Tag Archives: down payment

Eliminate The Deal-Killers!

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Deal-Killers!

In her year-long house hunting adventure, Brooklyn-based realtor.com writer Margaret Heidenry recently likened home shopping to dating. “I toured countless homes, and that first visit is a lot like a first date. It can be going great until you spot your personal deal breaker—like a pack of cigarettes in her purse, or white socks with sandals. Check, please!”

Deal-breaking rooms can appear anywhere in a house, and there might be more than one. Realtors can quickly list the most common offenders that make buyers cringe. Here are a few examples:

Empty rooms with echoing voices rarely entice buyers to ask for a second visit. It’s like realizing you have nothing to talk about on a date. Empty rooms make buyers question their potential uses, even if there’s a closet in the corner. The emptiness highlights flaws—like ceiling stains, windows overlooking brick walls, or peeling floor moldings. The solution? Don’t leave it empty. Stage it as something—a home office, a library, a sitting area, or a guest bedroom. Simply adding an IKEA desk, chair, area rug, lighting, and a potted plant can make a huge difference, encouraging buyers to continue their tour.

Light is essential. No one wants to walk into a dark room. Open the curtains, raise the blinds, add light fixtures—do whatever it takes to make the room feel welcoming, even if it means lightening the paint color. No one cares that it might have been your migraine sanctuary. Just do it. Adding a real plant (not a fake one) also helps, as live plants suggest there’s enough light for them to thrive.

The bathroom from hell is a major turnoff. What qualifies? Carpeted floors. Ew. Or a bathtub hidden behind a tacky shower curtain, preventing buyers from seeing its Psycho-like depths, which might reveal dirty grout, chipped porcelain, pitted fixtures, or a collection of shampoo bottles in pools of water. Realtors agree that, regardless of a house’s size or price, every woman heads straight for the bathroom to inspect the tub. They recommend either refinishing or replacing the tub. And that carpeting? Replace it with tile. Such scenes suggest future expenses to potential buyers.

Kitchens can either sell homes or drive buyers away. They are the heart of the home. Just as your homemade lasagna brings joy, buyers need a similar reaction to your kitchen. Easy fixes include clearing counters of everything, including canister sets, toasters, Nespresso machines, the Vitamix, and cookbooks, to suggest more prep space. Quick solutions with high visual impact include refacing or painting old cabinets or upgrading outdated appliances.

Other rooms and areas can also scare buyers away, such as creepy basements, cluttered entryways, purposeless formal living rooms, overstuffed closets, and Tupperware-filled cupboards.

Ask your Realtor to give you an honest assessment by pretending to be a potential buyer seeing your home for the first time. Then get to work. Be warned, though—by the time you make all these improvements, you might decide not to sell after all. It happens.

Source: TBWS

Is it time to buy an investment property?

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Is it advisable, at the age of 25, to consider purchasing a house for rental purposes as an investment, leveraging rental income to pay off the mortgage?

Real estate has historically proven to be a lucrative investment avenue due to its potential for cash flow, particularly through rental income, and appreciation over time. While the aftermath of the 2008 financial crisis saw a decline in home values, most areas have since rebounded, returning to pre-crash levels.

Before delving into rental property investment, it’s crucial to define your expectations thoroughly. This involves evaluating potential cash flow, which may occasionally be negative. Here’s a structured approach to analyzing this:

Start by researching market rental rates in your area, utilizing online resources or the rent survey typically required by lenders for appraisal purposes. Consider adjusting your gross income estimate to account for vacancy and collection losses, as well as potential expenses associated with eviction, albeit rare.

Factor in repairs and maintenance costs, acknowledging that despite the current condition of the property, these expenses are inevitable. Additionally, allocate funds for replacements, such as estimating the remaining lifespan of major components like the roof.

Expect to provide a larger down payment for a rental property compared to an owner-occupied loan. Lenders may also require reserves, typically around 6 months’ worth, although this varies. Maintaining cash reserves is prudent regardless.

Bear in mind that interest rates for investment properties are typically higher than for primary residences. Utilize spreadsheets or online calculators to calculate principal and interest payments, and estimate property taxes and hazard insurance premiums.

