More Rich People Are Choosing to Rent Than Ever Before — Here’s Why

Renting a home or condo has become a status symbol for some wealthy Americans.

Karen Rodriguez, an Atlanta, Ga., real estate agent, says people frequently contact her who are interested in condos renting for $10,000 to $15,000 a month in properties such as the Ritz-Carlton Residences, which have floors of condos above upscale hotel rooms.

“I do see a lot of high-net-worth renters,” says Rodriguez, with Berkshire Hathaway HomeServices Georgia Properties. “They have the disposable income to pay top dollar.”

Renter households increased by 9 million during 2005-2015, reaching nearly 43 million in 2015, according to the State of the Nation’s Housing report, an annual study by Harvard University’s Joint Center for Housing Studies that analyzes U.S. Census Bureau data. Of those, 1.6 million renter households earn $100,000 or more, representing 11% of all renters.

“Indeed, renter households earning $100,000 or more have been the fastest-growing segment over the past three years,” the report stated.

Here are four reasons why high earners are choosing to rent.

They’re frustrated with market trends.

stock market numbers and graph

Rob Austin, a biotech account manager in the Los Angeles area with a household income of over $350,000, rents a 1,700-square-foot townhome with his wife and two children.

In the last 10 years, 1.2 million households that earn $150,000 became renters, up from 551,000 in 2005. Using data from the U.S. Census Bureau’s 2015 American Community Survey, RentCafe.com reported in late 2016 that “wealthy households” that earn more than $150,000 annually increased by 217%, compared to an 82% rise in homeowners in the same income bracket.

The $150,000-and-up dollar amount served as the benchmark for “wealthy” renters because that’s the top of the bracket used in the American Community Survey to identify renters and homeowners.

Even when they had their second child in 2016, Austin says they were more steadfast to keep renting the two-bedroom, two-and-a-half bath townhome instead of buying. Prices are increasing so much that they’re “priced beyond perfection,” he says.

“It’s gotten worse,” he says. “Everything is mispriced at this point.”z

They want the next best thing.

Some buyers’ mindset is, “I don’t love it, so I’m just going to go rent a house,” says Atlanta, Ga., real estate agent Ben Hirsh.

Some may be bored with what’s on the market and are holding out for a home or condo with even more extravagant features or amenities. “They’re not happy with what’s out there,” says Rodriguez, also founder of Group Kora Real Estate Group, which sells new and luxury condos.

If they’re in a location or price range that’s hot, they could get more for their home if they sell now. Some wealthy homeowners take advantage of the resale market by going ahead and selling a home or condo and biding their time while renting. For example, if they’re sold on news about ultraluxe condos that have been announced, but are not under construction, they don’t mind renting in the interim.

“People think there’s more coming,” Rodriguez says.

Some clients have so much wealth that they’re willing to pay for the entire year up front for an unfurnished condo, she adds. Investors also have noticed the market trends and are buying condos for $1 million to $2 million with the intention to rent them out.

They don’t want a long-term commitment.

retirement retire millionaire happy couple on the beach

Some wealthy homeowners are ready to sell their million-dollar estates for a lock-it-and-leave-it lifestyle, but aren’t sold on townhome or condo living.

Instead, they’re willing to spend what can amount to the down payment on a starter home for monthly rent to experience the luxury condo lifestyle with privacy and ritzy amenities, like 24/7 room service and spa access.

“They want to test out a high-rise,” Rodriguez says. “They are people who definitely can afford to buy.”

A 2016 report by the National Association of Realtors identified the top 10 markets in the U.S. with the highest share of renters qualified to buy. The study analyzed household income, areas with job growth above the national average, and qualifying income levels (a 3% down payment in each metro area’s median home price in 2015) in about 100 of the largest U.S. metro areas. The markets that are above the national level (28%) were:

  • Toledo, Ohio (46%)
  • Little Rock, Ark. (46%)
  • Dayton, Ohio (44%)
  • Lakeland, Fla. (41%)
  • St. Louis, Mo. (41%)
  • Columbia, S.C. (41%)
  • Atlanta, Ga. (40%)
  • Columbus, Ohio (38%)
  • Tampa, Fla. (38%)
  • Ogden, Utah (38%)

The short-term mentality also may be the nature of the industry that brings people to a city. Some prospective renters whom Rodriguez meets are planning to live in Georgia for a couple of years because of work, such as jobs in the growing entertainment sector. Films such as the “Avengers” and TV shows such as “The Walking Dead” shoot in metro Atlanta.

They don’t want to live out of a suitcase in a hotel and have the income to afford high-priced rentals, joining political figures and international executives who also are among those making the same choice, Rodriguez says.

They want cash in the bank.

Townhomes sell for about $800,000 in Austin’s neighborhood in California. To make a 20% down payment, he’d have to shell out $160,000 up front.

“Why would I want to tie up $160,000 in cash in an asset that most likely is not going to go up a lot more — and more than likely has topped and has nowhere to go but down in the next cycle?” Austin asks.

Austin says he’s not wavering from his decision, although he’s “taking heat” from friends since he has the income to purchase a home.

“We’re bucking the trend by saying, ‘No thanks, we don’t want to play (the real estate market),’” he says. “We’ll just wait.”

