There are plenty of good reasons for unmarried people to buy a house today, but buying a house outside of marriage can come with big risks. Unless you know how to avoid the potential pitfalls, locking in on a home with your unwed partner could be a costly mistake.

Check your home buying eligibility here (Sep 16th, 2024)

Getting your finances in order with your partner

Before you and your partner begin househunting, exchange personal finance information, including salaries, debt, and credit scores.

Not only will this information help you estimate how much house you can afford, but it will help to determine how much money each person can contribute to the down payment, closing costs, and monthly mortgage payments.

You also need to know upfront if your boyfriend or girlfriend has a low credit score.

If one applicant has a bad credit score, it may reduce the amount banks will lend and will also lead to less favorable rates and terms.

Also keep in mind that if your partner ever stops contributing to the mortgage, you’ll be liable as a co-signer to pay for the whole thing.

So not only is it good to know your significant other’s financial status to gauge how much home you can buy, it also makes sense to get a mortgage that you could pay off yourself if it comes to that.

Check your home buying eligibility here (Sep 16th, 2024)

Deciding how to “take title”

Once you and your partner create a budget and decide how to split the costs of buying and maintaining the house, consider how you will own the home, or “take title.”

Here are the three basic options:

1. One person can hold the title as sole owner
2. Both people can hold title as “joint tenants”
3. Both of you can share title as “tenants in common”

You might be tempted to pay scant attention to this issue, but that could be a very expensive blunder.

Even if your relationship stands the test of time and you never break up, consider what would happen if one of you died. What would happen to the house and your investment?

The answers to those questions hinge on the ownership arrangement. If you aren’t careful, you could find yourself losing your home – even if you contributed thousands of dollars to the mortgage and other expenses.

Sole ownership

On its face, this seems like a bad option for unmarried couples — and it usually is.

If your partner’s name is the only one on the deed, he or she is the only legal owner. This means that your partner can sell the house (or bequeath it to someone else), and there’s nothing you can do about it.

Why take this route?

Often, it’s done when one partner’s credit is so bad that the couple would never qualify for a mortgage. Sometimes, a higher-income partner simply wants all the house-related tax deductions.

Fortunately, one person can take the title as sole owner and later add the other partner’s name to the deed. But before you do this, consult an experienced real estate lawyer. Officially adding the other partner’s name to the deed might allow your mortgage lender to call in the loan, and in some areas, you may have to pay transfer taxes and fees to add a name to the deed.

Joint tenancy

This arrangement is suitable when partners own equal shares of the house. (If the partners own unequal shares — 60/40 or 70/30, for example — you’ll want to be tenants in common.)

The biggest benefit of joint tenancy is that neither owner can sell the house without the other’s permission.

Also, if one joint tenant dies, the other automatically inherits that person’s share, even if the deceased left a will stating otherwise. This is known as “right of survivorship,” and some states even require that you add the phrase “with right of survivorship” to the agreement.

If one partner decides to sell their share in the house, however, the joint tenancy ends, and the new shareholder and you become tenants in common.

Tenants in common

This is the most common way for unmarried couples to take title. There are two reasons for this:

1. The arrangement allows the partners to own an unequal share of the home.
2. When one person dies, that partner’s share can be left to whomever the person wishes. In other words, the share doesn’t automatically go to the other tenant in common.

If you own unequal shares, though, be sure to “memorialize” the percentages in writing — in a property agreement, partnership document or cohabitation agreement.

Otherwise, the law will usually presume that you have a 50/50 ownership arrangement with your co-owner.

Keep in mind that not all relationships last forever. An ownership arrangement can help you be prepared, in case the relationship ends.

It’s also a great idea to consult with a real estate attorney before signing anything.

Check your home buying eligibility here (Sep 16th, 2024)

Questions to ask before buying a house with your boyfriend or girlfriend

If you want to buy a house with your partner before marriage, there are some questions to ask first. A few important ones include:

• What are the laws? Each state treats this situation differently. Look into the laws for your state to make sure you are comfortable before buying a home with your boyfriend or girlfriend. 

• What documents should you have in place? You’ll likely need to draw up a cohabitation agreement that includes details about who owns what and an exit strategy if it becomes necessary. 

• Who should be on the mortgage? In some cases, it makes sense for one partner to obtain the mortgage due to a better credit score or higher income. If you cannot qualify for a joint mortgage, consider how this would impact your homebuying plans. 

• What happens in a breakup? No one wants to think about this. But it’s important to talk this possibility through. 

• What happens if someone dies? Again, not a pleasant subject. But consider what should happen in this worst-case scenario. 

• How should we split costs? Homeownership comes with plenty of expenses, such as maintenance and property tax. Talk about these costs before the bills start arriving. It might be helpful to set up a joint bank account specifically to cover home-related expenses. 

Credit considerations when buying a house with a boyfriend or girlfriend

If you want to buy a home with your boyfriend or girlfriend, it is important to consider the realities of different credit scores. In some cases, partners with vastly different credit scores could benefit from just one partner applying for the mortgage. A borrower with a good credit score can unlock better mortgage rates and lower the overall expenses for the household. 

If you have similar credit scores, then applying together for the mortgage is an option. But remember that both of your credit scores will be on the line. 

What could go wrong if you buy a house with a boyfriend or girlfriend

Unfortunately, not all relationships last forever. The biggest risk of buying a house with an unmarried partner is the possibility of a breakup — without all of the legal protections that would come into play during a divorce.

Of course, there are horror stories out there. But there are also unmarried couples happily buying homes together that enjoy the experience for the long term. 

What is a cohabitation agreement?

A cohabitation agreement is a contract between two parties that live together but aren’t married. The goal of this kind of agreement is to map out a legal plan for any issues that may come up. With a good cohabitation agreement in place, everyone knows exactly where they stand in terms of financial and legal rights. 

What is typically included in a cohabitation agreement?

A cohabitation agreement often includes details about property division, inheritance, and other estate planning issues. 

As you build this document, it should also consider the financial expectations for each party. For example, it can include which household expenses will be covered by who. 

Of course, it should outline what would happen in the event of a breakup. 

Finally, if buying a home together the cohabitation agreement should consider the type of ownership each partner has. And if you’ve divided up the home’s equity, make sure it is clearly documented who owns which share of the property. 

In many cases, it is worth enlisting the services of a real estate attorney to map out this document. 

Check your home buying eligibility here (Sep 16th, 2024)

Buying a house with a boyfriend or girlfriend FAQ

Should I buy a house with my boyfriend before marriage?

Whether or not you should buy a house with your boyfriend, or buy a house with your girlfriend, varies based on your unique situation. Of course, you’ll both need to be in this partnership for the long term. 

But beyond that, you both need to be willing to work together to navigate the complex home buying process. As a first-time homebuyer, there is a bit of a learning curve to master.

It could be a good idea if you are both ready to jump into this challenge. But if either partner is on the fence about it, then the financial and emotional stress that comes with buying a house might not be worth it. 

What are the risks of buying a house with your significant other before marriage?

The reason that many couples wait until marriage to pursue homeownership is the legal risks tied to buying a house without that marriage certificate in hand. When married, there are certain legal protections in place to keep both of your interests safe if a breakup were to happen. Without a marriage certificate, there are many loopholes for an ex to exploit when deciding what to do with the house. 

In addition to the legal risks, there are emotional risks. Buying a home is a big financial step, but it is also a major life marker. If a breakup happens, the emotional fallout of dividing up the house would be traumatic. 

Can an unmarried couple buy a house together?

Yes, an unmarried couple can buy a house together. But it is important to weigh the risks and rewards before moving forward. 

Can I buy a house with my boyfriend?

Yes, you can absolutely buy a house with your boyfriend. It’s completely legal to buy a home with someone other than a spouse.

Is it smart to buy a house with a boyfriend or girlfriend?

Whether or not it is smart to buy a house with a boyfriend or girlfriend depends on your unique situation. The reality is that tying up your financial assets with someone else before marriage can make things complicated quickly. If you and your partner are ready for that big step, then it can be a smart idea. But if either of you isn’t quite ready for this major step, then it is probably smart to hold off on this major purchase for now. 

How do I protect myself when buying a house with a partner?

If you want to protect yourself financially when buying a house with a partner, the first step is to decide how the title will be held. The options include sole ownership, joint tenancy, tenants in common, or a living trust. 

In most cases, a joint tenancy or tenants in common agreement will protect your interests. But it is a good idea to speak to a real estate attorney to ensure that everything is above board. 

Is it better to buy a house alone or with a partner?

Buying a house with a partner can improve your approval chances for a mortgage. That’s because two incomes often lead to more buying power. But if you are unsure about the future of your relationship, then buying a house alone is likely the better option. 

Can you get a joint mortgage without being married?

Yes, you can get a joint mortgage without being married. Any manner of co-borrowers can choose to apply for a mortgage together. 

Can I get a joint mortgage with my girlfriend or boyfriend?

Yes, you can get a joint mortgage with your girlfriend or boyfriend. When applying together, it is possible that the combined incomes will improve your approval chances. 

What happens if one of us is not on the mortgage?

If your name is not on the mortgage or the title to the home, then you are not the legal owner. Although you may be contributing to the homeownership expenses, the titleholder is the official owner of the home. 

With that, the mortgage holder will keep the home if things go south. 

Can I add my partner’s name to the mortgage after buying the house?

Most lenders will require a refinance if you want to add your partner’s name to the home loan after buying a house. However, you can generally add a partner’s name to the title itself through a QuitClaim deed. 

How will buying a house together before marriage impact your taxes?

As a homeowner, you can deduct mortgage interest from your taxes on up to $750,000 in mortgage debt. If you buy a home before marriage, only one of the homeowners can claim this expense. 

With that, one of you will not be able to take advantage of this tax break offered to homeowners. 

How do I buy a house with my boyfriend or girlfriend if they have worse credit?

If your partner has bad credit, it might be a smart move to apply for the mortgage on your own. A good credit score can unlock better mortgage rates which could lead to thousands saved over the life of your loan. 

But if your boyfriend or girlfriend has a higher income with worse credit, it may be worth applying together anyways. Although the interest rates you get as a couple could be a bit higher, the increased income can help to increase your buying power. 

Check your home buying eligibility here (Sep 16th, 2024)

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Making big money from investment property (real estate purchased for the purpose of earning rental income or a profit from reselling it) is rarely as simple as “buy low, sell high.” It requires careful research, planning, hard work, and a dollop of good luck.

But as long as you make real estate investment decisions with your eyes wide open, the financial rewards could surprise and delight you.

Check your eligibility to purchase investment property. Start here (Sep 16th, 2024)

In this article:

• Pros and cons of buying an investment property
• Should you flip or rent your investment property?
• Hard money loans
• Conventional mortgage loans
• FHA mortgage loans
• VA mortgage loans
• Home equity lines of credit (HELOCs)
• Our recommended lenders for home loans

What is an investment property?

An investment property is a real estate asset you purchase with the express intent of earning a profit by flipping it or renting it out.

Generating income with investment properties

In 2023, the average gross return profit margin of house flipping — purchasing, renovating, and quickly reselling homes — was 29.8%.

In other words, the average house-flipper earned $29,800 for every $100,000 invested.

The average return on rental properties in 2023 was 10.6%. This means the average buyer of a $500,000 apartment building earned $53,000 in a single year.

By contrast, the average stock market return over the past 50 years was about 10% while the average investor’s return on mutual funds was between 4-5% over the last 50 years.

The numbers make it easy to see why so many investors are drawn to the world of real estate.

What is the difference between an investment property and a second home?

You buy an investment property with the primary goal of making a profit, typically by renting out the space for most of the year or flipping the home. A second home is one that you intend to visit on a regular basis.

This distinction matters when you buy property because mortgage lenders treat investment properties and second homes differently. Second homes are subject to lower interest rates and easier requirements, but you must prove you plan to live there at least part of the year. By contrast, investment properties — which you plan to sell or rent out full-time — have slightly higher interest rates and stricter mortgage guidelines.

What to consider before buying an investment property

The excitement of purchasing your first investment property is compelling. But before you jump into the process, there are a few important points to consider.

Housing market trends

Like other types of investments, the value of home prices rises and falls based on broad economic trends. It’s not unusual for the housing market in an area to go through boom and bust cycles.

As you consider areas to invest in, look for indicators of the long-term housing market trends. If an area is growing, that might be a more prudent investment than a dying small town.

Buying with a partner

If you choose to jump into real estate with a partner, make sure that you are both on the same page about your investment goals and risk tolerance. Before finalizing any property purchase, get legal paperwork in order to indicate your separate ownership percentages.

Property taxes and insurance

As a property owner, you’ll face property taxes. Take a look at this expense before moving forward with a property. You don’t want to get stuck in a place with sky-high property tax obligations.

Investment properties also require homeowners insurance, and you may be required to purchase additional coverage if you plan to rent the home out. Make sure you get quotes from homeowners insurance companies before buying so you can factor in this ongoing cost when estimating your investment property expenses.

Property management companies

A property management company can take some of the hassle out of being a landlord. But it’s critical to find the right property management company, otherwise, your potential headaches will multiply. Explore the options in your area and the cost before moving forward with a particular deal.

Check your eligibility to purchase investment property. Start here (Sep 16th, 2024)

Pros & cons of buying an investment property

For small-scale investors, the most common real estate strategies come in two flavors:

1. Rental property
2. House flipping

Here are the biggest benefits and drawbacks of each.

House flipping pros & cons

Rental property pros & cons

Should you flip or rent?

Should you flip houses or purchase rental properties?

It all depends on your goals, and to what degree you can leverage your skills, expertise (construction skills are very helpful), and your current financial situation.

In general, house flipping is usually the bigger gamble because these deals hinge on whether property values will rise in the near future. Although price depreciation is never a good thing for property owners, stable and/or falling prices have less impact on someone whose main source of income comes from rents versus a fast resale of a property.

In 2021, the highest flipping returns were in Akron, OH (114 percent); Flint, MI (114 percent); Canton, OH (70 percent); Augusta, GA (94 percent); and York, PA (107.5 percent), according to ATTOM Data Solutions. These cities topped the list because they had lots of affordable, older homes that could be quickly renovated. At the same time, housing prices there were also rising.

For rental properties, the best markets in mid-2023 were Indian River County, FL, in the Sebastian-Vero Beach metro area (15 percent); Collier County, FL, in the Naples metro area (14.7 percent); Wayne County, MI, in the Detroit metro area (13 percent); Mercer County, NJ, in the Trenton metro area (12.7 percent) and Charlotte County, FL, in the Punta Gorda metro area (12 percent). The worst markets were generally located in the biggest cities on either coast, where real estate prices have long been sky-high.

