The Benefits for Financing Down Payments and Renovations

 Written by Rebecca Kennedy

Whether you're a professional property developer or a single homeowner, financing your property ambitions comes above all else. Even professional property developers with a proven system of acquiring and renovating homes, condominiums and business properties can run into financing issues.


We've examined the benefits of financing a higher down payment, purchasing renovations and the cash financing options available for those of you looking to buy and upgrade your home.


Why Save For a Greater Down Payment?

Banks and lenders want low risk scenarios and that ultimately comes down to meeting the required down payment for your mortgage deal, and they'll give you a better deal if you offer a lower risk scenario. Paying an increased down payment comes with a number of fantastic benefits for your financial future. Here's a few key benefits, according to Investopedia;


Reduced Mortgage Payments - Because you've put more cash up front, your monthly payments will be smaller and more manageable


Lower Interest Rates - Lenders will give you a far improved rate since you're deemed a lower risk. Expect interest rates to lower significantly upon 20% down payment.


No Mortgage Insurance Fees - If you can't afford a significant deposit, most mortgage deals will require you to take out mortgage insurance, which will add another 0.5 - 1% interest on top of your existing deal.


Ability to Ride Out Financial Crises - When it comes to a financial crisis, those in most danger of ruin are the ones who have taken out the maximum loan available on the lowest down payment. They have a high interest rate deal and may even face foreclosure.


Why Save For Renovations?


Renovations and upgrades obviously provide that wonderful ability of allowing you to transform your new home into your own dream living space. But aside from that, they can also allow you to significantly improve your home's resale value. Investopedia strongly advise making wise additions to your home that will ultimately boost your bottom line.


According to US News Money, these are the renovations and replacements that will bring the greatest % return on investment;


Renovations that bring the greatest percentage return on investment:

• Entry door replacement: 96.6%
• Deck addition (wood): 87.4%
• Attic bedroom: 84.3%
• Garage door replacement: 83.7%
• Minor kitchen remodel: 82.7%

Renovations that yield the smallest return:

• Home office remodel: 48.9%
• Sunroom addition: 51.7%
• Bathroom addition: 60.1%
• Backup power generation: 67.5%
• Master suite addition: 67.5%

Financing Options


So now you understand some of the reasons for actually spending more cash on your home! But if you don't have a large disposable income, you may need to find a means of financing your purchases.


Saving - Of course, the glaringly obvious method for saving a down payment isn't so straight forward. That's especially true if you've got student debt, rental payments and bills to pay, with very little disposable income to go towards your downpayment. The internet is a wonderful place however, and fortunately there's a number of down payment saving strategies to help you!


Help from your parents & family - It's the go to option for many first time home buyers. Loving parents are willing and often able to give you that extra boost in disposable income necessary to make that all important down payment on your first home. Even if you can agree a repayment plan with them, that's going to be far more favourable than turning to a personal loan for financial assistance.


Personal loans - There's a number of reasonable options for taking out a personal loan - Peer-to-peer lending platforms, car title loans (see how car title loans work) and credit cards are just some of your options for accessing cash.


Tap your IRA - There's an exemption for withdrawing up to $10,000 from your IRA for the purpose funding your first home. It's an initiative you should consider if you've got money built up!


Hustle - Whether it's getting a second job or selling off your unwanted possessions on Ebay and Craigslist, there's nothing like a bit of hustle to increase your bank balance and put you in a more financially secure situation.


Whatever you decide, ensure that you're in a stable situation to make the commitment of purchasing property. After all, the 2008 financial crash was a stark reminder that the property market can be a fickle one.

All the single ladies are shaking up this real estate market

Diana Olick | @DianaOlick

Gayane Meschyan is taking her time shopping — she expects to own this next purchase for at least 10 years.

At age 43, with no spouse or children, she wants to feel sure she's making the right choice.


"I see it as security. It's an investment, and I want to build wealth," said Meschyan. "You think you know the future, but you don't. You can't fully predict the future, so the best you can do is plan for it."