The post More Rich People Are Choosing to Rent Than Ever Before — Here’s Why appeared first on MagnifyMoney.

This Family Spent $6,000 to Save Their Home and Still Wound Up Facing Foreclosure

Lageshia Moore of Far Rockaway, N.Y. says her family spent $6,000 in hopes it would save them from foreclosure. “Some people might say, ‘OK, just get a new house.’ But it wasn’t that simple,” says Moore.

When Lageshia Moore and her husband found their home in 2006, they thought it would be a perfect place to raise their family. The $549,000 Far Rockaway, N.Y., duplex even had future income potential if they could find a reliable tenant and rent out one half of the house.

In order to purchase the property and avoid primary mortgage insurance, the couple took out two mortgages to cover the costs.

Like millions of Americans who purchased homes at the peak of the housing bubble, their timing could not have been worse. Moore, a teacher, left her job in 2007. It soon became impossible to meet their $4,000 total monthly mortgage payments. By the summer of 2008, they were deep in default, and the recession sent their home value plummeting.

They were officially underwater on their house, and the family was living solely on Moore’s husband’s income as a driver. Eventually, they were notified that their lenders had begun the foreclosure process.

“Some people might say, ‘OK, just get a new house.’ But it wasn’t that simple,” Moore said. “This was the house where we were raising our family. My husband is very proud and homeownership means a lot to him — so we weren’t going to just let it go.”

Instead, Moore and her husband did what many families facing foreclosure do: They began looking desperately for “foreclosure relief” companies, law firms, and groups who promised help. A nonprofit connected them to a court-appointed attorney, but it didn’t stop the foreclosure process. So they turned to companies that advertised foreclosure relief on radio stations and online.

Over the course of six years, the family handed over thousands to a handful of relief groups they thought could stop the foreclosure. “We were desperate, and we thought, ‘OK, we’ll hand over this money to someone and they’ll just fix it,’” Moore said.

One of those foreclosure relief companies was Florida-based Homeowners Helpline, LLC. In 2015 the family gave the company a total of $6,000: an initial $2,000 down payment, and then $1,000 in four monthly installments. By that time Moore had found a new job, but the family hadn’t paid the full mortgage amount in years.

Moore shared the contract with MagnifyMoney, in which Homeowners Helpline says it will “perform a mortgage loan review and audit,” including actions like sending a cease-and-desist letter and a “Qualified Written Request” for information about the account to the family’s lenders.

Here’s what Moore says happened: Homeowners Helpline connected her family with a New York City lawyer who “kept asking for endless paperwork, month after month after month,” and who eventually stopped answering their calls, she claims. They finally got in touch with him just before the house was set to go up for auction, she said, and he told them the efforts to stop the auction had failed.

“We were horrified,” Moore said.

Homeowners Helpline told MagnifyMoney a different story. Sharon Valentine, a processor at Homeowners Helpline who worked on Moore’s husband’s case, said the family was slow to hand over needed paperwork and “unrealistic about their expectations.”

Crucially, Valentine said, the family didn’t tell Homeowners Helpline the house was actively in foreclosure until they mentioned the auction. “And then it was like, ‘Wait, what?’” Valentine said. The company would have taken different actions had they known about the foreclosure proceedings, she added.

“We can’t help you effectively if you don’t give us all of the information and the paperwork,” Valentine said. “In general, some clients come in and they hear their friend was able to get a 2% [mortgage] rate or cut their payments in half, and it’s like, ‘Well, that’s a very different situation.’ We try to help educate, but sometimes you can’t change that expectation.”

The Best Help is Free

But there is a free resource to educate panicked homeowners about expectations and provide foreclosure assistance — as well as help them avoid scam companies that will steal their money. NeighborWorks America runs LoanScamAlert.org, which aims to be a one-stop shop for people with questions about or problems with their mortgages.

The Loan Modification Scam Alert Campaign launched in 2009, when Congress asked NeighborWorks America to educate and help homeowners. LoanScamAlert.org offers resources including information about how to spot and report scams, and lists of trusted authorities who can help. Its main goal: Drive people to call the Homeowner’s HOPE Hotline, at 888-995-HOPE (4673), which is staffed 24 hours a day by counselors who work at agencies approved by the U.S. Department of Housing and Urban Development (HUD).

“We provide them with a single, trusted resource,” said Barbara Floyd Jones, senior manager of national homeownership programs at NeighborWorks America. “It gets confusing when you see companies with all of these similar names advertising on the radio or TV, and then you have to research them. We want to let people know they don’t have to pay a penny for assistance.”

Anyone — regardless of income or other factors — can contact the counselor network to receive free advice and help. Homeowners aren’t always aware of the myriad government-affiliated groups that can provide assistance, or of the federal and state programs created to speed loan refinances and modifications, Floyd Jones said.

“We can never promise that everyone will be able to save their home; there are a variety of circumstances,” Floyd Jones said. “But we can promise a trusted counselor will listen, take a look at your paperwork if you want, and tell you all of your options.”

In fact, if a homeowner grants permission, the counselor can contact the mortgage lender directly to discuss options to stop the foreclosure, modify the terms of the loan, or otherwise make a deal. If need be, homeowners will also be connected with vetted legal assistance — although Floyd Jones noted not every situation requires a lawyer.