But local markets are always changing. Like any other type of investment, real estate carries both risks and rewards. You can reduce the risks by thoroughly researching markets and your financing options, but you can never entirely eliminate them.

Check your mortgage rates. Start here (Sep 16th, 2024)

Step-by-step guide to buying an investment property

If you’re interested in purchasing an investment property, here is the process for purchasing it.

• Determine your preferred strategy: Before you start shopping for a home, decide if you want to flip or rent the property.
• Research the market: Scope out where you want to buy a property. Run the numbers for a few properties in the area to make sure the venture would be profitable.
• Make your offer: When you find a deal that suits your needs, submit an offer to the seller.
• Inspect the property: Unless you are prepared for a higher level of risk, don’t waive the right to inspect the home. If you find a big problem, reevaluate the deal.
• Finalize your financing: The lender will ask for all sorts of documents about your finances during the underwriting process. Be prepared to send along everything they need for a quick closing.

Investment property mortgage requirements 2024

If you want to obtain a mortgage for your investment property, the requirements vary based on the type of loan you pursue. But in general, here’s what lenders may require:

• A credit score of at least 700
• A down payment of at least 20%
• A carefully thought-out plan for the property

You’ll need to prove to the lender that your finances are robust enough to handle this new debt.

Check your eligibility to purchase investment property. Start here (Sep 16th, 2024)

How to get the best property investment loan

The best investment property financing for you will depend on your particular financial situation. That said, these simple tips should help you finance more property for less money.

Shop around for the best rates

Contact multiple lenders, starting with the bank that issued your first mortgage, to compare interest rates and terms, as well as the closing costs and other fees.

Check the fine print

Always read the “fine print” to uncover any large fees and extra costs, including extra costs triggered by the number of existing loans/mortgages you already have.

Opt for a larger down payment where possible

Whenever possible, reduce the interest rate in exchange for a larger down payment. In some cases, it might also make sense to pay upfront fees (“points”) to lower the rate. If you apply for a big loan and plan to hold the property for a long time, paying upfront fees and/or a higher down payment could trim thousands of dollars from your repayment total.

Build your credit score

In the months before you launch your property search, check your credit report to learn which types of loans you qualify for. If your score is a bit anemic, take steps to improve it before buying— e.g., by paying down (or paying off) as much debt as possible.

Have cash on hand

Be sure you have ample reserves of cash or other liquid assets. Six months’ cash reserves are usually required to qualify for investment property mortgages.

Focus on long-term goals

Consider your long-term goals to determine which type of loan would work best in your current, and possible future, situation. For example, what would you do if your company made you relocate while you were in the middle of a fix-and-flip venture? Did you borrow enough to hire contractors to finish the job? (If so, by how much would that reduce your profits – and ability to repay the loan?)

Stick to a budget

Determine how much property you can afford, and stick to your budget. First-time real estate investors frequently underestimate their costs. If you purchase only those properties you can afford, cost overruns may result in annoyance and a minor reduction of your profit margins. If you fall in love with a property and exceed your price caps, any additional expense may spell catastrophe.

Best loans for investment property

Getting an investment property loan is harder than getting one for an owner-occupied home — and usually more expensive.

Many lenders want to see higher credit scores, better debt-to-income ratios, and rock-solid documentation (W2s, pay stubs, and tax returns) to prove you’ve held the same job for two years. (This last requirement can make things difficult for retirees and the self-employed.)

Additionally, most will insist on a down payment of at least 20%, and many want you to have six months of cash reserves or easily-liquidated assets available.

Things can be harder when you have a few outstanding home loans already. If you already have four mortgages, you’ll need some savvy to get a fifth. Most banks won’t issue new mortgages to investors who already have four, even when the loans will be insured by a government agency.

Some lenders won’t even care about your credit or employment history, as long as they see lots of potential profits in the investment property you’re considering.

Hard money loans

These loans are mostly used by house flippers and professional real estate investors. Also known as commercial real estate loans and “fix and flip” loans, they have three main advantages:

1. Faster approval and funding. In some cases, loans will be approved on the same day the application is submitted, and funding can take as little as three days. Thanks to this speed, hard money loans are ideal for investors who want to buy a property fast – before the competition can scoop it up.
2. Easier to qualify. If you make a down payment of 25% to 30%, have sufficient cash reserves and a good track record as a real estate investor, many lenders will overlook a subpar credit score. And they may not care that you already have 4+ mortgages
3. Short-term loans. Most hard money loans have terms of 1-2 years or 3-5 years. For someone buying a rental property, this would be a deal killer. Few rental property buyers want to pay back the loan within a year or two. But for house flippers, these terms are perfect, which is fortunate, because there’s no such thing as a 12-month mortgage. Even if banks wrote short-term mortgages, most would never loan money for a property that needed significant repairs — one that might not qualify as inhabitable.

Other than the 25% to 30% equity requirement, the biggest downside of a hard money loan is the cost. Interest rates typically range from 9% to 14%, and many also carry upfront fees (in the form of “points”) of 2% to 4% of the total loan.

Conventional mortgages

Compared to hard money loans, conventional mortgages are relatively cheap. However, they are more expensive than loans for owner-occupied properties. In general, you’ll probably pay a one-half to one percent higher interest rate for an investment property conventional mortgage.

For some future real estate moguls, however, the issue with conventional mortgages is not their cost, but getting approved.

Assuming you will not occupy a unit in the building, most banks will want to see the following to approve a mortgage for a rental property:

• A down payment of at least 20%. If you’d like a lower rate, make a 25%+ down payment. (On the plus side, there is no mortgage insurance when you put down 20% or more.
• A credit score of 720 or higher. Scores below 720 won’t necessarily doom your application, but they will trigger higher interest rates, higher fees, and lower LTVs.
• Six months of “liquid reserves” (cash or assets that can be easily converted to cash).

Once you have four mortgages on your credit, many conventional lenders won’t approve your fifth mortgage.

Although a program introduced by Fannie Mae in 2009 does allow 5-10 mortgages to be on a borrower’s credit, finding a bank that will give you a mortgage can be difficult, despite the guarantee from Fannie Mae.

The program requires six months’ payments held as a liquid reserve at the time of settlement. It requires at least 25% down for single-family homes and 30% down for 2-4 unit properties. If you have six or more mortgages, you must have a credit score of 720 or more. No exceptions.

Check your conventional mortgage eligibility (Sep 16th, 2024)

FHA mortgages

To finance a rental property, an FHA mortgage may be the perfect “starter kit” for first-time investors.

But there’s a catch. To qualify for the generous rates and terms of an FHA mortgage, you must buy a multifamily property of 2-4 units and occupy a unit in the building. Then the property qualifies as “owner-occupied.”

FHA mortgages are not directly issued by a government agency. Instead, the loans are made by private lenders, and the FHA insures those lenders against losses. This gives banks more incentive to lend to borrowers who might otherwise be seen as too risky.

Thanks to government backing, FHA mortgage lenders are lenient with regard to minimum credit scores, down payment sizes, and the borrower’s previous real estate experience.

The down payment requirement for FHA mortgages is just 3.5% for buildings with one to four units. (But remember you have to buy a 2-4 unit property to use FHA for investment properties). By contrast, a conventional loan might require 20% down on a two-unit purchase and 25% down on the purchase of a 3-unit or 4- unit home.

Because the FHA allows cash gifts for down payments and the use of down payment grants from a municipality, it’s even possible to get an FHA-financed home with no money of your own.

Just as important, the agency states that it will insure loans to borrowers with credit scores as low as 500. This is more than 100 points below the minimums for conventional and VA mortgages.

The FHA also makes allowances for home buyers who have experienced a recent foreclosure, short sale, or bankruptcy because of “extenuating circumstances,” such as illness or loss of employment.

FHA mortgage lenders would like applicants to have a minimum credit score of 580, but most lenders will require a much higher score to qualify for a 2-4 unit property in which you are renting out one or more of the additional units.

Check your FHA eligibility. Start here (Sep 16th, 2024)

VA mortgages

According to a 2016 study by the National Association of Realtors, 16% of active duty military personnel own investment properties compared with 9% of the general public.

There are two reasons for this:

1. Because active-duty personnel are frequently forced to move, they are often unable to sell their current homes at a price that would let them recoup their investment. So instead of selling the houses, they become absentee landlords.
2. VA mortgages allow veterans, active-duty service members, and their surviving spouses to obtain investment property loans with no money down and low mortgage rates. As with FHA loans, the only requirement is that the borrower lives in one of the building’s units (in this case, for at least one year). After that, they can rent out the entire building and live somewhere else.

Rental properties can have as many as four units or can be a duplex or triplex. The property can even be a home in which a room is rented or a home with a separate apartment on the property.

Borrowers can even buy one property, live there for a year and then repeat the process with multiple buildings until they reach a financing maximum known as the entitlement limit.

Another advantage of VA mortgages: borrowers can use the rents from other units in the building to qualify for the loan by including that rent as income. Typically, they can add 75% of the market rents toward their qualifying incomes.

On the downside, the rental property must be in move-in condition and receive approval from a VA home appraiser before the loan can be approved.

Click here to check your VA home loan eligibility. Start here (Sep 16th, 2024)

Home equity lines of credit (HELOCs)

Home equity lines of credit — known as HELOCs — are revolving credit lines that usually come with variable rates. Your monthly payment depends on the current rate and loan balance.

HELOCs are similar to credit cards. You can withdraw any amount, any time, up to your limit. You’re allowed to pay the loan down or off at will.

HELOCs have two phases. During the draw period, you use the line of credit all you want, and your minimum payment may cover just the interest due. But eventually (usually after 10 years), the HELOC draw period ends, and your loan enters the repayment phase. At this point, you can no longer draw funds and the loan becomes fully amortized for its remaining years.

Compared with conventional mortgages, HELOCs offer more flexibility and lower monthly payments during the draw period. You can borrow as much or as little as you need — when you need it.

The potential drawbacks are the variable interest rates (which rise in tandem with the Federal Reserve’s prime rate) and the possibility that the monthly payments could skyrocket once the repayment phase begins.

In some house-flipping situations, a HELOC could be a lower-cost alternative to a hard money loan.

But unlike a hard money loan, a HELOC could have more risk attached: if you don’t already own an investment property, you’ll secure the HELOC with your primary residence. If you default on the loan, the lender will foreclose on your home, not the investment property.

If you already own an investment property, you can overcome this problem by applying for a HELOC on one or more of those properties. The only trick is finding a lender.

Because many real estate investors defaulted during the 2008 housing bust, a lot of banks won’t approve home equity lines of credit that are secured by investment properties. The few banks that do offer these HELOCs make it much harder to qualify for them than they once did.

Lenders will want to see lower debt-to-income ratios (30% to 35% for investment property borrowers versus 40% for someone borrowing against a primary residence). And they will also charge higher interest rates or require you to pay 2-3 “points” upfront.

However, you can take a HELOC out on your primary residence at much better terms. Then, use the proceeds to make a down payment on an investment property.

Other options if you have equity built in a primary residence or other investment properties include a home equity loan or cash-out refinance.

Seller financing

In rare circumstances, you might be able to obtain seller financing for an investment property. Also known as owner financing, a land contract, or a contract for deed, this is an arrangement in which the seller acts as the bank, providing you with a private mortgage.

Instead of getting a traditional loan through a mortgage company or bank, you finance the purchase with the existing owner of the home.

Seller financing isn’t easy to come by. The vast majority of sellers want to be paid in full at the closing in order to pay off their own mortgages.

Also, a home can’t legally be seller-financed unless it’s owned free and clear. Relatively few homes are owned free and clear. Most owners have some sort of mortgage.

Owner-financed land contracts are often structured on a 5-year balloon mortgage. This means they are due in full after just five years, no matter how much or how little the buyer has paid off.

Some come with a 10-year amortization, meaning a schedule of payments that completely pay off the loan in 10 years. This option results in very high mortgage payments.

In some instances, seller financing might make sense for a house flipper. But in most cases, this type of loan is neither possible nor desirable.

Apply for an investment loan

Ready to start investing? See what loan programs are available to you, and find out what rates are available. In just minutes you’ll be narrowing the search for your own investment property.

Check your eligibility to purchase investment property. Start here (Sep 16th, 2024)

Investment property FAQs

Is it harder to get a mortgage for an investment property?

In general, it is more challenging to get a loan for an investment property than an owner-occupied property. That’s because lenders often require a higher down payment and more financial stability than they do for a primary home purchase.

What credit score is needed for an investment property?

You’ll likely need a credit score of at least 700 to obtain a loan for an investment property. However, you might be able to get away with a lower credit score if you are planning to make a down payment of 25% or more.

What type of loan should you get for an investment property?

The type of loan you should get for an investment property varies based on your goals for the property. For example, a conventional bank loan might make the most sense for a buy-and-hold plan. But a hard money loan could be more appropriate for a flip. Ultimately, you’ll have to decide which lending option works best for your situation.

Can you deduct mortgage interest on an investment property?

Unlike mortgage interest paid for your primary residence, the mortgage interest tax deduction doesn’t apply to an investment property. However, mortgage interest payments on a loan for investment properties are considered a business expense, which can be deducted to lower your taxable income.

Can you get a 30-year mortgage for an investment property?

Yes, it’s possible to get a 30-year mortgage for an investment property. You’ll likely find loan terms ranging from 10 to 30 years. The right loan term will vary based on your goals and our budget.

Are investment property mortgage rates higher?

In general, mortgage rates for investment properties are a half to full percentage point higher than mortgage rates for a primary residence. That’s because lenders perceive a higher risk.

What is the best down payment for an investment property?

The best down payment for an investment property varies based on your situation. Usually, a down payment between 20% to 25% is ideal. However, the right down payment will depend on your investment goals and budget.

What type of mortgage can be used for investment properties?

When seeking a loan for an investment property, you can pursue conventional mortgages, hard money loans, and private money loans. If you are willing to live in a part of your investment property, you could also pursue an FHA loan or VA loan.

Do you need to put 20 percent down on an investment property loan?

In most cases, you’ll need to put down at least 20% on an investment property loan. But the exact requirements vary based on your lender.

How much can I borrow for an investment property?

The dollar amount you can borrow varies based on the home and your budget. Depending on the situation, it’s possible to borrow up to 80% of the home’s value.

Check your investment property loan eligibility. Start here (Sep 16th, 2024)

The post Investment Property Loans | Options & Requirements 2024 first appeared on My Mortgage Insider.

