By Catherine Alford
Buying your first house is such an exciting time. You’ve finally decided not to send a rent check to someone anymore, and you’re now off on a journey to get something all your own. Sometimes getting your first home loan can be a challenge, though. Not everyone will qualify for a mortgage or be ready to make the payments on their first home.
However, there are a few things you can do before starting the home search process to make sure your finances are in order so that you have the best chance of securing a home loan at a great rate.
Here they are:
1. Pull Your Credit Report
You are entitled to a free credit report from each of the three credit bureaus every year at www.AnnualCreditReport.com. Before you look at any houses, be sure to pull this report. If you are planning to purchase a house with your spouse, they should pull their credit report too.
When you get your credit report, look for any adverse accounts that may cause a lender to disqualify you from a home loan. See if you can settle any outstanding debts or fix any errors that may be on your account. According to a Federal Trade Commission study, at least one in five people have errors on their credit reports that could affect their ability to get the best loans, so be sure to scan your report thoroughly. Does every account on your report match one you currently have? Is there something on there you don’t recognize? If so, send a letter to the credit bureau and ask them to make corrections. This can help improve your credit score, which will make you a more desirable borrower to mortgage lenders.
2. Increase Your Savings
When you apply for your first home loan, your lender will ask you for copies of all of your bank statements. They want to know how much money you currently have in your accounts. You should be genuine about this because you’ll have to explain any amount that you have in your accounts that is unusually large.
The best thing you can do is to prepare for this by increasing your savings. Work extra jobs, have a big garage sale, or cut back on your expenses and save the difference. All of this is good because you’ll want to save a large down payment as well so that you can own a large portion of your home from the beginning. A sizable down payment also helps to keep your monthly payment low.
3. Shop Around for a Mortgage Lender
When it comes time to get a mortgage, you shouldn’t go with the first lender who offers you a loan. Instead, email or call several lenders to get pre-approved for your mortgage. When you go through this process, you can see how well you work with each of the lenders, how responsive they are, and if you think they’ll help you moving forward with your loan. These lenders will often offer different interest rates and terms, and they will often have different fees. So, if you shop around, you’ll be more likely to get the best possible mortgage for you.
Ultimately, buying your first home is a very exciting time, but to ensure that the process goes smoothly, it’s important to do your research, make sure you are financially ready, and shop around for the best loan for you.
Credit to Catherine Alford
Landlords often paint their properties in shades of white or gray, which are great colors to choose because they are easy to maintain, and they make rental units easier to show.
Your renters, however, might prefer more vibrant and interesting colors in the place they call home and might wish to repaint. Is it ever appropriate for tenants to take the job upon themselves? If you agree to let your tenant change the paint color, who should pay for it?
1. Tenants Should Always Check with You First
Color harmonization can improve a person’s life. But even so, this is not a basic human right or need.
If your tenant paints without your blessing, you can deduct from their security deposit the amount it will cost to repaint, assuming they don’t return it to the original color before departing.
It’s wise to have a paint policy in your lease to make sure there are no surprises. If you allow your tenant to paint, here are some ways to go about it:
- Discuss a color
Pick a suitable color scheme consisting of one or two hues. Sometimes, a tenant will feel as if it’s a vast improvement to simply change the color of a single wall.
- Go pro
Consider hiring a pro to make sure the job is done right. If you do the work yourself, put extra care into protecting the floors and woodwork. If you let your tenant paint, you can deduct any money spent toward cleanup needed when they move out.
- Don’t paint wood
Avoid painting woodwork and other surfaces that haven’t already been painted and that would have to be stripped to restore them to their previous unpainted state.
There is a good chance you’ll have to restore the original colors when your tenant moves out, but if you do an excellent job that significantly improves the look and feel of the unit, you might be able to rent the place with the new colors.
