Oct 2, 2019 | Mortgage
Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act to encourage investors with capital gains on other investments to invest that money in low-income and undercapitalized communities. They get a reward of deferring capital gains tax. They avoid a portion of it altogether if they keep the investment for five years or longer.
What started with a trickle of a few Opportunity Zones scattered around the country is now a deluge with over 3,000 approved Opportunity Zones approved in just about every part of America. 4,700 more areas may also qualify.
Opportunity Zones Expanded Dramatically
The very generous definition of Opportunity Zones not only includes poorer areas but it also includes wealthy areas within larger poor areas. Some are wealthier areas adjacent to poor areas. For example, there are Opportunity Zones in Manhattan, which is an area not typically thought of as low-income or undercapitalized.
Opportunities In Opportunity Zones
The tax incentives along with the current easy financing from real estate lenders are stimulating development projects in Opportunity Zones. Investors may increase returns on real-estate investments by up to 50% for projects in these areas.
The highest returns, based on the tax savings, are for those that invest before the end of 2019 and hold the investment for seven years until 2026. They get a capital gains step-up of 15%. After that, the tax benefits go down to a capital gains step-up of 10%.
Homes In Opportunity Zones
Another attractive characteristic is that the price of single-family homes in many Opportunity Zones is a bargain. The median price of homes in almost half of the Opportunity Zones is less than $150,000. This compares favorably to the national median home price of $266,000.
Moreover, homes in many Opportunity Zones are less than half the price of an adjacent area. The median rents in the Opportunity Zones are not as depressed as the home prices.
For real estate investors looking for cash-flow positive rental properties to acquire for a portfolio, these homes may rent for enough to pay the carrying costs.
For home buyers, these bargain prices may mean it pays to buy a home on the edge of an Opportunity Zone. If the home is adjacent to a nicer neighborhood, the upside potential for appreciation in home value may be enhanced.
Opportunities for low-cost homes exist in the Midwest, which has 73% of its Opportunity Zones with homes that cost below $150,000. The portion in the South is 57% and in the North East, it is 53%. Florida has over 300 Opportunity Zones. Pennsylvania has over 150. Tennessee has about 140. Those are states worth considering.
Summary
Looking for home-buying opportunities in newly-designated Opportunity Zones is attractive for real estate investors building up a portfolio of rental properties and for homebuyers who are looking for a bargained-price home.
If you are in the market for a new home or investment opportunity, be sure to consult with your trusted real estate professional.
Sep 27, 2019 | Mortgage
Crowdfunding came into prominence with the Jumpstart Our Business Startups (JOBS) Act that President Obama signed into law during 2012 and subsequent enhancements. The JOBS Act made it easier for startups to raise money and for the first time allowed the legal ability to advertise the investments and accept small investors.
Innovate And Renovate
Crowdfunding is useful for many projects. The method raises money to create new products, make documentary films, and for many kinds of fashion items. Crowdfunding successfully raises money for real estate transactions.
Smaller investors participate in real estate projects that they would otherwise not have enough investment money to create on their own. They may invest a few hundred or a few thousand dollars. When their smaller investment money combines with all the others, the project raises enough money.
One thing that makes crowdfunding projects work is their popularity. Affinity groups who have a special interest in certain things invest money in projects related to something that they like.
One application of this motivational factor is to raise money using crowdfunding to renovate buildings with a historical value or that otherwise attract the interest of the public. The process does not have to start with money. It can start with crowd sourcing ideas.
The CLUE® Mansion
A fun example is the Hasbro Company teamed up with Houzz to get innovative ideas from interior designers about how to renovate the CLUE® Mansion. The mansion is a backdrop for the popular board game.
This promotion celebrates the game’s 70th anniversary. The mansion’s style in the game stayed the same since the game debuted in 1949. The winning room designs, selected by fans, will be part of a new version of the game.
There is no reason to stop there. A real mansion can be renovated to match the game. This could be a CLUE® museum and could offer escape rooms as a money-making enterprise. This is just an idea at this moment. Perhaps, someone will take this up and run with it.
Crowdfunding Renovations
The point is, historic buildings that are of interest may need renovation funds that can be raised using crowdfunding. Those who have an interest in the building from the local community and elsewhere can support the project by investing in the renovation with a small comfortable amount.
Summary
Renovation projects are not easy to finance using traditional lenders. However, if a thousand people invest $100 each that is $100,000 for a renovation project in your community. Paying back the loan can come from a portion of the entrance fees.