How to finance home improvements

If you don’t have money saved for your home improvements, you can pay for them with a home improvement loan.

But what type of loan, and lender, is right for you?

Below, we break down the different types of home renovation loans, so you can find one that meets your remodeling needs — and your budget.

Most important, it can help you find loans for which you qualify, even if your credit score isn’t perfect.

In this article:

• Cash-out mortgage refinance options
• Home equity loans (HELOCs)
• Government-backed loan programs
• Alternative lending options
• Financing companies and rates
• Best way to finance home improvements
• Best and worst home improvement projects
• Our recommended lenders for home loans

Home renovation loan options

Cash-out refinance

A cash-out refinance is one of the most common ways to pay for home renovations. With a cash-out refinance, you refinance the existing mortgage for more than the current outstanding balance. You then keep the difference between the new and old loans.

For example, if you owe $200,000 on a home worth twice as much, you can take out a loan for $300,000, replacing the former loan and receiving cash back at closing. The new mortgage might even come with a lower interest rate or smaller monthly payments.

There are two types of cash-out refinances: government-backed and conventional.

Conventional cash-out refinance

If you have a lot of equity in your home, a cash-out refi lets you free up a sizeable sum for expensive renovations. However, if you don’t have enough equity or your credit score is lackluster, you may find it difficult — or impossible — to qualify for a loan in the amount you need.

In general, cash-out refinances are limited to an 80% loan-to-value ratio (LTV) — the amount of the loan vs. the home’s market value. In theory, this finance type is available to people with credit scores as low as 620. In reality, many lenders set their minimums around 640 or even higher.

If you do qualify, despite a mediocre score, you’ll pay more in interest and fees than someone with an impressive credit history. For example, a homeowner with a 680 credit score and LTV of 80% will pay 1.75% of the loan amount more in fees than an applicant with a 740 score and a 60% LTV.

In other words, the better your score, and the more equity in your home, the less you’ll pay in interest.

Pros:

• Larger loan sizes (in many cases)
• Fixed interest rate. This lets you calculate the total cost of the loan — upfront

Cons:

• Higher rates than primary mortgages and no-cash-out refinances
• Closing costs can total hundreds or thousands of dollars
• A time- and document-intensive application process (similar to that for a first mortgage)

FHA cash-out refinance

Cash-out refinances backed by the Federal Housing Administration (FHA) reduce risk to lenders. That’s why homeowners with lower credit scores and higher debt-to-income ratios are more likely to qualify for the money they want.

In addition, FHA cash-outs have a maximum LTV of 85% instead of the 80% limit on most conventional cash-outs.

In theory, you can qualify with a credit score as low as 580. In reality, most lenders want to see a minimum score between 600 and 660.

Pros:        

• The 85% maximum LTV lets you borrow more money
• Fixed interest rate
• You may be able to lower the rate and change the terms while borrowing extra money — e.g., converting a 30-year fixed to a 15-year fixed

Cons:

• You will incur an upfront fee of 1.75% of the loan amount, wrapped into the new loan
• Monthly mortgage insurance required of $67 per month per $100,000 borrowed.

VA cash-out refinance

Cash-out refinances guaranteed by the Veterans Administration (VA) are similar to those backed by the FHA. The main difference, of course, is that only eligible service persons and veterans may apply. VA cash-outs can be used to refinance previous VA-backed loans and non-VA loans.

The biggest advantage to VA cash-out loans is that you can finance up to 100% of your home’s current value.

So, even if you only have 10-15% equity in your home, it still might make sense to use a VA loan for cash. No other loan program lets you get that high of an LTV with a cash-out loan.

Pros:        

• Good tool for quickly raising large amounts of cash
• Fixed interest rate
• Because VA loans do not require mortgage insurance, you can reduce homeownership costs by paying off an FHA loan and canceling your FHA mortgage insurance premiums (MIP). You can also refinance out of a conventional loanthat requires private mortgage insurance (PMI)

Cons:

• Higher rate than other types of VA-backed mortgage refinances
• A new property appraisal and income verification is required
• You need to establish eligibility based on military service

Home equity loans and HELOCs

Home equity loans

Basically, a home equity loan is a fixed-rate personal loan that is secured by your house. In most cases, you can borrow up to 80% of your home’s market value minus what you still owe on the mortgage. So if your house is worth $300,000, and you have an outstanding balance of $200,000, you can borrow up to $40,000.

On the plus side, home equity loans tend to be approved faster than cash-out refinances. They also tend to have lower closing costs. On the minus side, you may have to settle for a smaller loan and a higher interest rate.

Pros:        

• Good and fast way to raise a lump sum
• Fixed interest rate
• Loan is fully amortizing. You repay interest and principal from the get-go
• Closing costs are often lower than for cash-out refinances

Cons:

• Rates are usually higher than for cash-out refinances
• Because loan amounts tend to be smaller, they might not cover the full cost of your home improvement project, especially if you go over-budget

Home equity lines of credit (HELOCs)

HELOCs are revolving credit lines that typically come with variable rates. Your monthly payment depends on the current rate and loan balance.

HELOCS are similar to credit cards. You can draw any amount, at any time, up to your limit. You’re allowed to pay it down or off at will.

HELOCs have two phases. During the draw period, you use the line of credit all you want, and your minimum payment may cover just the interest due. But eventually (usually after 10 years), the HELOC draw period ends, and your loan enters the repayment phase. At this point, you can no longer draw funds and the loan becomes fully amortized for its remaining years.

Pros:        

• Borrow as much or as little as you need — when you need it
• Low monthly payments during the draw period
• Low closing costs

Cons:

• Variable interest rates rise in tandem with the Federal Reserve’s prime rate
• Monthly payments can skyrocket once the repayment phase begins — i.e., once you begin repaying both principle and interest on the loan

Related: More about home equity loans

Personal loans and lines of credit

There are two basic types of personal loans and lines of credit — those secured with collateral, such as your home or an automobile, and those unsecured by assets (in which case, lenders take a much harder look at your credit score, employment history and income).

Only homeowners with little or no equity have a good reason to opt for these loans, so we’ll focus on the unsecured type.

Personal Loans

You don’t put up collateral for an unsecured personal loan, so you don’t risk losing your home or car in the event of default. Otherwise, the main advantages are the relative speed and simplicity of the application and approval processes when compared with mortgage refinances, home equity loans, and HELOCs.

On the other hand, the rates for personal loans are often higher than cash-out refinances and home equity loans, and the loan amounts are usually capped at $100,000.

Pros:

• No home equity required
• No appraisal required (great if your home is in disrepair)
• Application process is faster and simpler than for other renovation financing

Cons:

• Higher interest rates, especially for those with lower credit scores
• Loan limits are up to $100,000, so may not cover all projects

Personal Lines of Credit

These are revolving lines of credit that allow you to borrow what you need, when you need it, up to the credit limit. Essentially, they function like credit cards, but without the plastic (unless they’re linked to a debit card).

Although they offer more flexibility than personal loans, personal credit lines have the same drawbacks as personal loans — and then some.

Almost all credit lines have variable interest rates, and if the rate is raised, it can be applied to your existing balance — something credit card companies are not allowed to do. So be sure to check the lender’s offer to see how often, and by how much, it can raise your rate. If you’re not careful, a once-affordable loan balance could become hard to repay.

Credit Cards

As of October 2017, credit cards have an average APR of 16.7%, with some charging up to 22.99% on purchase balances. Assuming you don’t pay the entire balance within 30 days, credit cards can be one of the costliest home renovation financing methods.

In general, there’s only one credit-card-financing scenario that makes sense, and only for smaller home renovation projects. Get a new card with an introductory zero-percent APR (the intro period is typically 12 months), use the card to pay for the improvements, and repay the entire balance before the interest rate kicks in.

Pros:        

• Near-instant access to cash
• Speedy and simple application process (for a new card)
• Interest-free loan if you find a card with an introductory offer and pay off the balance within a certain timeframe

Cons:

• High-interest rates (especially for cash advances)
• Low minimum monthly payments can encourage overspending
• Loans are typically limited to four-figure sums.

Government-backed loan programs

The 203k FHA rehab loan

These loans can be ideal for buyers who’ve found a house with “good bones” and good location, but one that needs major-league TLC.

A 203k loan allows you to borrow money, using only one loan, for both the home purchase (or refinance) and home improvements.

Most homeowners don’t know that the 203k loan can also be used to refinance and raise cash for home improvements.

The new loan amount can be up to 97.75% of the after-improved value of the home.

For instance, your home is worth $200,000 as-is. Improvements will add $30,000 to the value.

Your refinance loan amount is not limited to your current value. Rather, you could get a loan up to $224,825 (97.75% of future value).

Use the difference between your existing balance and new loan amount for home improvements (after you pay for closing costs and certain 203k fees).

If you’re in the market to buy a fixer, a 203k can help you purchase and repair a home with one loan.

Without a 203k, you would have to find a private home purchase and home improvement loan that would look more like a business loan than a mortgage. They come with high interest rates, short repayment terms and a balloon payment.

203k loans, rather, are designed to encourage buyers to rehabilitate deteriorated housing and get it off the market.

Because 203k loans are guaranteed by the FHA, it’s easier to get approved, even with a credit score as low as 580. And the minimum down payment is just 3.5 percent.

But these relaxed financial standards are offset by strict guidelines for the property. The house must be a primary residence and the renovations can’t include anything the FHA defines as a “luxury.” A list of improvements that borrowers may make can be found here.

Fannie Mae offers similar home purchase and renovation loans — the Fannie Mae HomeStyle® program — with relaxed home improvement guidelines, but stricter down payment and credit score criteria.

Because of the paperwork involved, and the requirement that you use only licensed contractors, these loans aren’t for people who want to beautify a property themselves. They are best for “hardcore” rehabilitation work.

Pros:        

• May be your most affordable option
• No home equity needed
• People with poor credit may still qualify

Cons:

• Not available to investors (forget about “flipping”)
• A lot of paperwork must be filled out by you and your contractors
• The process is time-consuming
• Aside from your planned improvements, the FHA might require you to perform additional work to meet all building codes, as well as health & safety requirements

FHA Title 1 loans

These loans are similar to the others backed by the FHA. In this case, the FHA guarantees loans made to existing homeowners who want to make home improvements, repairs or alterations.

With a Title 1 loan, you can borrow up to $25,000 for a single-family home. For multi-family properties, you can receive as much as $12,000 per living unit, for a maximum of five units (or $60,000). Loans above $7,500 must be secured by a mortgage or deed of trust.

Pros:        

• No home equity needed
• People with poor credit may still qualify

Cons:

• Maximum loan is relatively small

State and Local Loan Programs. In addition to loan programs run by the federal government, there are thousands of programs operated by the 50 states, as well as counties and municipalities. For example, the state of Connecticut currently lists 11 programs that assist homeowners with everything from financing the purchase of a home in need of repair to helping improve the energy efficiency of their houses.

Each municipality offers different programs with different terms. A quick internet search is all it takes to find such a program.

Alternative lending options

Contractor financing

Yes, your home improvement loan could be as close as the guy sitting on the backhoe in your driveway.

According to a 2016 Consumer Reports survey, 42% of general contractors provide financing options to customers. Other contractors may help you secure a loan from a third party by acting as middlemen.

The rates and terms offered by contractors vary widely, so be sure to get all the details. Then compare them with what’s on offer from banks, credit unions and online lenders.

You can also vet your contractor/lender by searching for online reviews posted by the company’s previous borrowers, as well as your state’s consumer affairs office and the Better Business Bureau. Some contractors are better at home renovation than financial services.

Peer-to-peer loans

Peer-to-Peer lending anonymously matches borrowers with lenders through online platforms such as LendingClub and Prosper. (The platforms make money by charging origination fees to the borrowers and taking a cut of the repayments made to lenders.)

For home improvement borrowers, peer-to-peer loans are personal loans that typically range from $1,000 to $40,000 and have terms of one to five years.

As for rates, personal loans facilitated by Prosper and Lending Club both start at 5.99%. From there, the sky is (almost) the limit, with Proper’s rates capped at 36% and Lending Club’s at 35.96%. Given these rates, peer-to-peer lending is not a good option for people with bad credit scores.

Assuming you qualify for a reasonable APR, P2P loans have a number of advantages. The application process is simple and lightning fast. The rates are fixed and, believe it or not, competitive with those offered by some credit cards and banks (for personal loans).

Also, because you remain anonymous to the lenders, you’ll never receive phone or email solicitations from them. Finally, there are no penalties for paying off the loans early.

Home improvement financing companies and rates

A wide array of financial services companies offer home improvement loans in the form of cash-out refinances, home equity loans, HELOCS, personal loans and personal lines of credit, including national and regional banks, online lenders and credit unions.

Below is a small sampling of lenders that offer personal loans and HELOCs. All rates and terms were as of the time of this writing and may change at any time.

Avant

Specializing in personal loans, this online platform provides access to loans from $2,000 to $35,000, with terms of two to five years. Applicants may qualify with credit scores as low as 580.

Current Rates:             9.95% — 35.99%

Fees:                            1.50% — 4.75%

LightStream

Compared with Avant, LightStream caters to personal loan applicants with excellent credit scores (660 or higher). But the stricter lending guidelines come with lower rates and no fees.

Current Rates:             2.29% — 17.49% (with autopay)

Fees:                            None

Bank of America

One of the largest companies in the world, Bank of America has operations in all 50 states, the District of Columbia and 40 other countries. So there’s a fair chance that you’ll find a branch not far from you. For a HELOC, the bank is currently offering a 12-month introductory rate of 2.990%. The rate rises to 4.430% after the introductory period.

Wells Fargo

The world’s second-largest bank by market capitalization, Wells Fargo is also the leading mortgage lender in the U.S. In 2016, the bank issued $249 billion in residential mortgages for a market share of 13%.

For a HELOC, Wells Fargo offers rates from 4.25% to 9%. The bank also has fixed rates for HELOCS, and recently instituted rate caps. It promises that the variable rate on HELOCs will never increase more than 2% annually and that the total rate increase will be limited to 7%.

Credit unions

Credit unions are member-owned financial cooperatives designed to promote thrift. Often, their loans have some of the most competitive rates and terms available. For example:

First Florida Credit Union offers 20-year HELOCs for rates as low as 4.25%. For a similar HELOC, Affinity Plus Federal Credit Union, which serves Minnesota residents, currently advertises rates as low as 4.5%.

Cash Out, home equity loan or personal loan?