2. You Can Veto a Color
If your tenant feels out of place because of the color scheme, don’t laugh. The colors in a home can affect a person’s moods and overall sense of wellbeing. However, that doesn’t mean you should allow a tenant to paint the kitchen red. Reds and pinks are some of the most difficult colors to cover up.
Feng Shui and Color
Color plays an important part in the ancient Chinese art of space harmonization — or Feng Shui — and many interior decorators use Feng Shui principles to balance energies in the home. Color harmonization at home can help your tenant relax while boosting concentration. It can also enhance social interactions by helping visitors feel more comfortable.
Balancing the Elements
Although landlords and real estate agents think of white and gray as neutral, Feng Shui practitioners don’t. Both colors represent metal, and they give a space a sharp or crisp quality. Earth and wood tones, water colors (such as blue), or the reds and oranges of fire could be more relaxing, inspiring, and generally beneficial for your tenant.
3. Do a Good Job
Few tenants are professional painters, and even if you like the colors your renters use, you may not be happy with the workmanship.
But if you do allow them to paint anyway, here are some tips:
- Acknowledge good work
Recognize a good thing when you see it. If your tenants do a professional job, and the colors are attractive, don’t be too set on going back to neutral colors when they leave. Reward the tenants for their good work with a full refund of their painting deposit if you plan to leave the paint as is.
- Allow them to nest
Tenants are more likely to stay if they feel they have the freedom to decorate according to their taste, and they save you the trouble of having to do the painting yourself, which is part of regular maintenance.
- Put it in writing
Get a written agreement before allowing your tenants to paint. Among other things, the agreement should stipulate if and how the tenants are reimbursed if they pay for materials and labor.
With a few exceptions — notably New York City — no state or local laws require landlords to repaint when a tenant moves out. It’s important to know, however, that some small-claims courts have considered periodic repainting a condition of habitability in the case of long-term tenancies. That’s an incentive to give the green light (or the lime light, or maybe the emerald light) to tenants with the motivation to do the job themselves.
4. Make Them Pay for All (or Some) of It
For some landlords, it’s a standard practice to repaint between tenancies, and once a rental is occupied, the paint job can be expected to last for at least a year. If you select quality tenants and choose quality paint, you won’t have to repaint for three to five years.
If tenants wish to repaint during the first few years of occupancy, it’s reasonable to expect them to pay for paint and materials. Over the years, paint ages and loses its luster. Repainting then becomes a maintenance issue, and responsibility reverts to the landlord. Every material, including paint, has a natural life expectancy.
A willingness on the part of both landlord and tenant to negotiate is always beneficial.
A common solution is for you to purchase the materials and the tenant to contribute their time and labor (as long as they do a good job).
Credit to Chris Deziel
Chris has owned and managed 4 rental properties in Santa Cruz, CA, and Salida, CO and is a DIY handyman expert for popular sites like Pro Referral.
Adults spend more time in their bedroom than in any other room in their house. But you wouldn’t know it from the home sales process. Buyers and sellers alike often pay more attention to kitchens, master bathrooms, closets, and yards than they do to this vital space where they will usually spend more than a third of their 24 hours each day.
“Who spends that kind of time in the kitchen?” asks sleep expert Nancy H. Rothstein, founder of The Sleep Ambassador in Chicago, a source for education, consulting services, and resources that optimize healthy sleep.
Yet more attention is being paid to the importance of getting adequate sleep, from high-profile advocates like Arianna Huffington, who recently published her book, The Sleep Revolution: Transforming Your Life, One Night at a Time (Harmony, 2016), to medical professionals. “Fewer than six hours [a night] can lead to diseases — a higher rate of diabetes, obesity, cardiovascular problems, and even shorter life spans,” says Dr. Susheel Patil, clinical director of Johns Hopkins Sleep Medicine in Baltimore.
While there’s no magic figure for the amount of sleep one should get, Patil suggests adults try for seven to eight hours on average. Dr. Michael Breus, a board-certified sleep specialist in Los Angeles known as The Sleep Doctor, uses his household as an example of the variation. “I need between 6 1/2 and 7 hours while my wife needs between 8 and 8 1/2,” he says.
