Should You Rent Your Home To Others?

With rental prices rising, you may be wondering if now's the time to become a landlord. There are advantages to renting your current home while you purchase another to live in.

The advantage to renting your home is that you're likely paying a homestead mortgage interest rate, which will make it easier to make a profit than if you purchased rental property with a mortgage at a higher interest rate. As you've owned your home, it's likely appreciated in value, allowing your home to compete well in the rental market so you can use profits to put back into the home to keep it rentable.

Assuming you're current on your mortgage, have the credit scores to buy another home, and have saved enough cash for a down payment, now may be the ideal time to add a rental investment to your portfolio.

Real estate has always served as a hedge against inflation and against other investments, so the first thing to do is find out how rents compare to home prices in your area. Your real estate professional can provide you with market comparables that show you how much homes are renting for per square foot and how quickly they rent, as well as for what prices comparable homes are selling.

If the rental income is enough to cover your mortgage, you're in good shape, but there are other expenses to consider, such as income taxes, advertising, listing and management fees, and maintenance.

For income tax purposes, your current mortgage isn't considered a cost of doing business that you can deduct like office supplies or equipment purchases. You'll pay taxes on this gross amount, less repairs and management fees, if any. On the bright side, if you sell the property within five years and you've occupied the home two of those five years, you'll likely pay no capital gains at all up to $250,000 for an individual or $500,000 for a couple.

To qualify for a mortgage on another home, your ender follows a typical multiple home formula. Even though you may have your home rented, plan to deduct approximately 20% of rental income from your "investment." Why? Most homes have a period where they are not rented while they're on the market, which means no rental income. Your lender wants to make sure you can handle periods when your home isn't rented.

When you turn your home into a rental, it's no longer a homestead, but an enterprise. Tax laws require you to make a profit within three years of launching an enterprise, or otherwise you won't be able to take deductions associated with it. Also, expect to pay more in property taxes as you will also lose the homestead deduction rate, since you'll be applying for the homestead deduction on your new home.

On the other hand, one of the best ways to build equity is to have someone else pay your mortgage for you. The longer you own your home and the longer it's rented, the more the amortization tables turn in your favor. Every loan payment is made of principal and interest. The longer you own your home, the larger the percentage that goes toward reducing principal.

Based on the purchase price of your home, you can deduct "depreciation" from your income every year you rent it, but this amount decreases with time. You can also deduct some maintenance and improvement expenses which are not available to homesteaders. See your tax professional for more information.

There are other pros and cons of becoming a landlord. You'll be dealing with people who don't respect your home as much as you do and could cause damages. They may skip out without paying the final month's rent. You'll have two homes to maintain, and could get broken plumbing or appliance calls in the middle of the night. On the bright side, renters of single-family homes tend to be older, more responsible and remain occupants longer. Also many losses are tax-deductible to landlords.

Ask your real estate professional or someone else that you know who owns rental property for more insights. They'll be able to share real-life property management situations and costs that may help you to decide if this is the right step for you.

Shared from:  http://realtytimes.com/consumeradvice/homeownersadvice1/item/38854-20151002-should-you-rent-your-home-to-others-htm

5 Unexpected Side Benefits of Homeownership

You already know about the tax benefits of buying a home & the long-term financial advantages created by rising home values & bankable equity.  But some of the associated benefits of homeownership might surprise you.

1.  Pride of ownership

You understand the idea of pride of ownership, but maybe you've never actually felt it.  You will once you put those keys in the door for the first time.  And this doesn't just apply to first-time homebuyers.  If you've worked hard, saved well, spent smart, & are able to now move up to the home of your dreams, you'll undoubtedly feel it, too.

"America has a long tradition of homeownership," said the New Jersey Association of REALTORS.  "This country was founded by settlers who braved the wilds, faced the unknown, & claimed a bit of the American countryside for their own.  Having a stake in the land upon which we live is rooted in the fabric of the American psyche."

2.  It's a do-over

So your old house deteriorated into an outdated mess.  Or maybe you earned a reputation for being the grumpy neighbor because you threw one too many fits over dog poop on your own.  Now you've got a clean slate.  Your house can be anything you want it to be, & you can be anyone you want to be - even the friendly, helpful neighbor who sets out poop bags, just in case.

3.  Social Benefits

Any move brings new opportunities to make new friends & increase your social interaction.  But homeownership can also provoke deeper social benefits.

A report from the National Association of REALTORS found that homeownership positively impacts educational achievement, with homeowners having a "significant effect on their children's success.  The decision to stay in school by teenage students is higher for those raised by homeowning parents compared to those in renter households," they said.  "Furthermore, daughters of homeowners, have a much lower incidence of teenage pregnancy.

Potential reasons for this:  "Certain behavioral characteristics required of homeowners that get passed onto their children, "such as the financial commitment that leads homeowners "to minimize bad behavior by their children & those of their neighbors that can negatively impact the value of homes in their neighborhood," homeowners assuming "a greater responsibility such as home maintenance & acquiring the financial skills to handle mortgage payments," & "neighborhood stability."

An additional study shows that "homeownership has positive effects on the academic achievement of children (with) significant effects of home environment, neighborhood quality, & residential stability on the reading & match performance of children between the ages of three & twelve."

4.  Coupons galore

Chances are you've got a laundry list of things you want to do to your new pad.  Buying a new house will unleash a cavalcade of junk mail, but in that mess of unwanted refinance offers & insurance information & other nonsense will be all kinds of coupons you can use from big box companies, home decor outlets, window treatment businesses & the like.  Go through them carefully & you can fix up your place without spending the equivalent of your down payment.