Hopefully, this will spark continued interest in preserving and restoring historic homes, which are a terrific part of the American heritage.
If you are interested in purchasing a new home or listing your current property, be sure to consult with your trusted real estate professional.
Sep 25, 2019 | Mortgage
Many mortgage payments are made up of four parts, called PITI. PITI is an acronym that stands for principal, interest, tax, and insurance. It’s important to understand PITI because it is the real number you need to use in order to find out how much mortgage you can afford to pay each month.
One of the biggest mistakes first-time homebuyers make is using only the principal plus interest figure to calculate how much they’ll be paying every month for their mortgage. Then, when the lender comes back and denies them, the prospective buyer is confused. Knowing and understanding PITI will put you back in the driver’s seat with your home buying goal.
Principal
The principal part of your mortgage payment represents the amount of money that you borrow over the terms of the loan. For instance, if you borrow $100,000 and you have 20 years to pay them back, the principal that you’ll pay each month equals $100,000 divided by 20.
Interest
The interest portion of your mortgage payment is the percentage rate that your lender is charging you to borrow from them. Another way of looking at the interest is to think of it as the cost of borrowing money. Interest will be spread out over the length of the loan, just like the principal payment.
Tax
The tax portion of your monthly mortgage payment pays for real estate and/or property taxes. Real estate taxes are assessed by the local government where the properties located. The tax rate is determined by the government and is not influenced by your personal credit score.
Insurance
The insurance part of your monthly mortgage payment pays for homeowner’s insurance and/or private mortgage insurance. If you put less than 20% down on your home purchase, you’re required to have private mortgage insurance. This amount can add considerably to your monthly mortgage payment, so it’s worth it to try to hit that 20% threshold.
Otherwise, you have to wait until your loan to value ratio is 80/20. After that, you can request to drop the private mortgage insurance, but the homeowner’s insurance will still be part of your monthly payment.
Now that you understand what makes up a PITI mortgage payment, you’ll be better prepared to plan for your monthly budget that includes a mortgage payment.
If you are in the market for a new home or interested in listing your current property, be sure to contact your trusted real estate professional.
Sep 17, 2019 | Mortgage
For many Americans, their home is their primary investment. The equity stored in your residence can be a source of available cash for home repairs, upgrades, or for financing the purchase of investment properties. However, few homeowners really understand the process that results in home equity.
What Is Home Equity?
Your monthly mortgage payment goes towards two different amounts. The first is the interest that you pay for the loan. The other is your principal payment or the amount that counts against the initial amount that you borrowed for the purchase. Depending on the details of your loan contract, each payment is generally split between these two types of charges.
Over time the amount that you’ve paid towards the loan’s principal grows your equity position. With each payment, your equity grows as well. Once enough equity is accrued, many lenders allow homeowners to access those funds via an equity line of credit, home equity loan or a cash-out refinance.
You’ll have to pay interest on any monies you withdraw from the second mortgage or higher loan amount upon your refinance. With home equity lines, however, these loans only charge interest on the money that you actually use. You can secure a home equity line of credit for a certain amount and not be liable for a penny in interest until your first withdrawal.
How Can You Calculate Potential Equity?
There are 4 main factors to consider when calculating your home’s equity.
- Home value.
- Monthly mortgage payments.
- Down payment.
- Any liens or additional mortgages on the property.
Imagine your home is currently valued at $300,000. With cash down payment of 20%, your home’s starting equity is equal to your initial $60,000 payment. Each payment slowly increases your equity until you have full financial ownership of your home.
Talk to your lender to understand how interest in applied to each payment. For fixed rate loans, you can easily figure out how much of your mortgage payments are immediately applied to the loan’s principal. An easy way to see this equity build up on a monthly basis is to reference an amortization schedule. Your lender should be able to provide this for you at no charge.
For property owners with liens and additional mortgages, add the value of those items to what’s still due on your primary mortgage loan before completing the calculations.
Home equity is a flexible financial tool that you can use to improve your property, expand your business, or treat yourself to something special. Plan carefully to get the most out of your home equity line of credit.
If you are interested in a buying a new home or listing your current property, be sure to contact your trusted real estate professional.
Sep 13, 2019 | Mortgage
It is a major life decision to buy a home and yet many do not consider how much they will pay on the interest over the life of the loan. All they usually think about is if they can afford to pay the monthly mortgage payments.