Buyers and sellers alike should strive to furnish a master bedroom that contributes to high-quality sleep. Updating or remodeling the room offers another benefit, says certified color consultant Michelle Mohlere, a salesperson with Gibson International in Los Angeles. A nicely designed bedroom is likely to bring in more money at resale than one without these touches, she says.
Sellers looking to better stage this room will also gain from the following six steps:
1. Stage the bed in a choice spot. Connecticut architect and author Duo Dickinson prefers the bed be set away from the room’s entrance to keep it out of the main circulation path. Kathryn Baker, vice president of design services with Polaris Pacific, a real estate sales and marketing firm in San Francisco, likes to place a bed in a spot so occupants can enjoy the best view — whether that’s inside (maybe toward a fireplace or favorite piece of art) or outdoor (with views of trees or water where possible). Chicago designer Michael Del Piero suggests pairing a bed with an upholstered headboard for those who like to sit up in bed and read; she dresses up the bed with decorative pillows, a duvet, and a throw to personalize it and make it more welcoming to tuck in for sleep.
2. Install the right window treatments. Minimal is the design mantra when it comes to much of the standard room décor today. But while no coverings in some rooms, such as kitchens and living rooms, allows in more light and views, some amount of treatment in a bedroom is needed to block outside light and provide privacy. Del Piero likes to use a blackout shade behind a transparent shade or drapes or a woven wood shade with blackout drapes. Baker favors motorized shades to make opening and closing a task that can be performed from the bed or set by a timer.
3. Use the right lighting. Dickinson discourages installing recessed cans since they chop up a ceiling and aren’t attractive to look at while in bed. He prefers task lighting from lamps on night tables or wall-mounted sconces. Michigan designer Francesca Owings likes hanging one decorative fixture in a ceiling’s center for an aesthetic punch. Sensitive sleepers might appreciate the new Good Night Biological LED bulbs that claim to help regulate a body’s natural circadian rhythm through the production of the hormone melatonin, which helps control sleep and wake patterns, says Breus.
4. Conceal or banish electronics. For years, scientists and health professionals have known about the danger of the blue light that comes from certain electronics equipment and adversely affects melatonin production, says Patil. But only recently have they suggested that you can enhance unwinding and falling asleep by turning off TVs, smartphones, and iPads at least an hour before bedtime. Shutting them off also helps train the brain that the bedroom is primarily a place to sleep rather than stay awake, Patil says. If the temptation is too great, home owners might consider making the master bedroom a no-electronics zone. Baker’s company furnishes model bedrooms in its residential projects without TVs and other electronics technology to demonstrate this idea. “People have responded favorably, and some put TVs in a second bedroom or home office” instead, she says.
5. Pick a soothing palette. Of course, color is a personal preference, but color experts can offer guidelines. “You can’t say one is soothing for all and will make a person feel calm,” says Jessica Boyer, a Chicago designer with Susan Fredman Design Group. Sue Wadden, director of color marketing for paint manufacturer Sherwin-Williams, says colors that aren’t extreme are more restful. “They’re neither too bold, dark, bright, or intense. Rather, soft and calming,” she says. Designer Kimba Hills of Rumba Style in Los Angeles prefers a palette of pale blues, greens, beiges, grays, and whites for the bedroom. Boyer also likes to bring in bedding in white and light creams because she finds they’re calming. “It’s the equivalent of sleeping in a cloud with nothing to distract me. What’s important isn’t what’s trendy but nurturing,” she says.
