Legacy Prime Lending - Resources by Cody

9 Musts Right After Buying a Home

Tue, 21 Feb 2023 17:20:10 -0600

If you’ve just bought a new home, congratulations are in order. Closing on a house in today’s crazy market is certainly something to be proud of. Now that you’ve made it through making the offer, the home inspection, the mortgage process and the closing, you might think it’s time to kick back, relax and enjoy your new place.

Don’t get too complacent, though. Moving into a new home means you’ll need to take some immediate action to make sure you’ll be a successful homeowner now and in the years to come. Here are some of the first things to do when you buy a new home.

1. Secure your home

One of the first things you should do when you buy a house is to change the locks and garage codes. Lior Rachmany, CEO and founder of Dumbo Moving and Storage in Brooklyn, New York, recommends taking care of these security-related tasks before you move in. “You don’t want the previous homeowners to have the ability to enter your home,” he says.

The cost to change locks can vary based on the level of security, complexity of the lock and whether you choose to hire a professional locksmith or do it yourself. If your home comes with an alarm system, you’ll likely need to pay to reconnect service — or choose a new provider. Ask for the instruction manuals and codes for any electronic systems, like home alarms and garage codes, and make it a priority to change the codes to new configurations that only you will know. If the manuals are not available, you might be able to find reprogramming instructions online.

Pro tip

“If you are putting off changing your locks, take a good look around the area of your house to see if you find hidden spare keys,” says Rachmany. Homeowners often hide them somewhere and then forget about them. “They can be under large rocks or in the door frame.”

2. Purchase or review your home warranty

Some homebuyers receive a home warranty purchased by the seller to cover the home’s major systems or appliances. After all, the last thing a buyer wants to deal with is a broken dishwasher or HVAC unit. If you received a home warranty, it’s a good time to review the specifics, so you’ll know what’s covered and how to file a claim. If you don’t have one, consider purchasing one, even after closing.

“There are many home warranty companies in the marketplace that cover a variety of items,” says Sergio Gonzalez, a Realtor who leads the SG Associates brokerage in Westlake Village, California. “Be sure to select all the items that are most likely to break down and are expensive to replace.”

Pro tip

Gonzalez recommends shopping around for the best deal on a home warranty, and finding one that’s tailored to your needs. For example, you might want to get coverage on big-ticket items, such as the water heater, furnace, air conditioning unit and kitchen appliances. “The price of these plans will vary based on the size of the home and the plan selected,” he says. Home warranties range in cost from about $350 to $600, depending on coverage and the length of the contract.

3. Connect the utilities

It’s smart to connect all of your must-have utilities — like water, gas and electricity — before you move in. This will help pave the way for a smooth move-in process and ensure you have the essential necessities as you’re getting settled in.

Pro tip

Plan ahead! Depending on your neighborhood and local service providers, there can be hoops to jump through to connect utilities. Check with your local providers to determine the process, what type of ownership or residence verification you need, and how far in advance you should schedule turn-on.

4. Check smoke and carbon monoxide detectors

To help ensure you and your family are safe in your new home, make sure all smoke and carbon monoxide detectors are in good working condition. This may include installing fresh batteries or replacing entire units. “Smoke detectors should ideally be placed in a hallway leading to your bedrooms,” Rachmany says. “Fires are most likely to start from your kitchen or your laundry room, so it’s a good idea to place smoke detectors there too. If you live in a home with multiple floors, make sure there’s at least one smoke detector on each floor.”

Pro tip

Most home safety experts recommend checking and changing the batteries in your detectors every six months. If you keep a family calendar, it’s easy to set a reminder. Check with your local fire department for help, too; some offer free inspections and testing if you call the non-emergency line to schedule an appointment.

5. Use your inspection report as a to-do list for maintenance

After you buy a house, address any issues that were flagged on the home inspection report that the seller didn’t fix, Gonzalez says. Using the home inspection report as a guide, make a list of things to repair, update or maintain for the future, ranking them from most to least urgent. You’ll want to address items that can potentially cause problems later, such as dirty gutters, leaky pipes or doors and windows that need to be resealed.

Pro tip

Regular maintenance is critical to keeping any home running in tip-top shape. Putting in the sweat equity to maintain your home — or paying a pro to do it for you — prevents costly repair headaches later on. A well-maintained home can also command a higher sale price when you’re ready to sell.