Subtract all negative figures—vacancy, repairs and maintenance, replacement reserves, and monthly mortgage payments (including taxes and insurance)—from the property’s gross income to determine cash flow. A positive result is ideal, while a negative one indicates a monthly deficit that needs covering. Assess whether your stable income or liquid assets are sufficient to offset this deficit.

Consider other pertinent factors:

Is your regular income stable and ample to cover potential shortfalls?
Have you set aside emergency funds for both property-related issues and personal contingencies?
Are you prepared to hold onto the property for an extended period, perhaps five years or more?
Will your job situation permit you to remain in the area? If not, budget for a property manager, typically charging around 10% of monthly rent.
Is your current living situation satisfactory? You might weigh whether purchasing your primary residence should precede investing in rental properties, given the lower cash requirements and financing costs.

I trust this guidance proves beneficial. Best of luck!

PMI or Larger Down Payment?

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Determining whether it’s cheaper to pay for private mortgage insurance (PMI) or to put up a larger down payment on a house depends on your specific financial situation and goals. Here are some steps to help you make an informed decision:

Calculate the cost of PMI: If your down payment is less than 20% of the home’s purchase price, your lender may require you to pay PMI. PMI costs can vary based on the loan amount, credit score, and other factors. Your lender can provide specific details on the PMI costs associated with your loan.

Assess the cost savings with a larger down payment: Compare the total cost of PMI over the time you expect to pay it (until the loan-to-value ratio reaches 78%) with the potential savings of making a larger down payment. A larger down payment means a smaller loan amount, which can result in lower monthly mortgage payments and less interest paid over the life of the loan.

Consider alternative uses for your cash: If you have the money for a larger down payment, weigh the opportunity cost of using that money for a down payment versus other financial goals. For example, paying off high-interest credit card debt or investing the money might yield higher returns compared to the savings from a larger down payment.

Factor in future home value appreciation: If you expect the value of the home to appreciate significantly in the coming years, it may impact when PMI gets automatically canceled (at 78% loan-to-value ratio). If the home appreciates rapidly, you may reach that threshold sooner, reducing the overall cost of PMI.

Evaluate your overall financial situation: Consider your long-term financial goals, current income, job stability, and other financial commitments when deciding between a larger down payment and paying PMI.

Consult with a financial advisor or mortgage professional: Seeking advice from a financial advisor or mortgage expert can help you better understand the trade-offs and make a decision that aligns with your financial objectives.

Ultimately, the decision depends on your unique circumstances and financial priorities. Whether you choose a larger down payment or opt for PMI, buying a home should fit comfortably within your budget and contribute to your overall financial well-being.

First Time Homebuyer?

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14 First Time Homebuyer Mistakes to Avoid!

#1. Failing to Budget for a Home Loan

Home ownership is a cheaper alternative to renting in the long run. But in the beginning, it can be much pricier. This is especially true if you intend to get a loan to purchase your dream house.

If you do acquire a loan, remember that you will be making monthly mortgage payments for a number of years.

Therefore, it is important to budget for a home loan, beforehand. You need to determine whether your income can accommodate an extra expense or not.

If you are unable to afford making monthly payments on your home loan, it would be a mistake to try to own a house at this time.

#2. Ignoring Your Credit Score

If you thought that finishing school meant being done with competitive scoring, think again!

Apparently, your creditworthiness can be summarized in just 3 digits. Those three numerals will draw the line between owning a house and renting one.

Even if you have an impeccable sense of financial responsibility right now, your credit past can haunt you.

You could have a hard time getting a home loan if your past record shows problems with payments, or if there’s an error in your credit report.

If you go ahead and apply for a mortgage loan without checking your credit score, you could end up paying a lot more than you expected.

It’s best to perform a credit check beforehand.  This way, you will be allowed to get loans without being obligated to pay hefty amounts in interest.

#3. Disregarding Housing Marketing Trends

Just like other financial markets, the housing market fluctuates from time to time. Sometimes it favors the buyers, and sometimes it favors the sellers.