True to LoanScamAlert.org’s name, the hotline counselors also take complaints about mortgage-related scams: third-party companies that take the money and run, or slip in paperwork that unwittingly gets homeowners to sign over the deed to the house.

The Federal Trade Commission received nearly 7,700 complaints about “Mortgage Foreclosure Relief and Debt Management” services in 2016 — down from almost 13,000 in 2014, but still a significant figure.

“Stopping phony mortgage relief operations continues to be a priority” for the FTC, said spokesman Frank Dorman.

Both the FTC and LoanScamAlert.org offer tips to avoid scams — and to make sure you’re taking advantage of all federal and state programs that could help.

Red Flags:

  • They ask you to pay before any services are rendered.
  • Pressure to pay a fee before action is taken, sign confusing paperwork, or hire a lawyer off the bat. As with any scam, fraudulent mortgage relief services rely on high pressure to push vulnerable homeowners into taking action. Companies shouldn’t ask for “processing fees” or “service fees” early in the process, Floyd Jones said, as early foreclosure-stoppage efforts don’t cost anything. Be wary of signing any document, as you could unwittingly surrender the home’s title or deed to a scammer.
  • They make promises they can’t keep.

    Promises or guarantees they’ll save your home from foreclosure — or even claims like “97% success rate!” No one can guarantee results.

  • They say they’re affiliated with the U.S. government.

    Companies that claim to have an affiliation with a government agency. Some scammers may claim to be associated with the government, charging fees to get you “qualified” for government mortgage modification programs like Hardest Hit Fund. You don’t have to pay for these government programs — and lenders, particularly big banks like Wells Fargo and Bank of America, may be able to offer you their own modification options directly.

  • They want you to send your mortgage payments to them.

    Companies that tell you to start paying your mortgage directly to them, rather than your lender. They may promise to pass the money along, but they could pocket it and disappear.

    Companies that ask you to pay them through unconventional methods: Western Union/wire transfers, prepaid Visa cards, etc., instead of a check. They’re trying to get your money in a way that’s hard to trace.

As for Lageshia Moore and her husband, the family ultimately filed for bankruptcy — a move that can stop the foreclosure process, but only temporarily — and are now working with a law firm on a loan modification she hopes will reduce their payments to a manageable monthly sum. In giving advice to others, she reiterates the simplest but most important tip: “Just do your research.”

“You’re panicked, but you have to do your due diligence,” she added. “Really sit down and weigh the pros and cons: foreclosure, short sale, etc. What does this process or contract really mean? It’s an emotional time, but you have to try to keep the emotion out of it. That’s what I would tell myself.”

What to Do if You’re Facing Foreclosure:

  • Call a HUD-certified counselor at 1-888-995-HOPE. You’ll get advice and help for free, and while counselors can’t ever promise to save a home, they’ll be happy to take a look at any paperwork or information about your case, contact your lender about options if you grant permission, and connect you with vetted legal assistance if need be.
  • If you’re not facing foreclosure yet, but you’re worried that you’re about to run into trouble, contact your mortgage lender’s loss litigation department. They may be willing to work with you. Your lender can also tell you whether you’ll qualify for government programs.
  • Overall, don’t let desperation stop you from taking the time to research any potential actions, including signing on with a relief company. Explore the company’s background and track record. Check online for reviews from other homeowners — and be sure to look up phone numbers too. Many scam companies simply shut down, reopen under a new name, and retain the same phone number.

The post This Family Spent $6,000 to Save Their Home and Still Wound Up Facing Foreclosure appeared first on MagnifyMoney.

15 ZIP Codes With the Most Underwater Properties

Mortgage debt is a desperate struggle in many areas of the country. See where underwater homes are most prevalent.

Nearly a tenth of homes with a mortgage in the United States were considered “seriously underwater” at the end of the first quarter of 2017, according to statistics from ATTOM Data Solutions.

These homes — all 5.5 million of them — are not physically flooded, though the situation is nearly as alarming: A property is seriously underwater if the amount owed on the loan secured against it is at least 25% higher than the value of the property.

The good news is that the number of seriously underwater homes is down from the same time in 2016, but up slightly from the fourth quarter.

Where Are the Trouble Spots?

“While negative equity continued to trend steadily downward in the first quarter, it remains stubbornly high in often-overlooked pockets of the housing market,” said Daren Blomquist, senior vice president at ATTOM Data Solutions.

These pockets exist in several Rust Belt cities, Las Vegas and central Florida, Blomquist said. And nearly a third of all homes nationwide valued at less than $100,000 are seriously underwater.

Using ATTOM data, we’ve compiled the ZIP codes where at least 65% of the properties are seriously underwater. They represent the worst areas in the country.

Remember, if you’re in the market for a new home, a good credit score can help prospective homeowners secure lower interest rates on their mortgages. You can check two of your scores free on Credit.com.