To choose the type of loan that’s best for your home improvement needs, do a basic costs-benefits analysis after asking yourself these questions:

• How much money do I need?
• How much home equity do I have?
• Can I get a better rate and/or loan terms?
• Do I have good or bad credit?
• How fast do I need the cash?
• How much hassle am I willing to endure?

If you’re a homeowner with plenty of equity but a high rate on the first mortgage, a cash-out refinance could be a great option. You might be able to finance your home renovation and lower your rate.

However, if you have very little equity or your mortgage is underwater, you may have no choice but to get a personal loan or line of credit.

Alternatively, you could apply for a no-equity-needed FHA Title 1 loan — or the FHA 203K loan if you’re buying or refinancing a fixer-upper. Keep in mind, though, that the Title 1 loan is capped at just $25,000 for single-family homes. And the 203k requires lots of paperwork and processing time.

If you have sufficient equity, and you’re happy with your current mortgage rate, it’s probably best to apply for a home equity loan or a HELOC. No use in messing with your current mortgage rate if it’s already very low. Just add a HELOC on top of it instead.

Already buying or refinancing, but want to tack on the money needed for renovations. Choose the FHA 203k or Fannie Mae Homestyle loans. Or, if you’re a veteran looking to make your house more energy efficient, look into the VA Energy Efficient mortgage.

If you have bad credit, you still have options, but not as many options as those with good credit. A government-backed refinance may be your best bet. Otherwise, you’ll have to hope that you qualify for a personal loan with a reasonable rate (or can pay the loan back quickly).

The lower your credit score (assuming little or no home equity), the higher the odds that you’ll have to make trade-offs when it comes to home improvement financing. For example, you might need to accept a smaller loan in exchange for a lower rate, or put up collateral (such as a car) to obtain a larger loan at a reasonable rate.

The best way to finance home improvements

When it comes to any loan, the number one rule is always shop around!

Although it’s not a bad idea to start with a quote from the bank that issued your first mortgage, don’t stop there. Research current interest rates and terms, as well as closing costs and the other fees associated with different loans.

Don’t limit your research to interest rates. Otherwise, you might end up comparing apples to oranges.

Just because a lender has the lowest rate on (say) a cash-out refinance doesn’t mean it is offering the least-expensive option. It’s not uncommon for lenders offering low rates to tack on higher closing costs and other fees than the competition. In you’re not careful, you could pay more for a loan with the “lowest” rate.

Depending on the type of loan for which you’re applying, you should also:

• Make sure the loan doesn’t include a balloon payment — a lump sum that is due before the loan is paid off.
• Check the terms of the draw and repayment periods (for HELOCs). How much time do you have to withdraw money before the loan becomes fully amortizing? By how much will monthly payments increase once the draw period ends?
• Check rate variability. If the Federal Reserve hikes interest rates by x percentage points, how would that impact your ability to make the monthly payments? A 0.25% Fed rate hike raises your interest-only payment by $5 per month per $25,000 borrowed. Is there an option to convert the loan to a fixed rate?
• Be sure to borrow enough. Home improvement projects, especially big ones, are notorious for cost overruns. Therefore, you may want borrow more than you think you need to give yourself some “wiggle room.” Few things are worse than having to stop work midway through a home renovation project because the money dried up.
• Check your credit score before applying for a loan. Lenders always charge higher rates to people with lower credit scores.

If you’d rather spend eternity on a hamster wheel than do the legwork needed to locate the right loan, consider an online service such as LendingTree.

Despite its name, LendingTree is not a lender. It’s a loan facilitator. After filling out an application on its site, the company uses a computer algorithm to match you with different lenders in its network. So instead of pounding the pavement and surfing the web to find a lender with the best offering, lenders contact you with their quotes.

It’s one of the fastest, most convenient ways to comparison shop.

Based on a sampling of customer reviews, however, it’s obvious that LendingTree is a service that people either love or hate.

While some customers praised the company’s customer service and the speed with which they received multiple offers, others complained that they were deluged with calls from lenders — calls that just wouldn’t stop.

Alternatively, you can shop for a home improvement loan on this website. We can put you in touch with a lender that offers any kind of cash-out loan or 203k loan. They may even have a source for personal loans and home equity loans and lines of credit.

Best and worst home improvement projects

Before you consider home renovation financing, consider your long-term goals for the home improvement project you have in mind.

Are you undertaking the work for yourself — e.g., because you’re a “master chef” who’s always needed a ginormous kitchen island? Or do you simply want to increase the home’s resale value when you put it on the market in six months?

You’ve probably heard that certain improvements can increase the resale value of a home.

True.

What you may not have heard is that you will almost never recapture 100% of the money you invest in a remodeling project. Spending $50,000 to install a backyard patio doesn’t mean that you’ll receive an extra $50,000 when you sell the house.

In fact, according to Remodeling’s 2017 Cost vs. Value Report, the only type of home improvement that returns more than the original investment is installing fiberglass insulation in the attic. The average return on investment (ROI) for this improvement is 107.7%.

Home improvement projects with the best average ROIs nationwide include: entry door (steel) replacement (90.7%); manufactured stone veneer (89.4%); minor kitchen remodeling (80.4%); garage door replacement (85%); and siding replacement (76.4%).

Some of the worst home improvement projects in terms of average ROI include a bathroom addition (53.9%); installing a backyard patio (54%); major and minor bathroom remodeling (59.1% and 64.8% respectively); and major kitchen remodeling (61.9%).

Based on these statistics, it seems that “less is more” when it comes to increasing your home’s value via home improvements.

So before you start tearing down walls, hoping to make a killing in the real estate market, do a little homework.

Many renovations do increase a property’s value. However, the vast majority of home improvements do not pay for themselves once the house is resold.

Apply for a home improvement loan

Ready to get started? Check out loan options, get quotes, and receive personalized rate quotes. In just minutes, you could be on your way to remodeling your home — finally.

The post Home Improvement Loans | Finance Your Remodel in 2024 first appeared on My Mortgage Insider.

(According to Europol, “Bitcoin [is] the currency of choice in criminal markets, and as payment for cyber-related extortion attempts.”)

In the past 12 months, however, the value of Bitcoin has skyrocketed – from $1,000 per Bitcoin in January 2017 to $18,708 on December 18.

Thanks to this meteoric rise, digital currency has become a sought-after investment for a growing number of mainstream financial institutions and everyday people.

It’s also fueling speculation that Bitcoin may soon be as widely accepted as the U.S. dollar for transactions like buying a home and paying a mortgage.

Is this speculation realistic or merely wishful thinking?

Can you buy a house today with Bitcoin?

Can you use it to pay a mortgage?

It’s been done

In fact, Bitcoin has already been used to purchase properties in California, Texas and Manhattan.

In 2014, a buyer used 2,739 Bitcoins to buy a $1.6 million home site in Lake Tahoe.

In 2017, a single-family home in Austin, Texas was purchased with Bitcoin. (The buyer used Bitcoin, but the seller had it converted to dollars during the transaction.)

In September 2017, British entrepreneurs Michelle Mone and Doug Barrowman unveiled a Bitcoin-priced real estate development in Dubai.

The Aston Plaza and Residences includes 2.4 million square feet divided between two, 40-story residential towers.

Initially, studio apartments were selling for as little as 30 Bitcoins, which then equaled $133,918. Four months later, with the value of 30 Bitcoins having risen to $560,000+, the price of most studios had been adjusted to around 7 Bitcoins.

Should you use Bitcoin to buy a house?

So the answer to the question, “Can I buy a house with Bitcoin?” is yes – as long as you can find a seller willing to accept the digital currency.

You can also buy a house with gold, stocks or Beanie Babies if a seller is willing to accept them.

(To date, most sellers have not technically “accepted” Bitcoin. Though some buyers have paid in Bitcoin, the sellers immediately exchanged them for U.S. Dollars.)

But a better question might be, “Should I buy a house with Bitcoin?”

For now, the answer is: “Probably not.”

First, because Bitcoin is not “printed,” distributed or controlled by a central authority, its value tends to fluctuate wildly. That makes it difficult for the parties to a transaction to set prices in advance.

Second, Bitcoin transactions are essentially cash transactions.

If you mistakenly send someone 10 Bitcoins – or your hard drive crashes or your software is infected by a virus – you’ve probably lost those 10 Bitcoins forever.

You can’t dispute the transaction with your bank or credit card company. It’s like losing a stack of hundred-dollar bills on the street.

Finally, Bitcoin (and the other 900+ virtual currencies) are not widely accepted.

Check your mortgage rates. Start here (Sep 16th, 2024)

Mortgage lenders don’t accept Bitcoin

You may be able to make a down payment or purchase a house outright with Bitcoin, but you can’t use it to pay the mortgage.

U.S. mortgage lenders and servicers accept payment only in dollars. That may change someday, but right now, there’s no incentive for them to accept Bitcoin.

The value is volatile and the cost of converting Bitcoins to dollars would add another expense to the mortgage process.

(For these same reasons, you also can’t make mortgage payments in gold or Van Gogh paintings.)

You might find third parties willing to help you pay your mortgage with Bitcoin, but it appears these companies are merely converting Bitcoins to dollars before paying the lender.

In that case, it would probably cost more to pay a mortgage with Bitcoin than with dollars.

A tax problem

There’s one more issue with using Bitcoin to buy a house. The Internal Revenue Service (IRS) does not recognize Bitcoin as a real “currency.”

According to IRS Notice 2014-21, “Virtual currency is treated as property for U.S. federal tax purposes.”

Instead, the IRS treats Bitcoin as an asset – like gold, stocks or bonds.

If you sell Bitcoins to buy a house, profits from the sale will be subject to either the short-term or long-term capital gains tax.

If the Bitcoins were held longer than 12 months, a 15% tax rate will apply. If they were held for less than 12 months, the rate could be as high as 20%.

So using Bitcoin to buy a home could cost you much more than using dollars.

The only exception would be if the seller treated Bitcoin as a real currency, and never asked you to convert it to dollars.

Unless/until Bitcoin is widely recognized as a legitimate “currency,” it’s unlikely to become a popular way to pay for real estate.

Some of the very features that make Bitcoin attractive to computer geeks and cybercriminals – limited supply, no central authority to control distribution and influence its value – make it an unattractive payment method for home purchases.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Can You Use Bitcoin For a Downpayment on a House? first appeared on My Mortgage Insider.

It doesn’t have to be that way.

With the right financing, an in-ground pool may be more affordable than you think, while also bringing years of enjoyment and adding to your home’s value.

There are four good options to finance a swimming pool:

• Home equity loans (HEL)
• Home equity lines of credit (HELOC)
• Cash-out refinance mortgages
• Personal loans

Check your pool financing options here (Sep 16th, 2024)

How much pool can you afford?

Pool prices have surged over the past year because of supply and labor shortages. According to HomeAdvisor.com, the average cost of a pool installation is about $34,000.

Above-ground pools cost a lot less — up to $5,000 or so — while in-ground pools could cost anywhere from $20,000 to $100,000.

In-ground pools tend to add more home value than above-ground pools because they’re generally considered more aesthetically pleasing.

How much you’ll spend also depends on the pool’s size and shape, the construction materials (concrete, fiberglass, or vinyl), the installation costs, and any “extras” like a hot tub, slide, or a diving board.

Also, keep in mind that many homeowner’s insurance policies and local laws require fencing around pools to protect children and pets from falling in.

In-ground pool installation & construction cost breakdown

Source: HomeAdvisor.com’s True Cost Guide

You’ll also need to factor in ongoing maintenance as well as the increased utility costs, which can range between $500 to $4,000 per year depending on what type of pool you get.

Over a 10-year period, those costs can range from around $5,000 up to over $40,000.

Step-by-step guide to financing a pool

Before we get into the details of pool financing, here’s a brief step-by-step overview.

Financing a pool works a lot like financing any other home improvement project.

• Step 1 — Work on your credit score: Borrowers with excellent credit can borrow more at lower rates. Check your credit score and improve it by making on-time payments on your debts and paying down balances. Disputing errors in your credit history can increase your score.
• Step 2 — Plan the project: How much room do you have on your lot for a pool? What kind of pool do you want? Find some good pool companies to help answer these questions.
• Step 3 — Estimate the cost of the project: In-ground pools cost a lot more than above-ground pools. Extras like diving boards, slides, and heaters will add to the cost. A pool house could double the cost.
• Step 4 — Decide which type of financing to use: Unsecured personal loans are fast and convenient. But second mortgages cost less in the long run. Banks, credit unions, and online lenders usually offer most types of financing.
• Step 5 — Apply for the loan: Shop around with at least three different lenders for your loan type’s best rates. Understand your loan’s repayment terms before moving forward.

Once you have financing, you’ll be ready to start the project.

But first: Step 4 needs some more exploration. What is the best type of financing for a pool?

Check your eligibility for pool financing here (Sep 16th, 2024)

Best way to finance a pool: Unsecured or secured?

How much you can spend on a pool and its installation will depend a lot on how you finance the project.

Pool stores and some banks offer “pool loans” which are really just unsecured personal loans. Since they’re not secured by property, these loans charge higher interest rates than secured loans like mortgages.

Depending on your credit history, a pool loan rate may be in the double digits.

Still, compared to getting a loan that’s secured by your home value, a pool loan can close a lot faster and costs less upfront. You could get the funds within a week instead of several weeks.

Plus, you wouldn’t have to tie up any home equity. The equity would be there later if you needed it to back a debt consolidation or home improvement loan.

Unsecured pool loans have their advantages. But if you’re interested in getting the best interest rate and saving thousands of dollars in finance charges, a secured loan will be the way to go.

How interest rates affect swimming pool financing

Shoppers tend to compare pool costs — such as materials, construction, and maintenance — without paying much attention to finance charges.

But, if you’re on a fixed budget, finance charges will impact all your other decisions about materials and construction.

Let’s say you have room in your monthly budget for a pool payment of $500. You decide to spread the repayment across a loan term of 15 years:

• At 6% interest: You could borrow about $60,000
• At 8% interest: You could borrow about $52,000
• At 10% interest: You could borrow about $46,000
• At 12% interest: You could borrow about $42,000

All of these loans would require monthly payments of about $500 a month, but your pool buying budget would be a lot bigger at 6% interest compared to 12% interest.

Secured loans provide the best way to get interest rates on the lower end of this scale.

Secured financing for swimming pools

When you use a mortgage product to finance a pool, you’re leveraging the value of your home to get a lower interest rate.