Meschyan, who has a Ph.D. in psychology and works as a research analyst for Los Angeles County, is shopping for a single-family home. She already owns a condominium in Burbank, but said she feels like she's outgrown it. She plans to keep the condo, which is in a building, for rental income, and buy the single-family home to live in.


A real estate agent shows a home for sale to a prospective buyer in Miami.

"My main motivation is because you don't have anyone above you, you have more of a sense of peace," she added.


Meschyan is one of a growing number of single women buying homes. In the past year, single women made up 17 percent of all homebuyers, purchasing at twice the rate of single men, according to a new annual report from the National Association of Realtors. This, despite the fact that women have much lower average incomes than men. Like men, three-quarters of the properties the women buy are single-family, detached homes.


"Single women for years have indicated a strong desire to own a home of their own, as well as an inclination to live closer to friends and family," said Lawrence Yun, chief economist for the NAR.


"With job growth holding steady and credit conditions becoming somewhat less stringent than in past years, the willingness and opportunity to buy is becoming more feasible for many single women."


Barbara Jennai, 68, already lived close to her daughters — a little too close after a while. She was living with them, helping to raise her grandchildren. With the kids older now, Jennai felt it was time for her to move out on her own. She rented for a while at Leisure World of Maryland, an active adult community, but a few months ago she decided to buy.


"When I rented I wasn't really putting away any money. A lady in my building said there is such a thing as a reverse mortgage. She connected me with a lender and it turned out that I was a perfect candidate," said Jennai.


Jennai still works full time as a special education teacher, but she was putting far too much of her salary into rent. She had enough savings to make the down payment on the mortgage, and now her monthly payments are less than one-third of her former rent. She also likes the idea of being an owner.


"It's the first time in my life I've ever owned. I walk in every day and say, 'Hello beautiful home,' because it's mine. It's really a wonderful feeling and a feeling I've never had before," said Jennai.

As women move ahead in the workplace, commanding larger salaries, it just makes sense they would start buying more homes. Much of the buying, however, is by older women. That could just be part of the trend of downsizing baby boomers.


"They're either divorced or their husbands have died, and they have the money and they're buying," said Jane Fairweather, a real estate agent in Bethesda, Maryland. "They want stability. They want to have control over their monthly expenses. They're going to be where their children or friends are. They're not whimsical at that age."


Fairweather said she does not see a lot of young women, millennials, rushing in to buy homes, but that may be a factor of the high-priced neighborhood in which she works. Other agents say they are seeing more young women buy, although they usually start with condominiums in full-service buildings for a higher sense of safety.


In the past, single women often had harder times qualifying for mortgages than men. They might have to have a parent co-sign the loan. Those days appear to be over. Said she had no trouble at all getting her home loan.


"My Fico score is over 800. My adult report card is really high," joked Meschyan. "I invested in mutual funds, and the money grew. I've saved regularly. That's what's helped me."

New-Home Sales Decline, but So Do Their Prices

               

By Clare Trapasso | Sep 26, 2016

                                                                   

Prices and sales of brand-new abodes, with all those gleaming appliances and immaculate floors, slid in August as buyers’ mad rush of recent months to close on the homes of their dreams began to wane.


Despite falling prices, new-home sales dropped nearly 12.3%, to about 50,000 purchases nationwide, from July to August, according to the U.S. Department of Commerce’s monthly residential construction report. But they were up almost 22% from the same month a year prior.


The numbers cited above were not seasonally adjusted. That means they weren’t smoothed out over 12 months to account for the ups and downs of the housing market.


A drop in sales in August is typical, as it takes about six months after buyers sign on the dotted line before their residences are completed, says realtor.com®‘s chief economist, Jonathan Smoke. And in much of the country, folks don’t want to be unloading all their worldly goods into their new homes in February, one of the coldest months of the year.


But of those properties that did go under contract, more were priced for the budgets of first-time buyers. The median price tag of a new home dropped to $284,000 in August, according to the report. It was down 3.1% from July and represented a nearly 5.4% decrease from the same time a year earlier.


Sales of homes under $150,000 were up 50% in August both monthly and annually, according to the report. But at just 3,000 buyers signing on the dotted line, they made up only about 6% of sales.