6. Refresh the paint

One of the easiest and most cost-effective ways to make a house your home is to give the interior a fresh coat of paint. The best part: No one can dictate your color palette or timeline; it’s all on your terms. If you get the painting done (either DIY or with help from a professional) before moving your furniture in, you won’t have to move pieces around again and worry about splatter getting on your valuables.

Pro tip

If you’re hiring a professional painter, ask if they’ll give you a discount for having empty rooms. Since they can simply lay a dropcloth flat on the floor, rather than having to carefully cover furniture, the job may go faster for them — and cost less for you.

7. Refresh the flooring

Just like refreshing the walls with new paint, refreshing or refinishing floors is cheaper and easier to do when your home is still empty. Flooring can make a huge difference in a home’s appearance. If yours are in less-than-pristine condition, consider replacing old carpets or refinishing existing hardwoods before you move in.

Pro tip

If the sellers didn’t have the floors steam-cleaned before you bought the property, have them professionally cleaned before you move in. Even decades-old tile can take on a brand new appearance after a thorough professional cleaning.

8. Find the circuit box, review emergency shut-offs and appliance manuals

Even if your new home isn’t brand new, it’s new to you! So it’s vital to understand how things work. One of the first things to do when you buy a house is to find the emergency shut-offs and the circuit-breaker box. If the box isn’t labeled, add labels to the individual circuits so you know which ones go to which room or appliance. Finally, gather up all the appliance manuals, so you know how everything works.

Pro tip

Come up with a filing system for manuals and documentation for your appliances and home systems — that way, if something goes wrong, you won’t have to scramble to find them. If some of your new home’s appliances don’t have manuals passed along from the previous homeowners, do a quick online search. Most companies publish manuals on their websites for easy access.

9. Create a maintenance schedule

Think of maintaining your new home as a marathon rather than a sprint. Instead of trying to tackle all of the maintenance tasks immediately, be thoughtful about the things that need to be done over time. This may include replacing air filters, cleaning the gutters, pressure washing the exterior and more.

Pro tip

Create a home maintenance checklist that’s realistic for your household. Budget for those tasks each year, as well as unexpected repairs. The general rule of thumb is to save a minimum of 1 percent of the home’s purchase price each year for repairs. You might decide to hire pros to handle some of these tasks, so factor that into your budget, too.

Credit: Bankrate

What's Ahead for Mortgage Rates and Home Prices?

Wed, 09 Nov 2022 11:05:31 -0600

Now that the end of 2022 is within sight, you may be wondering what’s going to happen in the housing market next year and what that may mean if you’re thinking about buying a home. Here’s a look at the latest expert insights on both mortgage rates and home prices so you can make your best move possible.

Mortgage Rates Will Continue to Respond to Inflation

There’s no doubt mortgage rates have skyrocketed this year as the market responded to high inflation. The increases we’ve seen were fast and dramatic, and the average 30-year fixed mortgage rate even surpassed 7% at the end of last month. In fact, it’s the first time they’ve risen this high in over 20 years (see graph below):

In their latest quarterly report, Freddie Mac explains just how fast the climb in rates has been:

“Just one year ago, rates were under 3%. This means that while mortgage rates are not as high as they were in the 80’s, they have more than doubled in the past year. Mortgage rates have never doubled in a year before.”

Because we’re in unprecedented territory, it’s hard to say with certainty where mortgage rates will go from here. Projecting the future of mortgage rates is far from an exact science, but experts do agree that, moving forward, mortgage rates will continue to respond to inflation. If inflation stays high, mortgage rates likely will too.

Home Price Changes Will Vary by Market

As buyer demand has eased this year in response to those higher mortgage rates, home prices have moderated in many markets too. In terms of the forecast for next year, expert projections are mixed. The general consensus is home price appreciation will vary by local market, with more significant changes happening in overheated areas. As Mark Fleming, Chief Economist at First American, says:

“House price appreciation has slowed in all 50 markets we track, but the deceleration is generally more dramatic in areas that experienced the strongest peak appreciation rates.”

Basically, some areas may still see slight price growth while others may see slight price declines. It all depends on other factors at play in that local market, like the balance between supply and demand. This may be why experts are divided on their latest national forecasts (see graph below):

Bottom Line

If you want to know what’s happening with home prices or mortgage rates, let’s connect so you have the latest on what experts are saying and what that means for our area.