15. Chicago ZIP Code 60636
Properties with loans: 7,875
Properties seriously underwater: 65.6%

14. Detroit ZIP Code 48227
Properties with loans: 7,825
Properties seriously underwater: 65.8%

13. North Chicago ZIP Code 60064
Properties with loans: 2,856
Properties seriously underwater: 65.9%

12. Milwaukee ZIP Code 53206
Properties with loans: 3,189
Properties seriously underwater: 66.2%

11. Detroit ZIP Code 48234
Properties with loans: 6,096
Properties seriously underwater: 66.6%

10. Maple Heights, Ohio ZIP Code 44137
Properties with loans: 7,694
Properties seriously underwater: 66.8%

9. Detroit ZIP Code 48205
Properties with loans: 7,574
Properties seriously underwater: 67%

8. Riverdale, Illinois ZIP Code 60827
Properties with loans: 5,391
Properties seriously underwater: 67.4%

7. Dolton, Illinois ZIP Code 60419
Properties with loans: 6,673
Properties seriously underwater: 68.2%

6. Detroit ZIP Code 48228
Properties with loans: 9,993
Properties seriously underwater: 68.2%

5. Detroit ZIP Code 48224
Properties with loans: 8,974
Properties seriously underwater: 69.4%

4. Las Vegas ZIP Code 89109
Properties with loans: 6,327
Properties seriously underwater: 69.9%

3. Detroit ZIP Code 48235
Properties with loans: 9,629
Properties seriously underwater: 70%

2. St. Louis ZIP Code 63137
Properties with loans: 5,954
Properties seriously underwater: 70.6%

1. Trenton, New Jersey ZIP Code 08611
Properties with loans: 4,426
Properties seriously underwater: 74.6%

Image: eclipse_images 

The post 15 ZIP Codes With the Most Underwater Properties appeared first on Credit.com.

Millennial Homebuyers Still Value a Personal Touch

Many millennials surprisingly opt for local, face-to-face interaction over online tools when buying homes.

All the hullabaloo about millennials coveting their social media accounts over face-to-face interactions holds untrue — at least when it comes to real estate, according to a recent survey conducted by the financial wellness community, CentSai. (Full Disclosure: I am the co-founder and president of CentSai.)

In fact, the 2,050 millennials surveyed are more traditional than previously believed when faced with buying a home. Three-quarters of respondents – age 18 to 34 – prefer to use a local real estate agent instead of an online one.

And 71% said they would choose a local lender instead of applying online.

This is in stark contrast to a 2015 Fannie Mae survey, which found 70% of homebuyers would like to obtain a mortgage online and 69% would like to complete a mortgage application online. (Your credit plays a key role in the terms and conditions of your mortgage. You can view two of your credit scores free on Credit.com to see where yours currently stands.)

Millennials Want Someone They Can Trust

Online mortgage lending and brokerage services are expected to transform home buying, but millennials surveyed said that – contrary to popular belief – they prefer local providers due to existing relationships and local knowledge.

“While sites like Zillow are perfect for looking online to size up the market, when it came to using a lender or actually buying a home, personal touch was essential,” said Keenan Spiegel, who bought his first home with his fiancée in Norwalk, Connecticut, last year.

Spiegel, a wealth management associate at Morgan Stanley and director of data visualization for CentSai, said he used a local real estate agent recommended by his family because he wanted to be sure he worked with someone he trusted.

And while getting approved for a mortgage online could have taken minutes, the couple preferred the experience of using a local, brick-and-mortar who was more hands-on and available when they called with an “endless” list of questions.

“We felt local lenders also know much more about the area they service and can provide a lot of information about the community where you’re about to buy a home,” Spiegel said. “We wanted to know about the quality of schools and the crime rates.”

Online Isn’t Everything Yet

Despite the purported savings and the ease of use, online providers may not yet be as big of a disruptor in the sector as one would expect.

That said, the vast majority of millennials surveyed (91%) said they would use an online site or mobile app to research neighborhoods and home prices and help identify the home that they may buy. But they cited various reasons for “going local” when it came to choosing their agent or lender – including personal touch and handholding, longstanding relationships and local knowledge.

A little more than half (56%) of the millennials surveyed plan to buy a home in the next two years, and for this group, online lenders likely need to provide an even more personalized experience to garner business.

The fear of missing out on valuable information that comes out of an in-person conversation still weighs on the millennial mind.

After all, buying a home is a major purchase, and despite all the bots and burgeoning artificial intelligence, the internet still has a way to go before it can mimic sitting across the table from a real estate agent.

Image: Steve Debenport

The post Millennial Homebuyers Still Value a Personal Touch appeared first on Credit.com.

2 Times an Adjustable-Rate Mortgage Makes Perfect Sense

The interest rate on your loans determines how expensive it is to borrow money. The higher the interest rate, the more expensive the loan.

With a conventional, 30-year fixed-rate mortgage, borrowers with the best credit can expect to receive a 4.23% interest rate on that loan. The average homebuyer borrows about $222,000 when they take out a mortgage, which means paying a staggering $168,690 in interest over the term of the loan.

When you need to repay balances in the hundreds of thousands of dollars, even half a point of interest can make a huge difference in how expensive your mortgage is. If you borrowed the same amount but had a rate of 4.73% rate, you’d pay $192,190 in interest — or almost $24,000 more for the same loan.

Given that interest rates make such a big impact on how much your mortgage costs, it makes sense to do what you can to get the lowest rate possible. And this is where adjustable-rate mortgages can start to look appealing. In two cases especially, it makes perfect sense to go with an ARM: when you plan to pay off your mortgage quickly, or you plan to move out of the home within a few years.