There are a number of factors that affect housing marketing trends. This includes the ratio between supply and demand, interest rates and the overall condition of the economy.

It’s also imperative that you consider how the housing market changes in your ideal location, as home prices vary from one location to another.

If you disregard housing marketing trends when hunting for a house for sale, you might end up signing for a deal that favors the seller.

#4. Lack of a Preapproved Home Loan

Some people are anxious to shop for a house and want to do it quickly, before they are financially able to afford it.

If you have already started talking to sellers before having a hard talk with home loan lenders, you are making a mistake. In fact, not many sellers will want to work with you if you promise them a certain amount and then can’t fulfill that promise.

To avoid any disappointments, it’s wise to have your home loan pre-approved first, then go ahead and look for a house to buy.

#5. Overlooking the Home Resale Value

Another huge mistake you can make when buying a house is not considering the fact that you may need to resell the house you intend to buy.

There are lots of unexpected changes that can occur, such as job transfers, financial problems, or falling in love with another bigger or prettier house.

When this happens, you might find the need to sell your house, obviously at a profit. You should never overlook the resale value of the home you intend to purchase.

What you need to do is to ask yourself several questions such as: Will it be easy to sell this house? Will buyers be interested in buying it? Will this house fetch me a good amount if I decide to buy another one? Is it situated in a preferred neighborhood?

#6. Trusting an Unprepared Agent, not getting a Good One

Involving an agent is highly recommended in the home buying process.

There are pros and cons to dealing with real estate agents. A real estate agent can take a huge burden off your shoulders when it comes to looking for the right house.

An unprepared agent can cost you money and set the deal back.

Also, if you talk to the seller’s agent, he will be representing the seller and he may not be truthful about the negative aspects of the house.

If you trust this kind of agent blindly, you may have regrets later on. Make sure your agent is prepared and well versed.

#7. Settling on a Verbal Agreement

Double crosses are bound to happen when agreements are made verbally. It would be difficult for you to prove in court that a promise was made or a handshake was made.

Therefore, it’s best that you and the seller get everything down in writing to avoid future miscommunications.

This way, you will have something to present in court should the seller fail to keep their word.

#8. Disregarding Hidden Costs

This is another common mistake that many first-time homebuyers often make.

If you neglect to prepare for hidden fees, you might be in for a big surprise. Closing costs are a good example of hidden fees, which usually include a number of fees that cover final housekeeping matters.

Before signing the homebuyer’s agreement, it would be wise on your part to determine what hidden fees are there.

#9. Ignoring Professional Home Inspection

You will be making a costly mistake if you rely on the seller to inform you about the house problems you should expect.

Before you make any payment towards the purchase of the house, it’s imperative that you first hire a professional home inspector to ascertain that the house is in good condition.

#10. Following your “Love-at-First-Sight” Gut

Not everyone or everything that you fall in love with at first sight ends up being your one true love. A house may appear to be everything you ever dreamed of, but it might not live up to your expectations.

Before following a dream house blindly, be sure to check it out thoroughly. Make sure it has all the right qualities that make it a perfect home for you and your loved ones.

#11. Being Indecisive

As unwise as it is to rush into making a purchase, it is equally dumb to take too long without making up your mind. If you take too long to make a decision, another home buyer will take advantage of your indecisiveness and buy your dream house.

Since market trends change from time to time, you could also find out that the house you took too long to buy has a new (and higher) price tag attached to it.

#12. Relying on Online Services Only

Now that many services are obtainable at the click of the mouse, most people have become too dependent on them. It’s true that loans can be obtained online and houses can be bought online as well. But failure to establish personal touch with lenders or home sellers could present a huge and costly misunderstanding in future.

#13. Forgetting the Costs Associated with Owning a Home

Just like a car, a home requires money to maintain. The pain of parting with your hard-earned cash will not end on the day you finish your last mortgage payment.

You have to brace yourself for other costs for maintaining a safe, secure, and environmentally friendly home. You have to also be ready to meet certain costs such as association fees, insurance, taxes, utilities, maintenance and major/minor repairs.