“That’s a reflection of builders catering to more first-time buyers,” says Smoke. “It shows that most of the increase in sales going forward are more likely to be coming from new homes.”


The reason for that is simple: There just aren’t enough existing homes (those previously lived in) for sale. Homeowners have been reluctant to sell because, in turn, there aren’t enough trade-up residences for sale that they can afford, he says.


The median cost of an existing home was $240,200 in August, according to the National Association of Realtors®.


However, buyers on a budget looking for either an existing or a new home may have had a harder time scoring a recently constructed abode in the $150,000 to $199,999 range. Sales of those properties were down 33.3%, hitting 6,000, from July, according to the Department of Commerce report. There were roughly the same number of purchases in August 2015.


The bulk of the sales of new residences, about 19,000, were in the $200,000 to $299,999 range.


Just 2,000 homes with price tags of $750,000 or higher were sold in August—down 33.3% from July, according to the report. The same number of homes were sold in August 2015.

The Mysterious Disappearance of Repeat Home Buyers

               

By Clare Trapasso | Sep 26, 2016

                                                                   

A lot of ink has been spilled over the woes of first-time home buyers struggling to save up for a down payment while paying off student loan debt, securing a mortgage in an age of sky-high credit scores, and then finding an abode they can afford at a time when the lack of properties on the market is driving prices to new heights.


But what about repeat home buyers—folks who already own the roofs over their heads, but want to trade up for a bigger residence or move to a new location? They haven’t exactly been faring too well either.


In fact, there were about half as many second- or even third- or fourth-time buyers in 2015 as there were in 2001, according to a recent report from the Housing Finance Policy Center at the Urban Institute, a Washington, DC–based think tank.


In 2001, there were about 1.8 million repeat buyers. That number sank to nearly 630,000 at its lowest point, in 2011, before beginning to rebound the following year. There were just over 931,000 sales to second-time buyers in 2015.


The study looked only at Fannie Mae, Freddie Mac, and Federal Housing Administration loans from 2001 through 2015 data. Mortgages made by private lenders and banks were not included.


“We’re going in the right direction,” says Sheryl Pardo, spokeswoman for the center at the Urban Institute. But “the postcrisis depreciation in home values hit repeat home buyers [hard].”


The average loan size of these repeat buyers was $246,166, according to the report.


One possible culprit for the drop-off was that many homeowners lost equity in their homes when the housing bubble burst starting in 2007. That meant they couldn’t convert that equity into a down payment for a bigger and better home, she says.


And those who lost their residences to foreclosure will have a tougher time getting a mortgage for a new property. Lenders are typically reluctant to issue loans to those who have gone through a foreclosure in the past seven years.


Even current homeowners who bought before the housing crisis may have trouble getting a loan on a new home these days—credit requirements are simply tighter in the aftermath of the housing bust
.
Another problem is that those fancier and more spacious homes cost more. And there simply aren’t enough residences for sale to satiate demand.


“It’s too expensive to move up,” says Gerd-Ulf Krueger, chief economist at Krueger Economics, a housing data firm based in Los Angeles. “The people who want to trade up aren’t putting their homes on the market, because they aren’t seeing enough alternative properties that are attractive to them at the right price.”


He expects that the number of homeowners buying new abodes will rise—but not by much.
“There’s just not enough [residences] on the market. There’s not enough new home construction,” Krueger says. Builders are “trending toward more upscale markets, and there’s something missing in the middle.”

4 money tips for new homeowners

by Maurie Backman for The Motley Fool

More than 60% of Americans own their homes, and while there are certain benefits to ownership, there's also a downside: the cost.


You may have thought that coming up with a down payment was the greatest financial hurdle you'd face, but as you'll soon come to learn, there are numerous expenses associated with owning a home. Here's how to handle them.

  

1. Create a new budget


Given that your monthly mortgage payment is bound to differ from your previous rent payment, it might seem like a no-brainer that you'll need to adjust your budget accordingly. But there's more to it than that, because you may find that other costs change by virtue of your new home. For example, if you move from a two-room apartment to a 2,000-square-foot house, you can bet on your heating and electricity costs going up.