There are three ways to use the value of your home to get more affordable pool financing:

• Home equity loans: These work like personal loans. They have fixed rates and fixed monthly payments. But since they’re secured by your home equity, you can get a much lower rate. These loans are ideal for big home improvement projects, including installing a pool.
• Home equity lines of credit (HELOC): A HELOC works more like a credit card but with a much lower rate since your home equity guarantees the credit line. You could withdraw and repay money from the line of credit as needed. HELOCs work well for projects you’ll complete in phases.
• Cash-out refinance: A cash-out refinance would pay off your current mortgage while also adding in more money to pay for the pool. You’d end up with one loan that combines both the pool and your existing mortgage debt.

Each loan type has its own pros and cons, and the best choice will depend on your situation. We’ll explore each option more below.

Whatever you decide, avoid financing your swimming pool with credit cards, which carry significantly higher interest rates.

Home equity loans

Also known as a “second mortgage,” a home equity loan pays a lump sum at a fixed interest rate, which you typically have to repay in 10 to 15 years.

The lender may charge closing costs, but they should be lower than the first mortgage loan costs. Some lenders don’t charge closing costs in exchange for a higher interest rate.

The interest may be tax deductible. (According to the new IRS rules, if the loan is used to “buy, build or substantially improve the taxpayer’s home that secures the loan,” then the interest can be deducted. Consult with a tax professional to confirm.)

The downside of a home equity loan is that you have to borrow — and pay interest on — the entire lump sum instead of borrowing smaller, incremental sums as needed.

For that, you’ll want a home equity line of credit.

Home equity loan pros and cons

Pros:

• Fixed interest rate and payment
• Average-to-good credit OK
• Lower rates than personal loans
• Low closing costs

Cons:

• Requires a new lien on your house
• Ties up home equity
• Slower closing times than personal loans

Home equity lines of credit (HELOCs)

A home equity line of credit (HELOC) is a revolving line of credit that lets you borrow against your home value. It works like a secured credit card, but instead of depositing money into a bank account for use as collateral, the lender uses your home as collateral.

The lender uses your home’s appraised value (minus what you still owe on the mortgage) as well as other factors like your credit history, debt, and income to determine your credit limit.

Once you’re approved for a HELOC, you’ll receive a set of blank checks or a credit card to use for withdrawing funds. You can withdraw only the money you need — as you need it — to pay for the excavation, pool, fence, installation, and extras.

This lets you avoid paying interest on money you haven’t spent yet. Monthly payments will be based on what you’ve withdrawn so far.

HELOCs usually have variable interest rates, though some lenders will convert HELOCs to a fixed rate for all or part of the balance. At some point, usually within 10 years, a HELOC will automatically convert to an installment loan, and you won’t be able to draw money after that.

Banks and credit unions usually offer HELOCs, but many online mortgage lenders don’t.

HELOC pros and cons

Pros:

• Borrow and repay funds as needed
• Low closing costs
• Competitive interest rate
• Average credit or good credit is usually OK

Cons:

• Variable mortgage rates
• Ties up home equity
• Places a new lien on your house
• Slower closing times than personal loans

Cash-out refinancing

A cash-out refinance combines the cost of your new pool and your current mortgage debt into one, new loan amount.

For example, if you need $50,000 for a pool, but still owe $100,000 on your house, you can refinance the mortgage for $150,000 and use the extra $50,000 to cover the pool costs.

You’ll end up with one monthly payment instead of two.

If you can improve your current mortgage by getting a lower rate or changing the loan’s term, a cash-out refi can do that while also rolling in the cost of a new swimming pool.

But if you’re happy with your current mortgage because of its low rate, or because it’s almost paid off, this loan option isn’t for you. Instead, keep your current mortgage and use a second mortgage or a HELOC as a separate swimming pool loan.

The application process for a cash-out refinance is almost exactly like getting a primary mortgage. The loan will require a full set of closing costs. The amount of cash back you can get will depend on the value of your home, your monthly debts, and your credit score.

Like the home equity loan and the HELOC, the interest paid on a cash-back refinance may be tax deductible for home improvements.

Cash-out refi pros and cons

Pros:

• Combines house and pool costs into one loan
• Can lower the interest rate on all mortgage debt
• A chance to change current loan term

Cons:

• Not ideal if you already have a good mortgage rate
• Not ideal if home is almost paid off
• Full loan closing costs required
• Could take up to weeks to get funds

Check your eligibility for a cash-out refinance (Sep 16th, 2024)

Unsecured personal loans or “pool loans”

Another way to finance a new pool is through an unsecured personal loan, also known as a pool loan. Pool stores may offer this kind of financing, and they may even advertise zero interest for the first few years.

But, eventually, most personal loans cost more than secured financing. Over time, their higher finance charges add more and more to the cost of the loan.

Unsecured personal loans have to charge higher interest rates because lenders would have no way of recovering their losses if you failed to make payments. With a mortgage loan, the lender could foreclose and sell your home.

But these pool loans also have their advantages:

Pool loan pros and cons

Pros:

• Won’t tie up home equity
• Won’t place a new lien on your house
• Fast closing times
• Low closing costs

Cons:

• Even the best rates are higher than most mortgage rates
• Need excellent credit to get the best rates

Should you finance a pool?

Most Americans have $5,000 or less in savings, according to a study conducted by the Federal Reserve.

That’s not enough to cover an in-ground swimming pool. Financing may be the only way for most Americans to add a pool to their homes.

But is it smart to go into debt for a pool, even if you can get the lowest interest rate?

Like a lot of personal finance questions, this one depends on your unique preferences and needs.

A pool can enhance the value of your home — by about 7% on average, according to the National Association of Realtors. A big home improvement project like updating an old kitchen or adding an extra bathroom could have a bigger impact.

Ultimately, the question is this: Will the new pool add enough to your quality of life to justify the ongoing debt? The financing staff at the pool company will say yes. But only you can answer that question for you.

Additional pool costs to consider

The pool, the installation, the landscaping — you’ll pay these costs one time. Other pool costs must be paid regularly.

Maintenance costs reach at least $500 a year and could reach as high as $4,000 a year, according to HomeAdvisor. Costs include chemicals, filters, and utility bills for heating, lights, and pumps.

Simpler pools — unheated pools, saltwater pools, smaller pools, for example — need less maintenance.

Be sure to consider ongoing maintenance costs in your financial plans. A poorly maintained or closed pool could hurt the value of your home.

Keep in mind your homeowner’s insurance premiums will also increase when you have a pool.

Best way to finance a pool FAQs

What type of loan is best for a pool?

The best pool loans charge the lowest interest rates, the lowest upfront fees, and provide enough money for the project along with a contingency if the project runs over budget. Home equity loans can check all these boxes for many borrowers. Be sure to compare the upfront and ongoing costs of any type of financing you’re considering.

What is the typical financing for a pool?

Home equity loans and lines of credit work well for homeowners who have enough home equity to cover pool costs. Homeowners without enough equity may need to consider an unsecured personal loan, also known as a pool loan.

Is it hard to get financing for a pool?

No. Borrowers have several options for swimming pool financing. Homeowners with good credit, and enough equity to back the loan, can use home equity loans or home equity lines of credit to pay for pool costs. Homeowners without enough equity could use unsecured personal loans. Borrowers with bad credit should strengthen their credit file before applying.

What is a pool loan?

A pool loan is an unsecured personal loan used to pay for a new pool and its installation. Since the loan is unsecured, the borrower does not post collateral. Posting no collateral has advantages: the lender can’t repossess the pool or your home, for example. But it also has a big disadvantage: Without collateral, the lender charges higher interest rates.

Can you add a pool to your mortgage?

Yes. A cash-out refinance can combine new pool costs with your existing home buying costs. You’d get one, new mortgage loan that’s large enough to combine your existing mortgage debt with the overall cost of a new pool.

What are today’s rates on swimming pool loans?

Home values have increased over the past few years, and a higher home value means more home equity.

If you’ve been thinking about adding a swimming pool to your property, your home equity can make borrowing money for the project more affordable.

How do you get started? WIth a mortgage preapproval. It can show your borrowing power. It’ll also estimate your interest rate and other borrowing costs.

Check your pool financing options here (Sep 16th, 2024)

The post The Best Ways to Finance a Pool first appeared on My Mortgage Insider.

But is paying off your auto loan with a cash-out mortgage a smart money move? As with most personal finance matters, the answer is: it depends.

Check today's rates here and apply for a conventional refinance (Sep 16th, 2024)

What to consider

If the decision were based solely on comparing the average interest rates for car loans with those of new mortgages, the answer (for most people) would be no.

But there’s more to good money management than interest rate comparisons.

Factors that should be considered include current and future cash-flow needs, the amortization schedules and tax deductibility of your loans, asset depreciation and your credit score.

In some cases, it might be wise to consolidate your consumer debt (including auto loans) with a cash-out refinance, even if you’re unable to lower the interest rate.

Click here for today's refinance rates (Sep 16th, 2024)

Auto loan Rates vs mortgage rates

A cash-out refinance involves taking out a new mortgage for more than your outstanding balance. You then pocket the difference between the new and old loans.

If you recently took out an auto loan, it’s likely that the interest rate is identical, or even slightly lower, than the rate for a cash-out mortgage.

In 2016, the average rate for new vehicles was in the low four percent range, and for used cars, the high four percent range.

At the moment, the average rate for a conventional 15-year fixed mortgage is just about four percent, and it’s around 4.5 percent for a 30-year fixed mortgage.

Even if auto loan rates climb to 4.5 percent (new cars) and 5.2 percent (used) this year, which some experts are predicting, it’s unlikely you’ll save money by paying off a car loan with a cash-out refi, especially when you factor in the closing costs associated with new mortgages.

For cash-out mortgages, closing costs typically range from three to six percent of the loan.

Keep in mind, too, that while most houses rise in value, the value of automobiles always depreciates – usually quite fast.

So if you obtain a new 15- or 30-year mortgage to eliminate the car loan, you’re financing a depreciating asset by taking out equity from an appreciating asset.

Click here for today's mortgage rates (Sep 16th, 2024)

When paying off a car loan with a cash-out refi makes sense

If your car loan is relatively new, chances are that most of the monthly payments made in the first year or two are going to go toward interest, and not toward the principal.

In that case, getting a cash-out refi to pay off the loan could save you hundreds of dollars in interest charges, assuming there’s no prepayment penalty.

Another argument in favor of getting a cash-out refinance is that, unlike car loans (and almost every other form of consumer debt), mortgages are tax deductible.

By reducing your taxable income and landing a bigger tax refund, you could potentially save thousands of dollars a year.

To determine whether you’ll come out ahead by using a cash-out mortgage to eliminate your auto loan(s), contact your current lender to obtain an amortization schedule, or go online and look for an amortization calculator.

With this tool, you can figure any financial benefits you’ll receive by eliminating the auto loan with a cash-out refinance.

If math and money management isn’t one of your personal strengths, consult with a financial planner or an accountant instead.

Paying off credit cards is a “no-brainer”

Deciding what to do about an auto loan can involve numerous calculations and some close judgment calls, but that’s rarely the case when it comes to using cash-out refinances to consolidate other types of consumer debt, especially credit card debt.

Swapping credit card debt for a new mortgage is often a “no-brainer.”

The average credit card today carries an interest rate ranging from 10-20%, plus cash-advance fees and “penalty rates” for late-payers or people with lower credit. By consolidating this debt with cash from a new mortgage, you can reduce your interest rate to just four or five percent.

In addition, you’ll enjoy more cash-flow flexibility. With consumer debt, there could be frequent changes to interest rates, minimum payments, and terms, making it difficult to know exactly how much you’ll owe from month to month.

By contrast, a fixed-rate mortgage bundles everything into a predictable monthly payment.

Paying off credit cards with a cash-out refinance can also improve your credit score by reducing your credit utilization ratio (the amount of available credit you’re using).

The danger with debt consolidation, of course, is when someone refinances their mortgage to eliminate consumer debts, and then turns around and racks up new debts.

If you do this, and then you need or want to buy a new home, you could end up with no equity in your existing house, or possibly something worse.

If deficit financing has become a way of life, debt consolidation with a cash-out mortgage is not the solution.

Before you apply for a cash-out mortgage, make sure you’ll receive at least one of the following three benefits: a shorter loan term, lower monthly payments, and lower costs over the term of the loan.

Click here for today's mortgage rates (Sep 16th, 2024)

The post Should You Pay Off a Car Loan With a Cash-Out Mortgage? first appeared on My Mortgage Insider.

Announced on January 9, the rates would have been trimmed 25 basis points (lowering the fees from 0.85% to 0.60%) for FHA-backed loans closing on or after January 27.

The fee cut has not been canceled – merely suspended pending a review by the new administration. It’s possible that the cuts could be reinstated, or that larger cuts could be made.

If you’re a current or prospective FHA home buyer, does it make sense to wait and see what happens?

Probably not.

With housing inventories at historic lows, home prices rising, and the FHA’s fees already lower than they’ve been for years, postponing your purchase could be a costly mistake.

Check your FHA eligibility. Start here (Sep 16th, 2024)

What’s at stake?

Had the rate cuts remained in place, the Department of Housing and Urban Development (HUD) estimated that the average FHA homeowner would have saved $500 in 2017.

In regions where housing costs are above the national average, savings would have been greater.

While urging the Trump administration to restore the fee reduction, California Association of Realtors (CAR) President Geoff McIntosh said that “Home buyers in California … would have saved an average of $860 a year, [and] will be negatively impacted more than any other state by the decision to not reduce the FHA premium.”

National Association of Realtors (NAR) President William Brown estimated that the reduction would have lowered payments for over 750,000 new homeowners, and would have allowed an additional nearly 50,000 home buyers to qualify for loans.

Despite pleas from realtor groups, HUD officials said the rate cut would remain suspended indefinitely pending “more analysis and research…”

About FHA mortgage premiums

The FHA, which is part of HUD, doesn’t issue mortgages itself. Instead, it insures the mortgages issued by private lenders against default.

The program is popular among first-time home buyers and those with lower incomes because they can qualify for mortgages with a downpayment as low as 3.5% and a credit score of just 580.

However, to ensure that the FHA has enough funding to compensate private lenders for defaults, FHA-approved home buyers must purchase two types of insurance, regardless of the size of their down payments: Upfront Mortgage Insurance and Annual Mortgage Insurance.

The Upfront Mortgage Insurance Premium (UFMIP) is currently calculated at 1.75% of the base loan amount.

In theory, the home buyer must pay the entire UFMIP as a lump sum when the loan is made.

In reality, mortgage lenders usually fold the UFMIP into the loan. This makes the loan amount slightly larger, but it allows the home buyer the financial flexibility to gradually pay it off.