6. Add creature comforts. If the room’s size allows, consider adding a chaise, chair and ottoman, and night tables. Also, a large area rug or wall-to-wall carpeting can help deaden noise and provide warmth underfoot, says Owings. If the room is located so it opens directly to the outdoors, play this up. Mohlere says real access to bucolic scenery can contribute to a sense of tranquility even more than just viewing the outdoors can. If outdoor access isn’t possible, check to see that windows are operable for fresh air. Other amenities worth considering: a gas- or log-burning fireplace for coziness, artwork for eye candy, and good storage for tidiness. “Too much clutter is distracting,” Rothstein says.
At the end of the day — or the beginning of a new one — real estate pros can emphasize the master bedroom as one more “fabulous room where you spend time in your new home,” Rothstein says.
Barbara Ballinger is a freelance writer and the author of several books on real estate, architecture, and remodeling, including The Kitchen Bible: Designing the Perfect Culinary Space(Images Publishing, 2014). Barbara’s most recent book is The Garden Bible: Designing Your Perfect Outdoor Space, co-authored with Michael Glassman (Images, 2015).
Young people come out of the gate facing two hurdles to home ownership — high student loan debt and tough rules for using FHA financing for condominiums, which are often the most affordable homes on the market. However, progress is being made on both fronts, according to speakers at the 2016 REALTORS® Legislative Meetings & Trade Expo in Washington.
On the condo front, U.S. Department of Housing and Urban Development Secretary Julián Castro used the meetings as an opportunity to announce progress on a rule implementing improvements to FHA condo financing.
The rule is under review at the Office of Management and Budget — typically a last step before finalization — and Castro said it would help make condo financing easier to obtain. “HUD’s rule is out the door,” he told REALTORS® yesterday.
The rule will be open for public comment after it makes it through OMB review and is published as a proposed rule. NAR’s priorities include easing owner-occupancy and commercial-space ratios, and making it easier for condo boards to get certified by the federal government each year.
Student loan debt remains a large problem, and it’s grown rapidly in the last decade. Today 42 million Americans have an average of $29,000 in federally backed student loans outstanding, according to Rohit Chopra, an advisor to the U.S. Department of Education who was also on hand at the meetings. Of these borrowers, 7 million are in default, and each day 3,700 additional borrowers go into default. “We have a lot of work to do,” Chopra told REALTORS®.
It’s not just millennials who are racking up the debt; baby boomers, either because they’re taking out loans on behalf of their children or they’re going back to school themselves, hold a significant portion of it, said Meta Brown, a senior economist at the Federal Reserve Bank of New York who joined Castro and Chopra at a session titled “The Impact of Student Debt on Housing Choices: Regulatory Issues Forum” on Tuesday.
The debt load, along with affordability challenges that only grow as home prices rise, could be playing a role in the drop in first-time home buyers. Jessica Lautz, NAR’s director of member and consumer survey research, says 32 percent of home buyers last year were first-time buyers, a 10 percent drop from historical norms.
To help pave the way for home buyers, Castro said in his portion of the session, the FHA is reducing the amount of deferred student debt, from 2 percent to 1 percent, that counts against a borrower’s debt-to-income (DTI) ratio. That means someone with $10,000 in deferred student loan debt would have a $100-per-month repayment obligation in calculating DTI, rather than $200.
Looking to the longer term, legislation is in the works to address the issue. Among the bills, the “Empowering Students Through Enhanced Financial Counseling Act,” H.R. 3179, would help ensure students are better prepared to handle debt, and the “Access to Fair Financial Options for Repaying Debt Act,” S. 1948, would provide more repayment options.
Mabel Guzman, chair of a working group on student loan debt NAR launched in 2014, said the group is making policy recommendations to the Board of Directors this week to help position the association on the issue.
Robert Freedman is the director of multimedia communications at NAR.
Written by Jimmy Moncrief
Most people want to invest in real estate and own rental property to increase their passive income and net worth.
What holds people back is that they feel as if they don’t have enough money to get started investing in real estate.
Most people have heard of the old saying “It takes money to make money”, but I challenge you to reconsider that belief.
Here are seven strategies to help you get started the rental property business.