Similarly, if you suddenly have a lawn to maintain, you can expect to spend more than you would renting an apartment.


Rather than just substituting your new mortgage payment for your previous rent payment, spend a few months tracking all of your expenses and update your budget to reflect the actual costs of living in your new home. You may come to find that you're spending more than expected, in which case you'll need to adjust your flexible expense categories, like leisure, to compensate.


2. Prepare to spend money on repairs and maintenance


You're probably aware that you'll spend some money on maintenance and repairs for your home, but you may not realize just how much you may end up parting with. Most homeowners spend 1% to 4% of their homes' value each year on repairs and maintenance.


So if your home is worth $300,000, expect to shell out anywhere from $3,000 to $12,000 a year on upkeep. And if you need to do something major, like replace a faulty heating system or roof, your costs could climb even higher.


You should therefore aim to pad your emergency savings so that you have funds to tap if a significant repair pops up unexpectedly. Most people need at least three months' worth of living expenses in an emergency fund, but as a homeowner, you should aim for six months' worth of expenses or more.

3. Expect your property taxes to go up


Your property taxes are based on the assessed value of your home coupled with local tax rates. When you buy a new home, you'll be advised of your current property tax liability -- but don't get too comfortable with that number.


Property taxes have a tendency to rise, even when home values drop. Back in 2000, localities across the U.S. collected an estimated $247 billion in property taxes, but by 2010, that number almost doubled to $476 billion despite the decline in home prices from the infamous housing bubble implosion.


Additionally, some localities require property reassessments at certain intervals (such as every year, every other year, or every three years). If your home is reassessed at a higher amount, you could see an instant hike in taxes.


To protect yourself, leave some wiggle room in your budget. This way, if you're hit with a significant property tax increase from one year to the next, you won't be scrambling as much to make those payments.


4. Don't get caught off guard when big payments come due


Some people roll their homeowners' insurance and property taxes into their mortgage payments via an escrow system. The way this works is that a lender will charge a set amount each month above your mortgage payment alone, put that excess money in an escrow account, and use it to pay your property taxes and homeowners' insurance for you. But not all mortgages work this way. Many just have you make your exact mortgage payment and remain responsible for paying your homeowners' insurance and property taxes on your own.


If you fall into the latter category, you'll need to budget accordingly so you're not caught off guard when these larger payments roll around.


The average U.S. household spends $2,127 on property taxes each year, but in many states, that number is much higher. Take New Jersey, for example, whose average annual property taxes exceed $7,000 and, in some counties, can easily top the $15,000 mark.


Most homeowners pay property taxes quarterly, and if yours are $4,000 a year, that's an extra $1,000 check you'll need to write every three months. Rather than scramble to come up with that money, be sure to budget $333 a month for property taxes. Along these lines, the average annual homeowners' insurance premium in the U.S. is $952. If you're required to make that payment all at once, you'll need to set aside money each month in anticipation.

First-Time Millennial Buyers Poised to Revolutionize the Real Estate Market in 2017

By Cicely Wedgeworth | Oct 19, 2016

             

You want a real estate revolution? We’ve got you covered: Next year, more than half of all homes will be bought by first-time home buyers, according to an exclusive survey of buyers by realtor.com®. It’s a seismic shift from 2016. And here’s the kicker: Most of those newbies will be millennials.

Get ready for a new-look housing market.


Each year, realtor.com®  does an annual survey of home shoppers to get to the heart of home-buying trends. And what we found this year is a true sea change in the buying population that will affect which homes and neighborhoods are the most desirable in 2017.


In sharp contrast with 2016, when only 33% of people planning to buy a home were first-time buyers, 52% of buyers with their eye on a home purchase next year will be first-timers. And 61% of those are under age 35.


“This represents an ‘Oh, shift’ moment in housing,” says Jonathan Smoke, chief economist for realtor.com®. Smoke’s team analyzed responses from active shoppers on our site who plan to buy a home in the spring or summer of 2017. “With so many first-time buyers in the market, competition will be even fiercer next year for affordable starter homes in the suburbs. Those looking to buy may want to consider a winter home purchase in order to avoid bidding wars and higher prices spurred by a potential increase in millennial buyers.”