The Annual Mortgage Insurance Premium (AMIP) – the subject the HUD’s interest – is paid in monthly installments each year and is tacked on to the monthly mortgage payment.

At 0.85%, a $400,000 home with a 30-year fixed mortgage has a monthly premium of $283.33. If the rate had been cut to .60%, that figure would have fallen to $200 a month (or $999.96 a year) for the same house.

Check your FHA eligibility. Start here (Sep 16th, 2024)

FHA fee: A victim of politics

For the most part, the changing FHA fee is due to partisan politics.

The cut was approved by the Obama administration in his last days in office, and it was seen as an unrealistic benefit by many Republicans. The lowered payments for people means less security for the FHA.

The fee reduction was mean to signalize a “normalization” of the housing market, and Democrats have decried the new administration’s removal of the fee reduction as an assault on lower-income homeowners.

But Republicans worry that the FHA lacks sufficient cash reserves. Valid arguments can be made for both points of view.

Unfortunately for home buyers, the decision to keep or remove the fee reduction could mean the difference between home buying eligibility and not getting approved.

Those who were planning on purchasing a home through FHA should recognize that while the fee reduction was suspended, current fees are still what they have been for the past few years.

The cuts may come back

Although the administration has suspended the cuts “indefinitely,” there’s reason to believe they will be reinstated.

For one thing, the program has enjoyed lower default rates in recent years, and has met or exceeded the congressionally mandated cash reserve requirement since 2013.

For another, the Trump administration has already set about fulfilling many promises made to working-class supporters, and this is precisely the demographic that will benefit most from reinstatement of the fee reduction.

President Trump himself complained in a tweet that the U.S. homeownership rate was at a 51-year low of 62.9%. (Not since 1965 has a smaller portion of Americans owned a home.)

There’s perhaps no better way to reinvigorate the homeownership rate than making FHA lending more affordable and more widely available to working-class home buyers.

For these reasons alone, it’s entirely possible that the cuts will be restored or even deepened.

Until that happens, home buyers shouldn’t assume that any fees will be changed.

Check your FHA eligibility. Start here (Sep 16th, 2024)

The post Trump Administration Suspends FHA Fee Cut first appeared on My Mortgage Insider.

By using a mortgage broker, you are (in theory) partnering with a well-connected pro who will serve as your comparison shopper and negotiator-in-chief — someone whose job is getting you the best deal and steering you through the loan process from start to finish.

The downside, of course, is that mortgage brokers don’t work for free, so hiring a broker adds another expense to the usual costs of buying a house.

Are the services of a mortgage broker worth the cost?

Check to see today’s rates.

How Brokers Are Paid

Ideally, a broker will save you enough money on interest rates and other transaction fees to more than offset what he or she charges you.

In most cases, you (the home buyer) will pay the broker’s fee (typically 1% to 2% of the loan amount), either upfront or after incorporating it into the mortgage loan.

As a result of the Dodd-Frank Act, mortgage brokers cannot: charge hidden fees; tie their pay to the loan’s interest rate; receive kickbacks for steering you to an affiliated company (e.g., a title company or a home inspector); receive payment from both you and the lender.

The Pros Of Using A Mortgage Broker

Brokers are usually not paid unless the deal closes, so they have a big incentive to find a mortgage with rates and terms meet your needs and desires.

In addition, this means brokers are less likely to take “no” for an answer. For example, if a lender rejects your application, the broker will work hard to help you overcome the obstacles that are standing between you and an approved loan.

The other benefits of hiring a broker are mostly connected with saving – saving you time, frustration and money.

Because the typical broker works with a network of five to 10 mortgage lenders, they can quickly analyze a variety of mortgage products to find the most favorable rates, terms and closing costs.

In addition, brokers often know lenders that offer specialized mortgage programs – e.g., low or no downpayment programs, home renovation programs, etc. – as well as financial institutions that lend to home buyers with less-than-great credit scores.

Obviously, you could do all this legwork yourself, but that might involve dozens of phone calls and face-to-face meetings, not to mention mounds of paperwork – something the mortgage broker will do on your behalf.

A broker will fill out applications for you, negotiate with loan officers and, because they have existing relationships with a variety of lenders, they can also speed up the whole process.

At the very start, a broker will examine your income statements, credit reports, employment history, lists of assets, etc. to determine whether you can afford a mortgage and, if so, what types of rates and terms you’ll qualify for.

Although the broker may approach a number of different lenders, only one mortgage application will have to be completed – the one required by the lender you decide to use. If you approached five different lenders directly, you’d have to fill out five different applications yourself.

A broker should also answer any questions you may have about the process, and can explain the “legalese” featured in the mortgage and the other closing documents.

Click to check your mortgage eligibility.

The Cons Of Using A Mortgage Broker

Every profession has its share of “bad actors,” and the mortgage brokerage industry is no exception.

The fact that Congress felt the need to regulate the field via the Dodd-Frank Act suggests that some mortgage brokers have behaved unethically.

A common complaint is that some brokers are biased. In other words, they steer you to lenders with whom they have cozy relationships, even when the mortgage rates and terms aren’t the best available.

In some cases, unscrupulous brokers do this because it’s the lender that pays their fee (not you), so they have a perverse incentive to direct you to that company. To avoid this scenario, ask who is paying the broker, as well as how much the broker will be paid.

Also, keep in mind that because brokers are not lenders themselves, they aren’t always able to strike the best deals. Sometimes, you can get a better result by negotiating with a lender yourself.

This is because brokers aren’t the ultimate “deciders,” whereas mortgage loan officers may have the ability to waive certain fees, offer more favorable terms and reduce interest rates. Brokers have no direct power to, for example, offer a special deal or make an exception to a standard lending practice.

If you already have a good relationship with a particular bank or loan officer, you may able to negotiate a better deal than a mortgage broker could.

Finally, it may take a bit of time and effort to locate a mortgage broker near you. That’s because the number of licensed mortgage brokers plummeted during the last housing downturn – from about 25,000 in 2006 to just 5,000 in 2013.

On the other hand, if you do locate a broker in your area, he or she is more likely to be a consummate professional. Many of the “get-rich-quick” operators were driven out of business during the last recession.

Check to see today’s rates.

The post Are Mortgage Brokers The Best Friend a Home Buyer Can Hire? first appeared on My Mortgage Insider.

Homeownership comes with both economic and lifestyle benefits. In addition to certain tax advantages and the potential that your home will appreciate in value, you have the freedom to decorate, renovate and landscape to your heart’s content. You are the landlord.

There’s just one catch: affordability.

Unless you want to live on a ramen-noodle diet indefinitely, it’s very unwise to become a homeowner until you can afford to buy and maintain the property.

Fortunately, there are many financing options for first-time home buyers, including government-backed mortgages, down payment assistance programs and even grants.

You may be surprised at how affordable your first home could be.

Click to check your home buying eligibility.

The Sale Price is Only One of the Costs

A common rookie mistake is underestimating the total cost of home-buying and homeownership.

For this reason (and others), 39 million U.S. households can’t afford their current housing, according to a report from Harvard’s Joint Center for Housing Studies.

Although experts advise that you spend no more than 25% to 30% of your income on rent or mortgage payments, one-third of American households in 2015 spent 30% or more of their incomes on housing. Almost 19 million spent more than 50% of their income on housing.

Some of these “cost burdened” people are homeowners who didn’t realize until it was too late that buying a house involves a number of hidden costs.

In addition to the price of your new house, condo or co-op, you’ll also need to pay certain fees at the close of the transaction. These “closing costs” may include some or all of the following:

• Appraisal fee: A professional appraiser’s estimate of the home’s value.
• Survey fee: for verifying the property’s boundaries.
• Wire transfer fee: a charge for wiring your payment for the home.
• Underwriting and origination fees: charged by the mortgage lender for processing your loan application.
• Discount points: a percentage of the total loan, paid at the closing, to lower the interest rate on your mortgage.
• Credit report fee: a fee charged by the lender for obtaining your credit history and scores from the three credit bureaus – Experian, Equifax and TransUnion.
• Title insurance: a policy that protects you if the seller doesn’t have full deed and authority to the property.
• Recording fees: government fees for entering new property records.

For a $300,000 home, you can expect to pay $6,000 to $10,000 in closing costs.

And these are just the costs of buying the property.

Once the home is yours, you’ll also need to pay for utilities and property taxes, as well as homeowners and (possibly) hazard insurance. You may not need hazard insurance if you don’t live in an area prone to natural disasters – e.g., floods and earthquakes. However, homeowner’s insurance is a must, and it will cost you $500 to $2,000 a year.

If your down payment is less than 20% of the sale price, or you got a mortgage backed by the Federal Housing Administration (FHA) or U.S. Department of Agriculture (USDA), mortgage insurance will be another cost for you to bear. Mortgage insurance protects the lender in case the borrower defaults. The premiums are often included in the mortgage bill.

Remember those calls you used to make to the landlord when the refrigerator broke down or the heat was on the fritz? As a homeowner, repairs and routine maintenance are now your job.

This is something many first-time home buyers don’t consider – until the roof leaks or the AC dies. As a rule of thumb, set aside 1% of your home’s value every year for maintenance. (For a $250,000 home, that’s $2,500.)

If you buy a condominium or co-op, you’ll receive a monthly bill for maintenance fees. In high-priced urban areas, these fees can be almost as high as the mortgage payment.

Finally, if you buy a home in a neighborhood with a homeowner’s association (HOA), factor HOA fees into your cost calculations, as well.

Check today's mortgage rates.

Understanding Mortgages

According to the National Association of Realtors (NAR), about 10% of buyers purchase their homes with cash. The other 90% finance their home purchases with a mortgage.

Basically, a mortgage is a loan secured by real estate – e.g., the house that you purchase.

The word mortgage means “dead pledge” in Old French. Under early Anglo-Norman law, a borrower who obtained a mortgage pledged his property to the lender as security, and the lender took control of the property until the loan was repaid. Profits from the land were used to pay off the loan and/or collected as interest.

By the late 1400s, the mortgage had evolved into its current form. Today, the borrower retains control of the property unless he fails to repay the loan, in which case the lender takes the property.

Mortgage payments are usually broken into four parts: Principal, Interest, Taxes and Insurance (PITI).

1. Principal is the amount that you borrow.
2. Interest is what the lender charges you to borrow the money.
3. Taxes are property taxes paid to the state and municipality (and sometimes the county). Property taxes vary by state and county, but the nationwide average is 1.15% of a property’s current assessed value.
4. Insurance includes homeowner’s and hazard insurance and, sometimes, mortgage insurance.

Once you know your PITI, use a calculator to estimate your monthly mortgage payments.

(In some cases, the lender includes property taxes in your mortgage payments, and pays them on your behalf. In other cases, you pay the taxes yourself.)

Click to check current mortgage rates.

There are three basic types of mortgages:

A Fixed-rate mortgage charges an interest rate that stays the same (fixed) for the life of the loan. This is the most popular type of mortgage. Most borrowers don’t want to risk paying higher rates in the future.

An Adjustable-rate mortgage (ARM) charges an interest rate that may rise or fall. In some cases, a lender will offer you a low introductory rate and then raise the rate on specific dates. In other cases, the rate is tied to market conditions – usually the prime interest rate set by the Federal Reserve Bank. In the short term, you can save money with an ARM, but if interest rates rise, you may want to refinance to a fixed-rate mortgage.

Government-backed mortgages are loans made by private lenders, but guaranteed by government agencies such as the FHA, USDA and Veterans Administration (VA). Because these agencies guarantee repayment of the loans if the borrower defaults, they are often good first-time home buyer mortgages. Thanks to the guarantee, many lenders make it easier to qualify for the loans, and the interest rates and fees are often lower.

Some private lenders also have first-time home buyer programs that feature some of the same benefits as government-backed mortgages.

In addition to different interest rates and fees, mortgages also have different terms – i.e., durations. Although you can get a mortgage with a term ranging from 10 to 40 years, 15- and 30-year terms are the most common for fixed mortgages. ARMs usually come with a 15- or 30-year term.

If you want to reduce the size of your monthly payment, a mortgage with a longer term is best because the payments will be spread over a longer timeframe.

However, a longer term costs you more because interest will be accumulating over a longer period, so shorter-term mortgages are best if you want to lower the total cost of the loan.

It’s a very good idea to put your financing in place before you start home shopping.

To do this, get a preapproval letter from one or more lenders – not just a prequalification letter.

A preapproval letter confirms that you will be able to borrow X amount based on that lender’s evaluation of your credit score, assets and income. With prequalification, the lender is merely estimating how much you could borrow. It’s not committing to giving you a loan.

Although getting preapproved takes longer and requires you to pay an application fee, it’s a worthwhile investment. Getting preapproved lets sellers know that you’re serious about buying and, even more important, that you will have the money to close the deal.

Click to check your home buy eligibility.

Renting vs. Buying

For generations, conventional wisdom held that renters were “flushing money down the toilet.” According to this view, every American should strive to become a homeowner.

But after the 2008 housing bust, some of the pro-homeownership pundits did an about-face, declaring that home ownership was now overrated.

Which view is correct?

Neither.

First, renting is not the same as flushing money down the toilet. In exchange for rent, you get a place to live – tax-free and without having to perform (or pay for) repairs and maintenance.

Second, only you can determine whether buying or renting makes the most sense right now.

A wise decision depends on a variety of factors, including your personal finances, your credit score and credit history, the length of time you expect to live in the home, and the total costs of the purchase.

Any of these variables could change the math, making homeownership more or less affordable.

To see how these “inputs” affect the “rent or buy” equation, use this calculator from The New York Times.

In general, the longer you stay in a home, the more financial sense it makes. With each passing year, you compensate for the upfront expenses (down payment, closing fees, etc.) in the form of money that you save on rent.

In most cases, you probably won’t have to do a lot of math. As long as you won’t be spending more than 25% to 30% of your income on housing, you should be fine.

Making a Down Payment

To qualify for a non-government-backed mortgage, you’ll need to make a substantial down payment – often, 20% of the home’s purchase price.

You’ll also have to make a 20% down payment to avoid Private Mortgage Insurance (PMI), which typically costs 0.5% to 1% of the loan amount a year.)

For a $300,000 home, a 20% deposit = $60,000. Unless you have that kind of cash, or qualify for a mortgage with a much lower down payment, this leaves you with three options:

1. Start saving for a down payment.
2. Borrow money for a down payment.
3. Apply for a down payment assistance program.

(To see how your monthly mortgage payment would change with the size of your down payment, use a down payment calculator like this one from Zillow.)

Click to check current mortage rates.