Adjustable-Rate Mortgages Can Allow You to Borrow at Lower Rates

An adjustable-rate mortgage, also known as an ARM, is a home loan with a variable interest rate. That means the rate will change over the life of the loan.

ARMs are usually set up as 3/1, 5/1, 7/1, or 10/1. The first number indicates the length of the fixed rate period. If you look at a 3/1 ARM, the initial fixed rate period lasts 3 years. The second shows how often the interest rate will adjust after the initial period.

Some ARMs come with interest rate caps, meaning there’s a limit to how high the rate can adjust. And their initial rate is often much lower than traditional fixed-rate loans.

This can help you buy a home and start paying your mortgage at a lower monthly cost than you could manage with a fixed-rate mortgage. Borrowers with the best credit scores can access a 5/1 ARM with an interest rate of 3.24% right now.

The Risks ARMs Pose to Average Homebuyers

“The main advantage of an ARM is the low, initial interest rate,” explains Meg Bartelt, CFP, MSFP, and founder of Flow Financial Planning. “But the primary risk is that the interest rate can rise to an unknown amount after the initial, fixed period of just a few years expires.”

Homebuyers can enjoy extremely low interest rates for a month, a quarter, or 1, 5, 7, or 10 years, depending on the term of their adjustable-rate mortgage. But borrowers have no control over the interest rate after that.

The rate can rise to levels that make your mortgage unaffordable. Remember our earlier example, where just half a point of interest could mean making the entire mortgage $24,000 more expensive?

ARMs adjust their rates periodically, and the new rate is partly determined by a broad measure of interest rates known as an index. When the index rises, so does your own interest rate — and your monthly mortgage payment goes up with it.

The variable nature of the interest rate makes it difficult to plan ahead as your mortgage payment won’t be static or stable.

“Imagine at the end of year 5, rates start going up and your mortgage payment is suddenly much higher than it used to be,” says Mark Struthers, a CFA and CFP who runs Sona Financial. “What if your partner loses their job and you need both incomes to pay the mortgage?” he asks. In this situation, you could be stuck if you don’t have the credit score to refinance and get away from the higher rate, or the cash flow to handle the extra cost.

“Once you get in this spiral, it is tough to get out,” says Struthers. “The spiral just gets tighter.”

And yes, adjustable-rate mortgages can go down. While that’s possible, it’s more likely that the rate will rise. And some ARMs will limit how high and how low your rate can go.

Struthers puts it plainly: “ARMs are higher-risk loans. If you can handle the risk, you can benefit. If you can’t, it can crush you. Most people do not put themselves in a position to handle the risk.”

Who Can Make an ARM Work in Their Favor?

That doesn’t mean no one can benefit from adjustable-rate mortgages. They do come with the benefit of the lower initial interest rate. “If you plan to pay off the mortgage during that initial fixed period, you eliminate the risk [of getting stuck with a rising interest rate],” says Bartelt.

That’s exactly what she and her husband did when they bought their own home.

“In my situation, we had enough savings to buy our house with cash. But the cash was largely in investments, and selling all the investments would push our income into significantly higher tax brackets due to the gains, with all the cascading unpleasant tax effects,” Bartelt explains.

“By taking an ARM, we can spread the sale of those investments out over 5 years, minimizing the income increase in each year. That keeps our tax bracket lower,” she says. “We avoided increasing our marginal tax rate by double digits in the year of the purchase of our home.”

She notes that another benefit of taking the ARM in her situation was the fact that she and her husband could continue to pay the mortgage past that initial 5 years if they chose to do so. “The interest rate won’t be as favorable as if we’d initially locked in a fixed rate,” she admits. “But that option still exists, and having options is power.”

Planning for a Quick Sale? An ARM Might Work for You

Another way ARMs can provide benefits to homeowners? If you won’t live in the home for long. Buying the home and also selling it before the initial rate period expires could provide you with a way to access the lowest possible rate without having to deal with the eventual rise in mortgage payment when the rate increases.

“ARMs are typically best for those who are fairly certain they won’t be in the house for a long period of time,” says Cary Cates, CFP and founder of Cates Tax Advisory. “An example would be a person who has to move every two to four years for their job.”

He says you could view taking out an ARM as a way to pay “tax-deductible rent” if you already know you don’t want to stay in the house for more than a few years. “This is an aggressive strategy,” he explains, “but as long as the house appreciates enough in value to cover the initial costs of buying, then you could walk away only paying tax-deductible interest, which I am comparing to rent in this situation.”

Cates says you’re obviously not actually paying rent, but you can mentally frame your mortgage payment that way. But you need to know the risk is owing on your mortgage if you go to sell and the home hasn’t realized enough appreciation to cover what you spent to buy.
He also reminds potential homebuyers that you take on the risk of staying in the home longer than you expected to. You could end up dealing with the rising interest rate if you can’t sell or refinance.

What You Need to Know Before Taking an ARM

Before applying for an adjustable-rate mortgage, make sure you ask questions like:

  • What is the initial fixed-interest rate? How does that compare to another mortgage option, and is it worth taking on a riskier mortgage to get the initial fixed rate?
  • How long is the initial fixed rate period?
  • How often will the ARM adjust after the initial rate period?
  • Are there limits to how much your ARM’s rate can drop?
  • How high can the ARM’s rate go? How high can your monthly mortgage payment go?
  • If the mortgage’s interest hit the maximum rate, could you afford the monthly payment?
  • Do you have a plan for selling the home within the initial rate period if you want to sell before paying the adjusted rate?
  • Could you pay off the mortgage without selling if you did not want to pay the adjusted rate?