What motivates—and scares—millennial buyers

Although a shortage of homes for sale will continue to dog the market, first-time buyers are more worried about financial issues, according to the survey. Topping the list: coming up with a down payment (37%) and finding a home within their budget (30%). With all the emphasis on financial issues, millennial buyers want to make sure that their money is well spent: Making a sound financial investment is a top goal.


This new generation of first-time home buyers is focused on safety, privacy, and more space, indoors and out. That’s because millennials’ top reasons for buying a home are that they’re getting married or moving in with a partner, growing tired of their current living space, or planning a lil’ addition to the family. Or perhaps all three!


So it’s no wonder that millennial buyers prefer single-family homes (39%) or townhomes (34%). Just 15% are interested in multifamily homes, and 10% in condos.

Suburbs appeal to millennials and boomers alike

So, let’s see, where can you buy a big house with a yard in a safe neighborhood? You probably guessed it: the suburbs! First-time home buyers identify the suburbs as their No. 1 preferred location (43%). In fact, so do 50% of all respondents.


“The majority of home-owning Americans live in the suburbs, so the popularity of the suburbs isn’t a new phenomenon,” comments Smoke. “But the increasing preference by millennials represents a shift from the more urban locations where many of them have been renting.”


But that doesn’t mean our cities are going to empty out: Those urban areas are the second most popular option among millennials.


Meanwhile, baby boomers are also keen on the suburbs—either because they already live there and want to remain close to friends and family, or because they’re moving to another suburb where their adult children (and probably grandchildren) live.

S&P Sector Split Illustrates How Real Estate and Financials Are So Different

By Ben Eisen

A month after the S&P 500 spawned a real estate sector, the new grouping is charting its own course.


For the first half of 2016, when real estate companies were still lumped into the financials sector, they were some of the year’s best performing stocks, climbing 8.7% even as the full sector fell 4.2%. But that began to shift in the second half, and since the new sector was created on Sept. 16, it has fallen 1.2% while financials have climbed 2%.


The reversal in performance illustrates just how different real estate stocks are from the financials category from which they were separated. It shows that in some respects, the stocks are polar opposites of each other.


“Real estate has a distinctive set of characteristics and deserves a seat at the allocation table,” said analysts at Wells Fargo Investment Institute, led by Chris Haverland, in a research note.


On the face of it, the decision to add an 11th sector to the S&P 500 may seem like little more than an administrative shift. The newest stock grouping in the benchmark index, and the first one to be created since 1999, makes up just 3% of its market value.


But creating a new real estate sector–and products to invest in it–allows investors to more cheaply and easily invest directly in those groups of stocks. Exchange-traded fund providers including Fidelity Investments and State Street Global Advisors offer ETFs tied to the sector.


One way to see the differences between the sectors is through correlations. Financials, excluding real estate, have had a 0.84 correlation with the broader S&P since 1990, meaning the two move closely together, according to Wells Fargo Investment Institute. Real estate, by comparison, had a much lower 0.55 correlation with the benchmark, the second lowest correlation after the utilities sector.
A correlation of 1 means they move by the same proportion in the same direction, while a correlation of zero means the two share no relationship at all.

  

The differing performance between the two sectors has largely been driven by the outlook on interest rates. As rates fell for much of the beginning of the year, high-dividend stocks like real estate firms out-performed because they offered comparably high annual income. Financials suffered because they were seen to be squeezed by lower interest margins from falling rates.


But in recent weeks, particularly since the sector split, investor expectations of a Federal Reserve rate increase this year are on the rise, sending benchmark bond yields higher. Financials have benefited while real estate has suffered.


Real estate includes real estate investment trusts and real estate management companies. Because REITS have special tax status, they are required to give at least 90% of their taxable income to shareholders. They often have higher dividend yields than the average stock. Wells Fargo describes the sector has having “traits of both equities and fixed income investments.”


Financials, on the other hand,  includes firms like banks, brokers, and insurance companies. Mortgage REITs are still included in the sector.