1. “War Zones”
You can buy houses in Detroit all day for between $25,000 and $35,000. These properties generally rent somewhere between $600 and $800 a month.
The downside: These properties generally have maintenance issues.
I know, however, at least five investors who started with less than $20,000 and now own over 100 rental properties after buying in “war zones.”
2. Tax Liens
When you don’t pay property taxes for a year, your house can get foreclosed on by the local county government (or whoever is in charge of collecting property taxes). Generally speaking, counties don’t foreclose unless there is at least three years of unpaid taxes.
You buy the lien in this investment strategy (not the property). If the owner pays the lien, you get the money you paid for the lien back plus interest. If they don’t pay, you own the property after a year.
Sound too good to be true? It’s not. I know several people who have done this and have made some decent money.
The downside: There’s a lot of time involved with analyzing the liens and going through the process of taking ownership of the land. You also need to make sure you’re researching any title issues with the property. Most properties are tear-downs or land that is not build-able.
If you pursue tax liens, you might have better luck in rural areas. Major investors focus on large metropolitan areas and bid up the price to make the returns uneconomical.
3. Tax-Delinquent List
This strategy has you finding motivated sellers by searching your county property’s website for delinquent taxes. Here, you can even focus on high-end properties.
Every county is different, and some counties don’t even have a website, but here is typically how you’d go about your search:
- Find several streets in an area where you want to live.
- Search the county’s assessor of property website for those specific streets.
- Put in a spreadsheet of properties that were over two years behind on taxes.
- Write a letter to all the owners.
The downside: People who live in million dollar houses might be dismissive of you. Many might call you back, but it’s probably unlikely that most will want to address the property tax issue directly with you.
4. HUD Homes for Sale
You can search foreclosed homes on HUD’s website.
But how are you supposed to buy these homes with $10,000?
Here are two ways:
- Get a private loan for the rehab and the purchase. You can get private loans from a variety of sources, such as people you know and/or people who lend on individual real estate properties.
- Use bank financing and order the appraisal subject to completion. If the appraisal shows that you will build a significant amount of sweat equity, then the $10,000 down will probably be enough at closing. This depends on the purchase price and the lender.
The downside: There is a fair amount of paperwork and a lot of technical paperwork when buying a HUD foreclosure. And there is generally a lot of repairs to be made on these properties.
5. Eviction List
This is an underused source for deals. Going to eviction court is a great way to meet landlords who have had enough of the rental business. They are likely to sell using seller-financing. There are a lot of benefits with this strategy, as you can craft your own financing terms. Additionally, you likely have a very motivated seller, so you can purchase the property at a discounted price.
6. Property Management Companies
Property management companies are another source of deals. The property managers know owners’ intentions and whether they plan on selling. Additionally, they generally know how “motivated” sellers are.
Look on property management company websites. If they have a vacant property, particularly one that’s been vacant for a long time, look up who the owner is and call the owner or call the property manager to ask about the property.
This strategy allows you to go big early on. Maybe you know four people who can contribute $22,500, which gets you $90,000.
You contribute $10,000 for a grand total of $100,000.
Put the money in a LLC. Each person will own 20% of the company. The reason you didn’t have to contribute as much as the investors is that is you charged a deal fee for finding the deal and structuring all the work on the front end (finding the property, doing due diligence, financing with banks, and setting up a legal organization).
Many large multifamily investors use this strategy and charge the LLC a property management fee.
You can now buy a $500,000 apartment building with the $100,000 you raised by getting a $400,000 bank loan. Structure the bank loan so the property is able to cash flow with you being able to pay the loan to zero within 10 years.
Assuming zero appreciation and cash flow, in year 10, you will turn that $10,000 into a value of $50,000. Plus, you will have passive income from the apartments.
Credit to Jimmy Moncrief
Jimmy is a multifamily real estate investor and bank credit officer. He has written a complimentary bank negotiating guide on how to get around the 80% LTV rule