Do your due diligence and understand the risks and potential pitfalls before making a final decision. But depending on your specific situation, your finances, and your plans for the next 5 years, you could make an ARM work for you.

The post 2 Times an Adjustable-Rate Mortgage Makes Perfect Sense appeared first on MagnifyMoney.

When You Can’t Pay All Cash: Secrets for Winning a Bidding War in 2017

The housing market is competitive. These tips will help give you an edge.

Let’s face it. The 2017 housing market hasn’t been easy for the typical homebuyer. The number of homes for sale has fallen year-over-year for 17 months straight, and with historically low mortgage rates beginning an upward ascent, there’s more demand from homebuyers than we’ve seen in at least four years. The results are bidding wars and escalating home prices. In February, one in five homes that sold went for more than their list prices. That’s close to levels we saw in 2013 but the difference is that four years later buyers are savvier and understand the competitive conditions better. And the stakes are much higher now. Home prices have increased 30% since then.

If you’ve done any research on how to win a bidding war or if you’ve already been through one or more yourself, you know cash is king, and that waiving one or all of the several contingencies meant to protect the buyer is often what it takes to win, especially in hot markets like San Francisco, Seattle and Denver.

But that leaves typical, financed homebuyers who don’t have that kind of cash or aren’t up for the risk of waiving contingencies wondering if they even have a shot at winning a home in this market. It can be done, and and there are several strategies that can help you do it. Here are some tips from Redfin real estate agents who’ve helped homebuyers win bidding wars this year in competitive neighborhoods across the country.

1. Choose the Right Agent

Your agent’s toughest job in a competitive situation is to win the attention of the listing agent and sell you and your offer to them, so the relationships they have with other agents in the neighborhood can go a long way. When you’re evaluating agents, consider how they present themselves and if they’re the right person to represent you, build a case for you and fight on your behalf. Choose someone who is confident and aggressive, but who listens to you and can help you stay grounded in the heat of the moment. Most importantly, choose an agent who has a good track record. Find out how many bidding wars they’ve competed in this year and how many they’ve won. Remember that the market has been changing quickly, so what it takes to win a bidding war today could be drastically different from what it took even three or four months ago in the same hot neighborhood.

2. Get to Know the Seller & Offer Them Exactly What They Want 

When a seller has several above-asking offers to choose from, they’re often looking for one that stands out from the rest. Most buyers make their offer distinct with a written, personal letter to the seller describing themselves and what they love about the home. This is an important opportunity to connect with the seller on an emotional level and humanize the transaction. To find a way to tug at the seller’s heart strings, pay attention to cues when you’re walking through the house to find something you can relate to them about, like sports team memorabilia, artwork or kids’ activities. Don’t be afraid to dig for information on social media too. Find something you have in common or something specific they care about and build your letter around it. For tips and examples of how to write a great cover letter, read more here.

Personalize the offer terms to cater to the particular seller. An easy way to do this is for your agent to simply ask the listing agent what the seller’s preferred close date is and whether they prefer that the buyer use a certain lender or title company and write those terms into the contract. Most sellers are buyers too, and they might need extra time to find their next home, so consider offering them a rentback or leaseback agreement, in which they can stay in the home and rent from the buyer after closing. To sweeten the deal, let them stay on for free for a period of time. Beyond typical offer terms, find out if there’s anything else the seller wants or needs — and we mean ANYTHING. Agents said they’ve seen buyers win competitive bidding wars by offering to adopt the sellers’ dog, by agreeing to keep the chickens in the backyard and by offering them a free vacation.

3. Make Your Offer as Close to Cash & as Close to Non-Contingent as Possible

Even if you can’t offer cash and you don’t want to give up your standard protections, there are ways to make your offer nearly as appealing to the seller. Here are some tools to consider:

  • Pre-inspection: Conduct the inspection before submitting the offer so that you know exactly what you’re buying and can waive the inspection contingency without waiving your right to an inspection.
  • Large earnest money deposit: The earnest money deposit is typically 1% to 3% of the offer price, but consider making yours significantly larger if you can. This shows the seller that you’re serious about this home and have the funds needed to close.
  • Non-refundable deposit: Redfin agents have seen buyers offer an additional deposit with the guarantee that if the deal doesn’t close, the sellers can keep the cash.
  • Fully underwritten pre-approval: Have your lender go beyond the standard pre-approval letter and fully underwrite the loan in advance. This ensures the seller that the financing will be approved by the lender and helps many buyers feel comfortable waiving the financing contingency. Not all lenders can or will do this, so it’s an important question to ask when choosing a lender.
  • Shortened contingency periods: If you aren’t able to waive contingencies, consider shortening the timelines associated with them. A three-day inspection contingency is much more appealing to a seller than a standard one that can last a full week or more.
  • Agree to make up for an appraisal deficiency: If you can’t waive the appraisal contingency, agree to cover part of the difference, up to a certain amount you can afford and are comfortable with, in the event the appraisal comes in low. Make sure your finances are in order before taking these steps. You can get a snapshot of your credit report, including two free credit scores, on Credit.com.

