facing foreclosure, the investors lose out, as well.

Picture this…

You’ve been scouring several charming communities, searching for that perfect house. You canvas each neighborhood, looking for FSBO signs; you spend hours on the Internet wading through at listing after listing. Finally, after months of searching, your eyes fix on a gorgeous home. You practically run inside for a showing, and you fall in love with every room. Without even thinking about the price, you say to yourself, “This is the one.” Then, you find out that the home is selling for over $400K. What do you do?

If you truly want to purchase a home priced well into the 4, 5 and 600s (and beyond), you might fret, thinking that you won’t be able to get such a high loan. However, let me introduce you to the jumbo loan.

Each year, the conforming loan limit is set in January, by federal agencies Freddie Mac and Fannie Mae. Currently, the conforming loan limit for a single family home is $417,000. If your dream home costs a lot more than that, the loan you are seeking is referred to as a jumbo loan, as it exceeds the amount Freddie Mac and Fannie Mae are allowed to lend to a borrower.

In the simplest terms, jumbo loans are non-conforming loans that offer a home buyer a great flexibility to purchase the house he/she wants. They are not possible to sell to a federal agency like Freddie Mac or Fannie May, either. Keep in mind that, because you are taking out a larger amount of money, the interest rates may be higher; however, jumbo loans tend to have less strict criteria for borrowing than you would see while applying for a conforming loan. You should also consult with your broker as to which loan you would like to buy: a fixed rate or an adjustable rate.

Attention, current and former military personnel! If you are buying a home, you could qualify for a V.A. Mortgage Loan.

What is a V.A. Mortgage Loan?

This loan became available to military personnel back in 1944 when the G.I. Bill (formally known as the Servicemen’s Readjustment Act) was signed into law by President Roosevelt. The idea behind the loan was to provide guaranteed housing assistance to veterans and their families so they could afford to live in a house after times of war.

Why would I need a V.A. loan?

First of all, you can get a V.A. loan with no money down! Secondly, if you want to buy a townhome or a condo, it must be in a V.A.-approved project. You might also want to buy a fixer-upper, a manufactured home or even a vacant lot. You can use this loan to purchase virtually any type of home, as long as all regulations are met.

Am I really guaranteed a loan?

Yes and no. You have to meet a set of requirements, with a good credit rating being the number one stipulation.

Where can I get more detailed info?

Visit the U.S. Department of Veterans Affairs website. You will be able to download documents that explain the eligibility.

Bridge financing is a term that may come into play when you’re selling a home to pay for a new one.

Say your current home sale closes on September 1, and you’ll be closing on the purchase of your new home August 1. The month between the two closings may require financing, while you wait to get the money from your sale.

Essentially, that is what bridge financing is. It provides a bridge between the purchases while you wait to close on one.

It starts with your first apartment. You fill it with hand-me-downs and mismatched pieces you found at thrift stores, adding more and more as time goes on, until one day, you wake up and think you are outgrowing this shoebox of a one-bedroom, and you need more space. Then comes you next apartment, and your next, until you buy a home—your first big purchase of this kind, and you clean it and take care of it with pride because it’s yours. But eventually even that home becomes too small, or in the wrong location, or lacking in outdoor space. So you move up again, until you do it again. Along the way, there are always new decorating ideas to consider or new products to purchase or nicer neighborhoods to move to.

Sound familiar? For many Americans, this is the constant struggle of home ownership—wanting more. Some say it’s the reason mortgages got so out of control and the reason the real estate market has plummeted.

Regardless, there’s one valuable lesson to be learned from the always-wanting-more mindset: When it comes to buying a house, don’t overbuy.

Take Edmund Andrews, an economics reporter for the New York Times, who recently told about his own personal crisis of buying a house outside his means and then amassing large credit-card debt to try and keep up with payments. It’s a fascinating story and one that’s all too common.

As a kid, I remember talking to my friends about “grown up stuff.” One of the subjects brought up by me, the future Realtor, was second mortgages. I knew my parents took out two mortgages on our house, but I had no idea what that meant at the time. Even today, many people still have no idea what taking out a second mortgage entails.

What is a second mortgage?

It means what it says. It is a second loan taken against your home, on which there is already an existing, primary mortgage. It’s often used when the value of a home has significantly increased and the owners want access to the cash immediately. However, you still need to pay off the existing loan before you can begin to pay the outstanding balance on your second loan.

Why might I need a second mortgage?

Taking out a second mortgage gives you the cash you may need to pay for the following:

• Accumulated debt from a car payment, high-interest credit cards, medical bills or school tuition
• A second home, a vacation property
• A new business venture

How do I get a second mortgage?

The process of obtaining a second mortgage is very similar to the way you got your first one. First and foremost, you need to shop around. Visit different lenders, get quotes and find the most suitable loan offer. Once you find the loan that will cost you the least amount of money, apply. After the lender completes an appraisal of your home, you will be required to pay closing costs (like you did on you primary mortgage).

How much can I borrow?

You will be able to borrow a specific sum of money based on your home’s equity (aka the difference between the appraised value of your home and the amount you have already paid towards the primary mortgage). This could be anywhere between 85% and 125% of your home’s appraised value, depending on where you live. Keep in mind, though, that the interest rates on your second loan will be higher than those on your first.

Note: Getting a second mortgage loan sounds easy; and it might be for some people. But you should think long and hard before applying for a second mortgage. Is that business going to be profitable? Will you rent out that vacation home when you are not using it? Obtaining a second loan means increasing your debt, so consider everything, down to the most meticulous detail.