There are also hundreds of dollars worth of coupons from companies like Best Buy, Lowes, & Bed Bath & Beyond available in the change of address form you fill out at the post office or online.

5.  Credit offers

Once you close escrow, your credit score will get a bump & credit offers will start rolling in.  This is great if you're looking to get a new car, do some home improvement projects on credit, or buy some new furniture.  By taking advantage of special offers from Home Depot, Best Buy or furniture stores like Rooms To Go, you can do some updates & spread out your payments over time without accruing interest - if you qualify.  Just make sure to keep track of how much you need to pay monthly to take full advantage of the program.


Shared from:  Jaymi Naciri

Not Only Did You Lose Your House—Your Credit Score Is a Mess After a Foreclosure

“Foreclosure” is a frightening word for a number of reasons. Topping the list? If you’re unable to make your mortgage payments, you’ll lose your home.

However, the misery doesn’t end there. Foreclosure ripples out and affects your credit score, which can hurt your chances of qualifying for a new loan—or another home—in the future.

Foreclosure and your credit score

A foreclosure appears on your credit report and leaves a dingy residue that can seriously damage your credit score.

“A mortgage is considered one of the safest forms of credit but is also typically one of the largest debts a person ever has, so when you stop making payments, or are late on a payment, you will see a large drop in your scores,” said Rod Griffin, director of public education for Experian.

While it’s impossible to pinpoint exactly how many points your credit score will plummet after a foreclosure, it might be enough to drop your score from the prime to subprime range. “A consumer could drop credit tiers following a foreclosure. [It depends] on the consumer’s credit history prior to the foreclosure and if there are other negative factors contributing to a drop at the time of foreclosure,” Griffin said.

And while some of the negatives will diminish over time, a foreclosure will linger on your credit report for seven years from the filing date.

Rebuilding

Getting your credit score back on track after a foreclosure boils down to following a simple philosophy: Keep it positive.

“Because negative information is deleted eventually, you can rebuild your creditworthiness if you take control of your debts and build a history of positive payments that will continue to appear after the foreclosure disappears,” said Griffin.

Applying for credit

Applying for credit after a foreclosure is tricky.

“A foreclosure in your credit report is typically looked at by lenders as very negative. It may not be as bad as bankruptcy, but not paying your mortgage and losing your house is very close,” Griffin said.

If you apply for credit cards, department store cards, or other loans, you may find lenders aren’t as willing to extend credit as they once were. And when you do get approved, you’ll likely face higher interest rates, higher annual fees, or more onerous terms than you would have before your foreclosure.

Buying a home

If you think you’re back on solid financial footing and want to buy again, jumping back into the home ownership saddle is near impossible shortly after a foreclosure. All mortgage loans have a waiting period after a foreclosure before you’re able to apply for another loan:

• Conventional loans require a seven-year waiting period.
• Loans backed by the Department of Veterans Affairs require a two-year waiting period.
• Loans backed by the Federal Housing Administration require a minimum of one year.

It’s tough to rebound from a foreclosure and become a home buyer again, but the devastating effect of defaulting on a loan has a more immediate (and negative) impact on your credit score.

Reposted from:  http://www.realtor.com/advice/foreclosure-makes-a-mess-of-your-credit-score/

Building Your Own Home...AND financing it?

Building your own place is a tradition as old as civilization itself. Of course, it’s a bit more complicated than it used to be.

No matter how handy you are, you’ll need the right kind of financing for your house to go from first architectural draft to completed structure.

Types of financing

Construction-to-permanent financing: Lenders provide a single loan that includes the cost of construction and the home’s mortgage.

During the duration of construction, usually 6 to 12 months, you make interest-only payments on the loan. Some lenders may offer an extended period of interest-only payments before principal payments kick in. When the house is done, the loan converts into a standard 30-year loan. There’s only one closing, which means less closing costs. However, you won’t be able to shop around for mortgages from different lenders.

Construction loan: A short-term loan provided by a lender to complete a specific project. When construction is complete, the principal amount is due. You can shop for your own mortgage to accompany this loan.

DIY difficulties

It can be difficult to get a loan for both the construction project and the land. Not only will you need great credit, you’ll also need to show a lender a detailed plan.

Most lenders are very wary of lending to someone without a proven track record of building homes, so this is where the wind may be removed from the sails of many buyers.

“It is very difficult to find a lender that will finance a self-managed project,” said Melissa Cohn, president of New York City-based lender and brokerage GuardHill Financial. “A few banks may offer it, but expect the rates to be higher.”

Paying for land

With that in mind, it helps to already own your land. It will cut down on overall costs, and you can leverage the land to get better rates. With down payments typically starting at 20% for construction loans, not owning land in advance of construction can be a deal breaker for some buyers.

For your best chance at approval (and a lower down payment), have a detailed plan ready for the lender to review, and plan on starting construction as soon as possible. If you’re looking to finance land now with plans for construction beginning later, expect to shell out a higher down payment.

Other costs

• Keep an eye on builder’s fees and get all projects in writing. Consider your costs before springing for an upgrade or an addition not included in the initial contract.
• Set aside some money and hire a lawyer familiar with construction law to go over the builder’s contract before committing to a project.
• Lenders view construction loans as riskier investments than traditional mortgages. Expect to pay a slightly higher interest rate. For construction-to-permanent financing, you’re likely going to have to pay a quarter-point more.
• You may want to find a lender who will let you lock in rates during the construction or pre-construction period if you believe rates are going to rise. If not, adjustable-rate mortgages for construction loans are also common.

Reposted from:  http://www.realtor.com/advice/finance-home-build/