#14. Entering into Multiple Agreements

While it’s a smart thing to compare different houses before buying, you might end up biting off a lot more than you can chew.

This is especially true if you meet up with sellers and make offers or promises that you don’t intend to honor.

Before entering into any agreement with a seller or an agent, it’s imperative you ensure that you are ready to honor your end of the deal.

If you can avoid the above mentioned mistakes that are commonly made by first-time buyers, you will be more like a pro homebuyer instead of a rookie.

Avoiding these mistakes can help you make the right choices when it comes to finding a home you and your family can take pride in. Keeping in mind the resale value will also help you avoid problems moving on in the future. 

Be a pro!

cash back refinance

Cash out and rate-and-term will save you money

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How can a cash out refinance save me money?

There are 2 categories of refinance

1.“rate-and-term” 

2.“cash out”

Both will save you money

rate-and-term

The First type, rate-and-term, replaces your existing loan with one that has a better rate and/or terms. You might replace an ARM or balloon loan with a fixed-rate loan, for example. Or you may decide to lower your rate AND shorten your term. Some borrowers have been able to refinance from a 30-year loan into a 15 or 20-year loan, reducing the term, without appreciably raising their payments.

A borrower does not receive any significant amount of cash in a rate-and-term refinance; lenders generally consider that any cash proceeds above $2,000 pushes the loan into a cash out category.

There are always certain costs involved in any mortgage transaction; there will always be fees for title, escrow, underwriting and document preparation, for example. Borrowers can add these fees to their new loan to avoid having to pay them in cash. Financing these items is not considered cash out.

When you are deciding whether to do a rate-and-term refinance, you should evaluate it in two primary ways: first, how long will it take to recover the cost of doing the loan? For example, if the closing costs amount to $3,000 and the reduction in rate gives a saving of $1,500 per year in the first year.” For most people, this time frame is more than satisfactory, but you should make your own decision. The second criterion is net savings over some time, say five years, ten years or more. 

Homeowners with adjustable rate mortgages (ARMs) may decide to refinance into a fixed rate loan, even though their rate may initially be higher, they might feel more secure knowing that their rate will never change. This is more of a defensive strategy to guard against the possibility of a higher rate in the future, but it may not “save money.”

cash out

The other type of refinance, a “cash out,” the borrower receives cash of more than $2,000 at closing. This is accomplished by getting a new loan that is larger than the balance of the old one plus closing costs. Borrowers can use that money for anything. Homeowners have used cash out refinances to pay off consumer debt, like car loans, student loans, and credit cards. Using home equity to pay off credit cards can drop the payment dramatically! But paying down installment loans can create a false economy. A $30,000 car loan with an interest rate of 6% will have a payment of $500. Paying off that loan with the proceeds of a home refinance will effectively drop the payment to $150. It does NOT make sense to finance a car for 30 years. 

Contact Us. We can help you get pre-approved for a mortgage and determine how much house you can buy this next time around.  Rainbow Mortgage, Inc. is a broker so we have access to many different lenders and their loan programs which translates into more options for you!

 

Rainbow Mortgage Inc March Madness

This is Mortgage Madness!

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It’s March Madness on and off the court! Rainbow Mortgage Inc. is currently offering so many different unique home loan programs that it’s pure mortgage madness!

1% Down

The buzzer is ticking down and it’ll soon be game over for our 1% down home loan program! This program is perfect for first time home buyers or those who are strapped for cash but have great credit. You, the home buyer puts 1% down, the lender gives you an additional 2%, which gives you 3% equity in your home!

FREE Appraisals

What’s better than seeing your team make it through to the Final Four- getting a FREE appraisal on your home! If you’re looking to purchase a home in either Hennepin or Ramsey County, it qualifies for a free appraisal! No matter what your income is, or if this is your first or 5th home, you’ll save over $500! (other counties may also be eligible, call for details).

High Balance Loans

When it’s tournament time, these teams go big or go home, with our high balance home loans you’re able to go big and go home! Rainbow Mortgage Inc. is offering low-rate conventional loans for homes up to $850,000 with a loan amount as high as of $679, 650. This is big news since these conventional loans allow for lower rates, easier guidelines, and fewer documents than a jumbo loan.