4. Have Your Agent Do an In-Person Escalation Clause

In many parts of the country, buyer’s agents write an escalation clause into the contract saying how far above the highest-priced offer the buyer is willing to go, up to a defined limit. In this in-person version, the agent uses the same technique but prints out several different versions of the first page of the offer with the different purchase prices on it depending on how high they need to go to beat the other offers in the room. Once a price is agreed to in real time, the agent can hand over a final and complete offer package. (Confused about any mortgage lingo? Here’s our handy glossary.)

5. Be Fast… or Last

In some markets and situations, being the first to submit an offer (especially if it’s at or above the asking price) can win you the deal. In others, especially if there’s an offer deadline, it pays to wait and find out what the seller is looking for and how many other bids you’re up against to help inform your strategy before submitting an offer. Either way, getting in to see a home right away gives you and your agent time to prepare the best offer possible.

6. If at First You Don’t Succeed, Get in the Backup Offer Position

About 17% of homes that go under contract end up coming back on the market. This presents an opportunity for buyers whose offers don’t get accepted in the first go round. Backup offers can be formally or informally accepted, which is usually up to the listing agent and the seller, but it’s worth it to ask for a formal backup offer contract. If the listing agent won’t accept a backup offer, make sure you’ll be alerted right away if it comes back on the market and can be first with a new offer. When it does, find out what killed the original deal and guarantee you’ll be easier to work with. For example, agree to use the original buyer’s inspection and if it was negotiations over a certain repair that caused the deal to fall apart, agree to cover the cost of that repair yourself.

If You Still Find Yourself Sitting on the Sidelines

With most homes in competitive markets igniting bidding wars, many times with dozens of bids, the odds may still mean that it could take several tries before getting an offer accepted. Here’s some advice agents offered for buyers frustrated after one or more failed attempts:

  • Find out exactly why your offer wasn’t chosen. If your agent didn’t tell you why you lost, ask her to be blunt about it. If she doesn’t know, it can’t hurt for her to follow up with the listing agent and find out.
  • Consider a fixer-upper or a home that has been on the market for a long time.
  • Consider a new construction home. While there may be campouts and lotteries for highly sought-after new construction homes, there typically aren’t full-on bidding wars because the price the builder is charging is set, and there’s rarely negotiating in a competitive market. So you just have to be first in the door and willing to pay full price.
  • Try house hunting and making offers during an off time like school vacation week or during a storm to avoid competition.

Want more homebuying tips? Here are 50 ways to help yourself get your dream house.

Image: marrio31

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The 13 Least Affordable Places to Buy a Home

If you're buying a house in these 13 counties, don't expect your paycheck to go very far.

Image: Portra 

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4 Questions to Ask Before Buying a Rental Property

This quick review can help you figure out if you've got what it takes and, if not, how you can get it.

If you’re obsessed with HGTV, remodeling and regularly use phrases like “reclaimed wood” and “farmhouse feel,” you’ve probably kicked around the idea of buying investment property. The popular TV niche has given birth to a group of people who are motivated to improve their incomes with do-it-yourself projects and tenants in tow.

While it may seem simple and fulfilling on the small screen, buying rental property carries the same risks as purchasing your primary home. The following questions are some you’ll want to answer as you consider possible investment strategies.

1. What Are Your Financial Goals?

Are you hoping to earn extra monthly income, or do you view rental property as an attractive long-term investment? Being clear about your expectations is crucial to nailing down whether investment property is a wise choice. According to Mark Ferguson, Realtor, real estate investor and voice of InvestFourMore.com, many buyers fail to think beyond square footage.

“The biggest mistakes I see are investing in a property that loses money while hoping for appreciation, paying all cash for properties when you don’t have to and trying to manage (properties) yourself without skills or time,” Ferguson said.

It’s a good idea to make a list of short- and long-term goals as well as deal-breakers for any investment you choose. Creating rules will help you stay focused.

2. Can You Afford Extra Expenses?

Maintaining rental property takes work and extra cash, and while it’s tempting to focus on the best-case scenario, you shouldn’t discount the hefty expense of rental property taxes, association dues, management, maintenance and repairs. It’s possible to cut expenses by taking on a few handy projects yourself, but it won’t eclipse the costs entirely.

It’s wise to build a reserve fund in anticipation of your property’s needs according to Scott Trench, real estate broker and vice president of operations at BiggerPockets.com. “If you have $10,000, or even $20,000-plus in a bank account set aside for reserves, you can buy your way out of many problems associated with small rental properties,” Trench said.

With that in mind, you may want to consider building an emergency fund for your business investments in addition to your personal savings account. Separating your expenses is necessary for tax purposes, and you’ll need two accounts to maintain personal and professional independence.

3. Which Real Estate Market Is Right For You?

Although analysts predict a healthy rental market in 2017, value is still subjective, and you might consider looking outside your ZIP code to see if there are better buying options elsewhere.

“Certain metropolitan areas are most attractive to the country’s largest population groups—millennials and boomers — and are growing much faster than others,” said Alex Cohen, commercial specialist for CORE, a real estate brokerage firm based in New York City.