Saving for a down payment

First, determine how much you need to save by setting a maximum price for your home. If $250,000 is the limit, you may need up to $50,000 for a down payment.

Next, figure out how much you’ll have to set aside each month to reach the goal. For example, if you save $700 per month, you’ll accumulate $50,000 in just under six years.

If you’d rather not wait that long, you could put your money to work by investing in the stock market. If you take this route, however, play it safer by investing in mutual funds, especially those tied to the overall market (Index Funds). Because mutual funds – particularly Index Funds – contain a variety of different stocks, they are less prone to wild fluctuations in value.

Don’t put all your eggs in the stock market basket.

It’s a good idea to limit this investment to just 25% of your savings. Put the rest of the money into a high-yield savings account, money market funds or certificates of deposit. The returns may be lower, but the money will definitely be there when you want it.

Borrow from your IRA or 401(k)

Normally, early withdrawals from Individual Retirement Accounts trigger a hefty penalty. But there’s an exception for first-time home buyers. You can withdraw up to $10,000 to buy your first home – penalty free. A couple can withdraw up to $20,000. Just be sure to use the money within 120 days or you’ll incur a 10% penalty.

If you have a 401(k) account, you can borrow up to half the money (to a maximum of $50,000) for a down payment. The only caveat: you must repay the loan within five years, including interest (which goes back into your account).

If you don’t repay the loan on time, however, you’ll have to pay income taxes and penalties on the entire amount outstanding. Also, if you change jobs during the repayment period, the remaining balance becomes due within 60 days.

Needless to say, don’t pursue this option if you’re likely to change jobs soon.

Apply for a down payment assistance program

Nationwide, there are more than 2,400 programs available to help people afford a home of their own. These programs include grants, loans, tax credits and other forms of assistance to help eligible home buyers with down payments, closing costs and other expenses.

The programs are offered by state and municipal housing finance agencies, housing authorities, non-profit organizations and even some employers.

Here’s a list of home buyer assistance programs for all 50 states.

Many programs are specifically designed for first-time buyers.

To qualify, both you and the house you’re purchasing must be eligible (investment properties are not). In addition, you must make a minimum investment in the property, qualify for a mortgage and complete home buyer education. Other eligibility requirements may include the home’s sale price, your income and your history as a homeowner.

Don’t make the all-too-common mistake of assuming you don’t qualify for a down payment assistance grant. For example, eligible homeowners who earn up to 140% of their area’s median income can still qualify for down payment grants.

Even if you don’t qualify for a grant, you may qualify for an interest-free loan to help you make the down payment. On average, home buyers get about $5,000 to $20,000 in assistance, depending on their location. In a high-cost region, you may qualify for as much as $100,000.

Some private lenders also have programs to help first-time home buyers get a low down payment. Call some mortgage lenders in your area to learn if they have such a program.

Check current mortage rates.

Check Your Credit Score

Your credit score (aka, FICO score) and credit history are key factors in determining whether you qualify for a mortgage and, if so, the cost of that mortgage and the maximum you can borrow.

On a scale of 300 to 850 points, a score of 700 or more is generally considered “good” while a score above 800 is “excellent,” according to Experian (one of the three big credit bureaus).

In theory, lenders will approve conventional mortgage loans to people with scores as low as 620. Government-backed mortgage programs are even more lenient. The minimum score for an FHA mortgage is 580, and the VA and USDA mortgage programs have no minimums.

You should know, however, that these minimums are merely guidelines. For example, some lenders will balk at issuing a mortgage to someone with a score of 580, even though the FHA considers that score acceptable.

Because lenders have to process so much information when considering mortgage applications, most use automated underwriting software (AUS) to make their decisions.

In general, AUS findings work like this:

• High credit scores with strong income, assets and debt get approved
• Low credit scores with weak income, assets and debt get turned down

If your credit score is poor, but you have a high, stable income, plenty of savings and a manageable debt load, you’re likely to get approved for a mortgage. You’re also likely to be approved if your credit score is strong but the other criteria are average.

A low credit score may not sink your mortgage application. But a bad credit history is another story. If you have a history of late or missed payments, and if some debt has gone to collection agencies, your loan will probably be denied.

Before you apply for a mortgage, check your credit score with all three of the major reporting agencies. If you find any errors or inaccuracies, request a correction from each agency whose report contains flawed data, as well as the creditors that supplied the erroneous information.

Under the Fair Credit Reporting Act, each of these parties must correct inaccurate or incomplete information in your credit report. (Unfortunately, credit bureaus do not share information with one another, so you’ll have to contact each one.)

When you apply for a mortgage, the lender will pull your credit reports from all three bureaus, and use the median (middle) score. For example, if your scores are reported as 680, 700 and 720, the lender will use 700 as your score.

If you apply for a mortgage with a spouse or domestic partner, the lender will also check that person’s scores. In this case, it’s the applicant with the lowest credit score who determines how much the loan costs or if you even qualify for financing.

Before you torpedo an application, use a mortgage calculator to see if you can qualify for the loan on your own. If your income is sufficient, you can leave your partner off the mortgage altogether.

If your income is too low to qualify for a loan, see if you can include some (or all) of your partner’s income to help qualify without putting that person on the mortgage.

Some lenders offer a flexible program that allows eligible borrowers to consider income from non-borrowing members of their households. Under these programs, lenders allow you to stretch the debt-to-income guidelines.

Of course, the best remedy for an anemic credit score is direct action. Take steps to add some “muscle mass” to that score.

Mortgages for First-Time Home Buyers

Conventional Mortgage Loans

Roughly 72% of homeowners obtain conventional mortgages – loans issued by private lenders with no government repayment guarantees.

At first glance, this may seem a tad bizarre. After all, most conventional mortgages have higher interest rates and stricter requirements to qualify, including higher down payment, income and debt-to-income criteria. Why do so many people choose them?

The answer is mortgage insurance.

If you have a healthy income, a strong credit score (700+) and can make a down payment of 20%, you won’t have to get private mortgage insurance.

Even if you can’t avoid PMI, it often costs less than the mortgage insurance premiums (MIP) required some government-backed mortgages.

And once your LTV (Loan to Value) Ratio drops below 80 percent, a conventional loan allows you to drop the mortgage insurance altogether. MIP lasts for the life of the loan.

Also, conventional loans don’t require you to live in the home (which is good if you want to buy an investment property), and you may get a larger loan than you would with another mortgage type.

Check today's mortage rates.

FHA Loans

If your income and credit score are underwhelming, an FHA loan may be a good fit. There are no minimum income requirements, and you’re more likely to be approved if you have a poor credit score.

The down payment can be as low as 3.5%, and interest rates are often lower than those for conventional loans.

The downside is that the MIP may offset the lower interest rates.

A home buyer who gets an FHA loan must pay an upfront MIP of 1.75% of the base loan amount, regardless of the LTV Ratio. After that, a smaller MIP is included with the monthly mortgage bill for the life of the loan.

However, the monthly MIP will be lower if you opt for a shorter term (e.g., 15 years instead of 30), or if you make a larger down payment. And because the MIP is a percentage of the outstanding balance, the amount you pay will fall as the balance dwindles.

Check your FHA loan eligibility.

USDA Loans

These loans were designed for people with limited financial resources who live in USDA-designated rural areas. This designation comprises about 95% of the land in the United States and 100 million people. So don’t assume that you don’t qualify, even if you live near an urban area.

As with FHA loans, the USDA does not loan money itself. Instead, it insures 90% of the loan amount. This encourages private lenders to issue mortgages to people who otherwise might not qualify.

The major benefits of USDA loans include:

• No down payment requirement.
• Lower interest rates (usually).
• No loan limits. Unlike FHA and VA mortgage loans, there are no restrictions on the size of the mortgage you can obtain.
• Lower mortgage insurance fees: an upfront fee of 1% of the borrowed amount + a monthly fee of .35% of the mortgage amount. The latter fee must be paid for the life of the loan.

The main drawback of the USDA program is that the property you want must be in a rural area or small community. Before you apply, use the USDA’s property eligibility tool to determine if the home is located in USDA-designated rural area.

In addition, the borrower qualification requirements are stricter than those for FHA and VA loans. Typically, you’ll need a minimum credit score of 620, and a debt-to-income ratio of no more than 41%. The FHA loan allows for a debt-to-income ratio of up to 50% (or more).

Because the program is tailored for low-income home buyers, your income must not exceed a certain amount. These income limits vary from county to county, so review the maximum incomes for your county before you go any further.

Check your USDA home loan eligibility.

VA Loans

If you’re an active-duty service member, a veteran, a reservist or National Guard member, learn whether you’re eligible for a VA home loan. The benefits are huge.

Loans guaranteed by the VA don’t require any down payment or mortgage insurance.

In addition, there is (technically) no minimum credit score, though many lenders will want to see a score of 620 or higher.

Theoretically, there is also no limit on how much you can borrow. However, because there is a limit on the amount the VA can guarantee to repay private lenders in the event of default, there is a practical loan limit. In most parts of the country, the loan limit is $417,000. For high-cost areas in the continental U.S. the limit is $625,000, and it’s even higher in Hawaii.

You do have to prove that you earn enough income to repay the loan, and you can’t have too much debt. But these guidelines are usually more flexible than those of conventional loans.

VA loans are available only to finance a primary residence. You can’t use the loan to buy or refinance a vacation or investment property unless you plan to live there for at least a year.

Check your VA loan eligibility.

Home and Mortgage Shopping Tips

To get the best interest rate and terms, you should always comparison shop for a mortgage.

Contact at least two mortgage lenders (and preferably more) to compare interest rates, closing costs and other fees. A lender should provide a statement of the mortgage’s terms and costs before you commit. This will help you make an apples-to-apples comparison between loan offers.

Whenever possible, see if you can reduce the interest rate in exchange for a larger down payment. In some cases, it might also make sense to pay upfront fees (discount points) to lower the rate. If you plan to stay in the home for a long time, paying points and/or a higher down payment could trim thousands of dollars from your repayment total.

Before you start home shopping, hire a good real estate agent.

A qualified agent will know where to find homes in your price range and will handle much of the paperwork. The agent will also serve as your lead negotiator and should be able to connect you to many other real estate professionals – from appraisers and home inspectors to real estate attorneys and contractors (in case the home needs fixing up).

A good agent can also help you to avoid common newbie mistakes – such as skipping the home inspection or paying the full asking price when the seller may be willing to accept less.

Typically, the buyer’s agent is paid by the seller, so there’s no reason not to hire an agent, and plenty of good reasons why you should.

Click to begin the home buying process.

The post First-Time Home Buyer’s Guide first appeared on My Mortgage Insider.

It’s easy to guess why.

The owners have consistently overpriced the property, have alternated between leasing it to tenants and trying to sell it without a real estate agent, and have allowed the lawn to become a desert of compacted soil dotted with weeds.

All told, thanks to these mistakes (and others) the house has been on the market for years. By comparison, according to recent Redfin data, a typical house sells in 10 to 70 days.

An analysis of data from Realtor.com suggests that the median home takes 65 days to sell.

Even if you don’t need to sell your house fast – say, because your employer is having you relocate – nobody wants their home to stay on the market for months … or years.

The longer your house takes to sell, the longer you’ll have to pay utilities, property taxes and the mortgage, instead putting that money into a new home (and moving expenses).

And homes that stay on the market too long can be “tough sells.” Many buyers will view a listing only once. If the house doesn’t attract a buyer relatively fast, the listing will grow “stale” and the pool of prospects may shrink to a handful of bargain hunters.

This guide will help ensure that you don’t end up like the owners of that Maryland house.

In addition to discussing some obvious and not-so-obvious home-selling Do’s and Don’ts, we’ll examine sales strategies that are proven to minimize the length of the process and maximize the proceeds from a home sale.

Check today’s mortgage rates.

When is the Right Time for You to Sell?

The answer depends on your personal finances, local market conditions, and the economic (and literal) climate in your region of the country.

To start, calculate how much equity you have in your home. Then, determine if a reasonable sale price would be enough to:

• Pay off the current mortgage.
• Cover the closing costs (including a real estate agent’s commission).
• Make a down payment and first mortgage payment on your new residence.
• Finance your moving expenses, any new furniture, etc. (Moving expenses could easily equal $1,000 or more.)

If you owe more on the mortgage than your house is currently worth (an “underwater mortgage”), now is not the right time to sell. The same is true whenever the costs of selling and moving are likely to be higher than the sale proceeds + any savings you may have.

Does the property need repairs? If so, are they major or minor, and how much will they cost?

Before putting your home on the market, you’ll want to complete any unfinished repair and maintenance projects.

To sell your home fast, and for top dollar, you absolutely must make a good first impression on prospective buyers. That means making sure your property is both attractive and functional.

Peeling wallpaper, a discolored roof and a creaky HVAC system will earn instant demerits with potential buyers, causing them to walk away or reduce the size of their offers.

Next, hire a good realtor or thoroughly research the local housing market to learn whether the environment is favorable or unfavorable for sellers.

Are home prices rising or falling? What have houses comparable to yours (“comps”) sold for recently? Are you living in a “seller’s market” – where home sellers have the upper hand because there are more buyers than homes for sale – or a “buyer’s market” (the reverse)?

Even if you want to sell your home quickly, it’s best if you don’t have to sell ASAP. Otherwise, in a buyer’s market, you may have to make a “Sophie’s choice.” Sell the home quickly for less than you could get in a better market, or wait until home prices start appreciating again.

(Even if you must sell fast, never share that information with prospective buyers. It will give them leverage over you when it comes to negotiating price and other contract terms.)

When is the Best Time for Anyone to Sell?

“To everything there is a season…” This is especially true for real estate.

Unless you live in a region where the climate is usually warm, like California or Florida, the best time of year to sell a home is spring and summer. This is the conventional wisdom, and the conventional wisdom is right.

People like to go home-shopping when the weather is sunny and pleasant. Families with children like to move before the new school year begins.

In addition, the grass is green and flowers are blooming, which tends to make properties look more appealing. And because the sun shines longer, buyers have more time to visit properties during daylight hours, including after work.

As a rule, May through August is the “peak season” in most parts of the U.S. And the very best month, according to a study by Zillow, is May.

Zillow researchers found that homes listed from May 1 through May 15 sold, on average, 18.5 days faster than homes that weren’t listed during that period. They were also purchased for about 1% more than the average listing, which translates into an extra $1,700. 

If you plan to sell your home during the off-season (winter), the only advantage may be the type of buyer you encounter.

You’re more likely to meet highly motivated prospects once the weather turns frosty. A higher percentage of buyers will need to move right away, so they’ll probably be more flexible about price and any contingencies in their offers (e.g., requests for repairs).