It is helpful to learn how different loan structures impact the amount of money wasted on the interest paid for a home loan. Here is a comparison of different loan lengths and payment options to show some helpful ways to reduce the total interest paid.
Standard 30-Year Fixed Mortgage
For a buyer who has a good credit history, purchasing a median-priced home with a significant down payment usually helps get the best mortgage financing. A standard 30-year mortgage on a home requires 360 monthly payments to pay off the loan.
The total cost of the loan includes paying back the principal amount borrowed and all the interest. Over 30 years, the total interest paid can be as much as one-third or more of the principal amount borrowed, depending on the loan interest rate.
Standard 15-Year Fixed Mortgage
Comparing a standard 30-year fixed mortgage with a standard 15-year mortgage shows a surprising result. The differences are that the length of the loan term is less and the monthly mortgage payments are higher. A standard 15-year mortgage on a home requires 180 monthly payments to pay off the loan.
The shorter loan period may reduce the total interest paid to less than one-half of a 30-year mortgage, depending on the loan interest rate. The savings can be in the tens of thousands of dollars.
Payment Techniques That Save Money
A simple way to save money is to pay an extra monthly payment each year and ask the lender to apply the extra payment to reduce the principal amount owed. On a 30-year mortgage, the loan pay-off date is more than two and one-half years sooner, reducing the total interest paid by about 10% percent.
A smaller savings amount is possible without even needing to pay more, just by paying more frequently. Instead of paying a mortgage once per month, make arrangements with the lender to pay half the monthly mortgage payment twice per month. The amount the lender receives monthly, in the two payments, totals the same amount that the lender would receive in one payment.
This technique works because there is a daily calculation of mortgage interest. By making payments more frequently, there are fewer days of use for some of the loaned funds. This tiny change in periodic repayments can be a nice way to save a few thousand extra dollars over the life of a loan.
In addition, since there are 26 two-week periods in one year, you’re getting an extra payment in over the longer months in the year. So you’re paying the equivalent of 13 monthly payments instead of 12. You might not feel it as much since you’re likely making more money in the longer months as well.
If you’d like to do this strategy and the lender won’t accept bi-weekly payments, then just divide the principal and interest portion of your mortgage payment by 12 and add that amount to each regular monthly payment. You’ll save a ton of interest over the life of the loan!
Summary
Think about interest paid as money that could have a better purpose. Choosing a shorter loan period for a home mortgage and increasing the mortgage payment frequency are important things to consider for the savings that they can produce.
If you are in the market for a new home or interested in listing your current property, be sure to contact your trusted real estate professional.
Sep 12, 2019 | Mortgage
Sometimes, things don’t go as planned. Despite the best intentions, there are times when it’s impossible for homeowners to fulfill their mortgage obligations. When your misfortune turns into a foreclosure notice, these tips will help you control the situation and realize the best outcome.
Work With Your Lender
Open the lines of communication with your lender to stall the foreclosure process.
- Call your lender and explain your predicament. Give them specific details about the nature and estimated length of your circumstances. Many lenders are willing to temporarily modify payment terms to temporarily accommodate certain hardships.
- Apply for a loan modification. If your credit rating has improved or market values have shifted in your area, it’s possible to negotiate friendlier terms that lower your monthly payments.
- A forbearance allows you to pause or drastically reduce your mortgage payments for a short period. However, you’ll have to pay everything owed in a lump sum or via larger monthly installments.
It is in your lender’s best interest to keep you in your home. Contact them early to avoid unnecessary issues.
Take Legal Action
Keep the law on your side to ensure you have the best chance at keeping your home.
- If you believe your foreclosure is unlawful or in error, you will have the chance to present your case in court. Respond in writing to the official foreclosure complaint as soon you receive it. This eliminates quick default judgments.
- Talk to a lawyer about your case. Even if you can’t afford to retain one for the trial, invest in a short sit-down session with a knowledgeable legal representative to get the facts straight and ensure you’re ready to present your defense.
- Personal bankruptcy is a final strategy for saving your home. Most chapter 7 and 13 filings allow you to keep your primary residence while reorganizing your debt.
Foreclosure is less of a threat when you understand the laws and procedures that govern the process. Educate yourself on your legal options.
A temporary setback doesn’t have to ruin your entire life. With these tips, you won’t have to lose your dream to foreclosure.
If you are in the market for a new home or interested in listing your current property, be sure to contact your trusted real estate professional for assistance.