“Some of these markets have relatively low land and housing construction costs like Dallas and Houston. But other markets, particularly on the coasts, have much higher land and construction costs, which means less housing will be built in these metros,” Cohen said. “The flip side of this phenomenon is that in these housing-supply-constrained markets, values of homes and rents are likely to rise faster than in the rest of the country.”

While some experts suggest buying in up-and-coming locations, others swear that a good deal can lead to better returns and the ability to expand. “My 16 rentals have increased my net worth by over $1 million dollars through appreciation and buying cheap to begin with,” Ferguson said.

It’s a good idea to research all your options — from foreclosures to new construction — to determine which property could produce the best income and overall bang for your buck. Don’t be afraid to venture beyond your own backyard.

4. Are Your Finances & Credit In Good Shape?

If you are a homeowner, you may feel like a pro when it comes to applying for a mortgage, closing the deal and upgrading your property. While you may have some valuable experience, buying investment property comes with its own set of rules. Unlike purchasing your primary home, most rental mortgages require a larger down payment with a few exceptions.

“The way to minimize the additional costs — particularly higher down payment requirements of an investment property — is to take out an FHA loan, for which a down payment of as low as 3.5% of the purchase price may be possible,” Cohen said. “FHA loans are available to investors in properties with up to four units, as long as the borrower’s primary residence will be one of the apartment units.”

Not familiar with the Federal Housing Administration? You can find our full explainer on FHA loans here.

If you don’t plan to live in the rental property, you’ll need to secure a standard mortgage loan with a host of federal requirements that include financial reserves based on property value and the number of rentals you own, assets required to close and creditworthiness.

The latter requirement is perhaps the most important factor in securing an affordable investment. A high score will help you find the best interest rates and save money long before you decide to buy a rental home. It’s a good idea to order free copies of your TransUnion, Experian and Equifax reports from AnnualCreditReport.com to review your information. Highlight any negative items or errors that may be affecting your scores and consult with an expert about the best way to take action. You can also view two of your credit scores for free, updated every 14 days, on Credit.com.

Remember, whether you’re hitting up the housing market to invest or find your dream home, there are plenty of things you’ll want to do to get ready ahead of your search. Fortunately, we got a 50-step checklist for house hunters right here.

Image: lmgorthand

 

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Foreclosure Picture Improves, but Some States Drag Behind

Foreclosures reached an 11-year low in February, but not every state is doing so well.

Image: JulieanneBirch 

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Time for Your Final Walk-Through? Make Sure You Have This Checklist

You're almost ready to close on your new home. Make sure you don't miss anything on your final walk-through with this handy checklist.

A few days before you sign the documents to finalize your purchase of a home, you’ll have the chance to take one last look through the property. The final walk-through is your last opportunity to confirm that the house is in similar or better condition than it was when it went under contract, and it’s also your chance to make sure no new issues have cropped up since the inspection.

What Should I Look for During My Final Walk-Through?

It has probably been weeks since you’ve seen the home and it’s exciting to walk through it again. You may be tempted to start mentally arranging furniture and picking out new paint colors while you’re there, but it’s in your best interest to put those feelings aside for now. This is your last chance to look for issues and work with the seller to address them before the home is officially yours. You should plan to spend 30 minutes to an hour walking through the home, paying careful attention to its condition.

In today’s competitive housing market, many buyers are waiving their home inspection to make a stronger offer. If that’s the case, it is especially important to focus on bigger red-flag items during your walk-through.

Before you head off to see your new home, it’s important you make sure you have your contract, inspection summary, a notepad, a camera, any photos you took of damage that needed repair, a cell phone and charger (to easily check that all electrical outlets are working) and, of course, your real estate agent. Make sure to coordinate with the sellers before deciding on a date. If you go too early they may not have finished moving out, and if you go too late, you may not have enough time to remedy any large issues that you spot.

Here are the big things to look for when making your final walk-through.

  • Are all agreed-upon repair items completed? (Ask to see receipts.)
  • Has the previous owner removed all debris, garbage and unwanted items? (Keep in mind, the house will likely not be professionally cleaned and will need a once-over when you move in.)
  • Has the yard been maintained?
  • Are all agreed-upon appliances still in the house and are they working properly?
  • Does the home still contain all furniture included with the purchase?
  • Are there any major holes or damages as a result of the previous owner moving out? (Normal wear and tear like nail holes can be expected.)

Here are some other things to look for once you have checked the above.

  • Do all lights and switches still work? (Keep in mind the home has likely been vacant for 30 or more days. If light switches don’t work, it could be due to burnt-out bulbs, which you’ll likely need to replace yourself.)
  • Do all power outlets work? (Use your cell phone and charger to quickly test whether outlets work).
  • Are appliances in working order?
  • Do toilets flush?
  • Do sinks, showers and tub spouts run? Can you spot any leaks?
  • Is there hot water?
  • Do sink and tub drain stoppers function?
  • Do all windows and doors open and close smoothly? And are all screens present and attached properly? Be sure to check that window latches and door locks are working properly.
  • Do the heat and air conditioning work?

And remember, your lender might run a final credit check before you close. You should keep an eye on your credit during this critical time. You can view a free credit report snapshot, which is updated every 14 days, on Credit.com.

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