Hire an Agent or Go FSBO?

Should you hire a real estate agent? Most expert opinion ranges from “it’s a very good idea” to “you’d be crazy not to.”

Roughly 93% of home sales involve an agent – and for good reasons.

Agent-assisted home sales generate significantly higher returns than homes for sale by owner (FSBOs). According to the National Association of Realtors (NAR), in 2013 the average FSBO sold for $184,000 compared to $230,000 for agent-assisted sales.

Other benefits of hiring a good agent include:

Putting a local real estate expert in your corner. A qualified agent will know the local market inside and out, and prepare an analysis of recent comparable sales to help you “price to sell.” He or she knows which advertising outlets generate the best results, and plug you into their network of attorneys, contractors, home appraisers, photographers, home stagers, etc.

Saving you time and paperwork. A good agent will act as your trusted “consigliere.” He or she will handle much of the paperwork, making sure the process adheres to all legal and ethical guidelines. The agent will also direct your marketing efforts and manage tours of your home.

Acting as lead negotiator. A good agent will bring something to the table that you can’t – a detached, unemotional approach to the transaction. Unlike you, the agent will have no attachment to the home and its memories. Instead, the agent’s only interest will be maximizing your profits and cutting through delays. With dozens or hundreds of deals under her belt, a good agent is an expert at recognizing and negotiating good offers.

The main reason that some sellers exclude agents from the process is money. By cutting the agent out of the process, they don’t have to pay 5% to 7% of the sale price in commissions.

If your home were to sell for $250,000, that would translate to an extra $12,500 to $17,500. You could either keep that money or use it to sweeten the deal, e.g., by lowering your asking price or offering to pay some/all of the buyer’s closing costs.

In a buyer’s market, deal sweeteners like these could spell the difference between a house that sells in days instead of months. On the other hand, a FSBO requires a lot more work on your part.

(Note: most FSBOs still offer a commission to the buyer’s agent. The amount you propose is your call, but offering to pay zero will force the buyer to make up the slack. This could negate any other incentives you use to attract potential buyers. And some buyer’s agents might avoid your home.)

To find a great agent, don’t just ask friends and neighbors for references. Search for professionals with the best reputations as seller’s agents. You can read reviews of local agents on sites such as Trulia, Zillow and Yelp.

Before hiring, you can screen candidates by asking questions such as:

• How many houses have you sold for more than the original list price? What is your list-price-to-sales-price ratio?
• How will you market my home? Which marketing platforms will you use – e.g., local newspapers, social media, email, etc.?
• Do you have references, especially from former clients?
• Do you carry Errors and Omissions Insurance?
• How many homes are you currently selling? (You don’t want an agent who is too busy to give you the attention you deserve.)

Click to check current mortgage rates.

Setting the Price

The #1 Reason why homes don’t sell fast (or at all) is overpricing. And the most common reason for overpricing is that the owner really wants or needs to get that asking price.

Unfortunately, your needs are irrelevant to buyers.

If you need $300,000 for a house that the market (or an appraiser) values at $270,000 because that’s what you still owe on the mortgage, now is not the right time to sell.

Before setting a price, establish your priorities. Is it more important to maximize your profits or minimize the time needed to sell?

Pick one. It’s very difficult to maximize your profits and sell a home in record time.

The next step is to get a comparative market analysis (CMA) – the “comps” – of what similar homes in your area have sold for. Your real estate agent should provide you with a CMA.

If you go FSBO, you’ll need to gather this information yourself. If you have an agent, it’s still a good idea to tour a few comps in person.

For one thing, even the most detailed CMA is no substitute for viewing the location, size and condition of comps.

For example: although some houses will qualify as comps because they contain the same number of bedrooms, some may be larger or smaller than yours in terms of square footage. That could have a big impact on sale price, but might not show up in the CMA.

In other cases, comp prices might be skewed too low or high. This is common in up-and-coming neighborhoods located near rundown neighborhoods or high-crime areas.

While your block may be as safe as Fort Knox, and all the homes recently restored to their Victorian splendor, if some of the “comps” are across the tracks in Muggertown, pricing your house “by the book” could shave tens of thousands of dollars from a fair asking price.

A more exact method of setting a price is to hire a professional appraiser to determine the market value of the home. Just be sure that the appraiser is familiar with houses in your area, and consults with your realtor beforehand. (The realtor can highlight major selling points that some appraisers might overlook or downplay.)

Typically, an appraiser’s fee will set you back $300 to $400.

To help you calculate a good listing price, you and your realtor can also hold an open house for other realtors, as well as friends and family. This is a no-risk way to solicit feedback on your property and asking price.

Finally, there are two pricing “rules of thumb” that you may want to consider:

1. Rule of Thumb #1 says you should avoid a sale price that ends in a zero. The thinking behind this rule is that when buyers see zeroes, it’s an open invitation to negotiate because (“obviously”) you picked that number out of a hat. If you set your asking price at $349,000 instead of $350,000, some careful calculations “must” have gone into that number.
2. Rule of Thumb #2 states that zeroes are your friends. The reasoning here is that zeroes will give your house more visibility in internet searches. For example, if you list the home at $300,000, it will appear in search for homes priced between $300,000 and $400,000. If you price it at $299,000, it will only appear in searches for homes priced at less than $300,000.

Both rules seem equally intuitive, but can both be right?

For better or worse, there’s only one way to find out.

Preparing Your Home to Sell

This author once attended an open house that broke every rule of home selling. The front yard was a dog-poop minefield, the kitchen smelled like a halibut had married a litter box, the furniture was bathed in dust, and the living room had a foot-wide crater in the wall.

There are many tips and tricks to make your home more appealing to buyers, but the “Prime Directive” is: At least clean up the place! If you do nothing else before showing your home, make sure the house sparkles – inside and out, top to bottom!

Dust, vacuum, and mop the floors and baseboards. Scrub the countertops, sinks, toilets and bathtubs. Windex the windows and the windowsills. If you can imagine a nook or cranny that a nosey buyer might investigate, some of them probably will. Make everything shine!

Pay special attention to odors. Have a friend or family member visit for a smell analysis. (You’re probably so accustomed to these odors that you won’t notice them.) Use scented candles or plug-ins to cover up unpleasant aromas. Some realtors and home stagers even bake cookies or bread before open houses to soothe visitors’ nostrils.

Outside, be sure to mow the lawn, whack weeds and power wash the siding and the roof (if need be). You may also want to plant flowers to add a splash of color.

Although your exterior options are limited in the winter, at least keep the walkways clear of snow and ice.

Home staging – presenting a home in its best light – is premised on getting prospective buyers to visualize themselves living in your house. A 2015 study by NAR found that 81% of homebuyers find it easier to visualize a property as their future home when it’s staged.

To that end, a thorough cleaning is the absolute minimum you can do.

If you’re really serious about selling your home fast, then consider some (or all) of these basic home-staging techniques:

• Strategic painting. Where chipped or peeling paint is visible, it should be painted over. Even when there’s nothing wrong with the condition of the paint, it’s a good idea to “neutralize” the color schemes of key rooms (living room, kitchen, master bedroom) to avoid offending anyone’s taste. Pale yellows and beige are traditional replacement colors. (Note: some professional home stagers now deploy bright and vibrant colors for certain regions and demographics, but these people are experts. Don’t try this yourself.)
• Declutter and Depersonalize. To help potential buyers imagine their new lives in your home, they’ll need to imagine what they could do with the space. You can assist their imaginations by decluttering. Remove extra furniture, especially worn-out furniture, from rooms to make them seem more spacious. To depersonalize, pack up your fixtures, collections and “objets d’art.” You know that your taste is exquisite, but why risk losing a sale because some philistine doesn’t like your display of antique farm tools?
• Make repairs. Even if your state doesn’t mandate that you disclose certain problems with the property, it’s still a good (and ethical) idea to disclose them to prospects. Most buyers hire a home inspector, so attempts to conceal problems will be discovered – and may wreck the deal. It’s best to simply make the repairs before listing the house. This includes items as small as squeaky doors, tiny divots in the wall, stained carpets, scratched hardwood floors and outdated or broken light fixtures. Clean the carpets. Refinish the floors. Buy new light fixtures. Yes, these fixes will cost money, but they could also make the difference between a good outcome and a home that repels buyers.
• Avoid major renovations and new furniture purchases. With very few exceptions, you will not recoup the costs of major renovations when you sell the house. Not even close. And again, because taste is a personal matter, your new kitchen cabinets could turn off more buyers than they impress. The same holds true of new furniture. While you don’t want to showcase a cat-scratched sofa, don’t replace it just yet. Throw it away or put it in storage.
• Hide the children and pets! Your cat is adorable, as are your kids. But you never know what one of them might do when guests arrive. Many realtors, and most home stagers, will advise you to escort them somewhere else when visitors arrive – or even sequester them (the pets, most likely) in a well-labeled room. You don’t want to deal with the liability issues that might ensue if, say, your pet bites a visitor.

Should you hire a professional home stager to avoid some of this work? Maybe.

Prelisted staged homes spend 90% less time on the market than non-staged homes, according to a 2016 report by the Real Estate Staging Association. Another survey, by the International Association of Home Staging Professionals and StagedHomes.com, found that staged homes sell for an average of 17% more than non-staged ones.

On the other hand, professional home stagers charge fees of $500 to $5,000+, depending on the home’s square footage and the number of rooms staged.

How to Attract More Buyers

Open houses, newspaper and craigslist ads, social media posts and email blasts can all contribute to increasing your home’s visibility.

But by far the most important marketing tool is a posting in the MLS (multiple listing service).

If you hire a realtor, he or she will list your house in the MLS, a network of roughly 700 regional databases that lets agents exchange information about properties for sale.

If you sell the house yourself, you can’t list your home directly on the MLS. Access is limited to licensed agents and brokers, who usually pay for membership. 

As an FSBO, you can advertise your home on a site like ForSaleByOwner.com and the FSBO sections of sites such as Zillow.

Once the marketing media are selected, craft a compelling message. Descriptions should include not just the basics – square footage, number of bedrooms and baths – but any features likely to attract more buyers.

Even more important are the photos of your property. Because many buyers decide whether to visit a home based solely on the pictures, you may find it worthwhile to hire a professional photographer to showcase the most appealing views and rooms.

A basic shoot by a professional will cost anywhere from $110 to $300, but you could easily generate 10 times that amount in added revenues.

One survey found that homes listed with professional, high-quality images can sell for an average of $3,400 more (and up to three weeks faster) than those featuring lower-quality photography.

Finally, it’s imperative that you make your home easy to visit.

At the very least, your listing should say “call first, lockbox.” “Call first” lets you know that a buyer or agent is on the way. The lockbox allows guests to enter if you’re not home. If you restrict showings to “appointment-only,” you could drastically reduce the number of visits.

How to Negotiate (and Recognize) a Good Offer

If you receive multiple offers for your home, keep two things in mind:

1. The offer featuring the highest price isn’t necessarily the best deal.
2. Although “bidding wars” are normally a good thing, reviewing offers and making counteroffers takes time, which will delay the closing.

When fielding multiple offers, always look beyond dollar amounts.

For example, many buyers put contingencies in their offers – conditions that, if not met, allow them to cancel the deal. These may include a requirement that the home pass an inspection, that you make certain repairs, or that the buyer gets approved for a mortgage.

All things being equal, an offer with fewer contingencies is a better offer. If one buyer’s price is marginally higher than a competitor’s, but includes a laundry list of conditions, while the other offer has no contingencies, you may want to accept the lower offer.

The same holds true if one buyer makes a higher offer, but will need mortgage financing, while another buyer offers to pay less – but will use more cash.

For a seller, an all-cash offer (with few or no contingencies) is a dream come true, provided the price is reasonable. You won’t have to worry that the deal will fall apart at the last minute if the buyer doesn’t secure a loan.

To prevent unpleasant surprises, you may even want to include a few your own contingencies in a counteroffer.

As long as you’re bargaining from a position of relative strength, you could put a limit on the number of days a buyer has to secure a mortgage or have a home inspection done, insist that bidders be preapproved for a mortgage, or even ask buyers to pay some of your closing costs.

As a rule, you should always make a counteroffer, even if the buyer’s offer was somewhat insulting. (But first consult with your real estate agent.) It’s important to show respect for every prospect. You never know what a second offer might look like.

And if a home inspection uncovers a defect in need of repair, drop the price by enough to cover the repair, or offer to make the repair yourself.

A genuine negotiation involves a certain amount of give and take by both parties. Sticking to your guns is fine if an initial offer is absurd, but a reasonable offer should prompt a counteroffer that contains some concessions on your part.

When it comes to negotiating, you should always be thinking, “What more do I need – if anything – to achieve my biggest goals?” Once your main goals are achieved, everything else is gravy.

Top 7 Mistakes to Avoid

1. Waiting for the full asking price. Some homes go above asking price, some go below. Don’t get wedded to a particular price. Your home may sell, but it could take a long time.
2. Not hiring a good agent (or using one when you don’t have to). Good agents are powerful allies. They can get your home sold quickly and for the right price. On the other hand, hiring a bad agent is worse than selling the house yourself because you’ll pay for the “privilege.” Research and interview the best agents in your area before hiring anyone.
3. Failing to clean and prep your home. Remember, buyers want to imagine themselves living in your house. Few people will do that if the place looks like one of the hovels featured on those TV shows about hoarders.
4. Selling in the wrong season. Winter is the slowest season, but home buyers are out in force during spring and summer. The only advantage to winter is that you may attract a higher percentage of motivated buyers – people who need to move in a hurry.
5. Getting emotional. It’s a house, not your child. It has blemishes, and may even need repairs. If you refuse to acknowledge this and get emotionally invested, you’ll probably pass up good offers and assume that better offers are on the way. That might not happen.
6. Failing to disclose problems. Most buyers will insist on a home inspection, so if you conceal defects, the odds are very high that you will get caught. Even if you “get away” with selling the house without full disclosure, hiding certain problems could expose you to a lawsuit after the fact.
7. Correcting your mistakes after the house fails to sell. It’s not a good idea to list your house, and then wait 30 or 60 days before following the advice in this guide. By the time it becomes obvious that your home isn’t attracting buyers, it may be too late to turn things around. Most buyers will look at a listing once. If you later relist the house, even at a lower price, many buyers will assume that something is seriously wrong with it (or you) and look elsewhere. Remember: you get only one chance to make a good first impression.

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The post The Complete Guide to Selling Your Home – Fast! first appeared on My Mortgage Insider.