Pre-Qualified

With the fast-moving housing market, it may feel like you’re watching the Selection Show while waiting to hear back if your offer has been accepted. Before the intensity builds, get a letter of pre-qualification. This not only proves to the sellers that you’re a serious contender for the big dance, it gives you an idea of what you can afford. Our pre-qualification process is simple, give us a call today to get it started!

Are you ready for mortgage madness?

Working with Rainbow Mortgage Inc. is always a slam dunk! We’ve been in business for over 19 years and have created systems to produce faster closing loans that require less paperwork. Now is the perfect opportunity to take advantage of our March Mortgage Madness. Call us today, and our team of mortgage experts will start planning your full court press.

Mortgage Myths

Mortgage Myths: Busted!

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When you mention you are about to buy a house, there’s a chance that your friends and family will give you their advice on how to get a mortgage or tips they’ve heard before. While some of the advice may be helpful, you should most likely proceed with caution since rules, regulations, and programs change all the time in the mortgage loan world. Here are the top 5 mortgage myths that we hear from our clients.

1) You need excellent credit to qualify.

Typically, a credit score of 670 is “good” and higher scores will generally help keep your interest rates lower- saving you money! Each specific loan program has a different credit requirement; some FHA loans can be done with a 600 or even a 500 credit score. While your credit score is a key factor, lenders look at other items while reviewing your mortgage loan application too. Ask us what programs your score qualifies for, or how to improve it if you’re not satisfied with your current credit score.

2) If you get pre-qualified, you definitely get a loan.

It’s advised that you get a letter of prequalification before you start looking for a home, and you may think this means you’re guaranteed a loan, but that’s not the case. The mortgage pre-qualification process determines the amount of home you’ll be eligible to purchase, based off of your income, credit score and a few other factors. Your pre-qualification letter is not a binding agreement or a specific offer to lend, as you’ll have to provide further documentation once you’re ready to move forward with the loan process and have found a house!

3) You need a significant down payment to purchase a home.

It’s been programmed in our minds that a 20% down payment is needed to purchase a home. It is not a requirement, but is an ideal amount. There are many loan programs out there that work with significantly lower down payments for those who may be strapped for cash, some programs even accept 1% or 3.5% down. The government also offers a few programs that require no down payment. Both the USDA and VA Loans offer mortgage loans without down payments! Keep in mind that if you do not put 20% down, you may be required to pay mortgage insurance. Adding that additional insurance will be important to factor into your monthly mortgage payment.

4) A 30-year loan is the best option.

A loan with a 30 year term may be the best option if you are looking to keep your payments lower, however, lower interest rates are usually offered with lower term mortgages. A 15-year mortgage may be the best option because of the amount of interest you’ll save over the life of the loan, however, your payment will most likely be higher than the 30 year option because of the shorter term of the loan (must be paid off in 15 years versus 30). Another low payment, low interest rate option would be an ARM or an Adjustable Rate Mortgage, where the interest rate periodically changes to reflect the market conditions. The rate may go up, causing your payment to go up, or it may go down, causing your payment to decrease. Consider each of these options when deciding which loan option is best for you! As a local mortgage broker, we’re able to shop around and find the different loan options so you don’t have to.

5) Student debt will prevent you from buying a home.

While it may be true that student loan debt may hinder your ability to purchase a home, new guideline changes have made it a bit easier. The debt-to-income ratio was increased to 50% since many of the first-time mortgage applicants looking to buy a home currently have student loan debt. Before this increase, borrowers had to fit all of their monthly debt obligations (including the presumed mortgage) within 45% of their pre-tax income. Even though the ratio has been increased, consider if it is right for your budget to have approximately 50% of your budget going towards debt.

These mortgage myths just break the surface on all of the free-floating mortgage advice. Have further questions on your situation, give us a call!

 

Rainbow Mortgage Inc.

3300 Edinborough Way #550

Edina, MN 55435

 NMLS# 345827 || 952-405-2090|| www.rainbowmortgageinc.com|| dave@rainbowmortgageinc.com