7 Tax Benefits of Real Estate Investing

Mon, 03 Oct 2022 13:05:14 -0500

You know that diversifying your investments is a smart move. Plus, you’ve heard that buying rental properties can produce a valuable, recurring cash flow from a mostly passive income. But are you aware that it can also make your financial picture rosier come tax time?

Read on to learn about the many tax benefits of real estate investing and how you can maximize savings on your yearly return.

1. Use Real Estate Tax Write-Offs

One of the biggest financial perks of this income stream is the real estate investment tax deductions you’re able to take. You get to deduct expenses directly tied to the operation, management and maintenance of the property, such as:

Property taxes
Property insurance
Mortgage interest
Property management fees
Cost to maintain and repair the building

But did you know that you can also write off much of what you pay to run your real estate investment business? Qualified business expenses may include, but aren’t limited to:

Advertising
Office space
Business equipment (e.g., computer, stationery, business cards, etc.)
Legal and accounting fees
Travel

All of these deductions lessen your taxable income, which could save you money when you pay taxes. Let’s say your rental income is $25,000, and your related, qualified expenses come to $8,000. That means the taxable income from your real estate business is $17,000.

Pro tip: Be sure to keep detailed, accurate records and receipts so you can prove the expenses you claimed in case you’re audited by the Internal Revenue Service (IRS).

2. Depreciate Costs Over Time

Depreciation is the incremental loss of an asset’s value, generally due to assumed wear and tear. As a real estate investor that holds income-producing rental property, you can deduct depreciation as an expense on your taxes. That means you’ll lower your taxable income and possibly reduce your tax liability.

You’re allowed to take the depreciation deduction for the entire expected life of a property (currently set by the IRS as 27.5 years for residential properties and 39 years for commercial properties).

For instance, maybe you purchase a home you intend to rent out. The value of the building itself (excluding the land it sits on) is $300,000. If you divide that value by the 27.5 year expected life of the dwelling, you can deduct $10,909 in depreciation each year.

Once you sell, though, be prepared to pay the standard income tax rate on the depreciation you’ve claimed. This requirement is known as depreciation recapture, which you can avoid if you pursue other tax strategies, like a 1031 exchange (more on that below).

Pro tip: Ask your accountant about depreciating major improvements you’ve made to your investment properties, such as installing a new roof.

3. Use A Pass-Through Deduction

A pass-through deduction allows you to deduct up to 20% of your qualified business income (QBI) on your personal taxes. When you own rental property as a sole proprietor, via a partnership, or through an LLC or S Corp (known as pass-through entities), the money you collect in rent is considered QBI by real estate tax law.

For example, if you have an LLC that owns an apartment complex, you could receive $30,000 in rental income every year. By using a pass-through deduction, you can write off up to $6,000 on your personal return. Of course, some rules and regulations must be followed, so please consult with your accountant.

Please note: This perk, along with other provisions in the Tax Cut and Jobs Act of 2017, is currently set to expire in 2025.

4. Take Advantage Of Capital Gains

A capital gains tax may be assessed when you sell an asset, like a piece of property, for a profit. There are two types to be aware of: short-term and long-term. They each impact your tax situation differently.

Short-Term Capital Gains

When you profit from selling an asset within a year of owning it, you realize a short-term capital gain. While you may not have a choice but to sell, be aware that doing so can have a negative effect on your taxes. That’s because the gain gets counted as ordinary income.

So, if you earn $100,000 from your day job and sell an investment property for a $100,000 profit, your income essentially doubles for tax purposes. If you file single, that extra income puts you in the next tax bracket (as of 2020), which potentially means a larger tax bill than you expected.

Long-Term Capital Gains

On the other hand, you see a long-term capital gain if you profit from the sale of an asset that you’ve held for a year or longer. If you can wait until the anniversary of your purchase to sell, you’ll get to keep more money in your pocket. That’s because long-term capital gains have a significantly lower tax rate than your standard income.

And, if your income is low enough, you may not have to pay the tax at all. Suppose you and your spouse make a combined $75,000 per year and file a joint tax return. The long-term capital gains are tax-free since the tax rate for your income level is 0%. That means you can keep every cent of the profit you get when selling a property.

5. 1031 Exchange

1031 exchanges exist because the government wants to reward people who reinvest their real estate profits into new deals. As long as the new property you buy is of equal or greater value than the one you sell, the program lets you swap them for tax purposes. That means you can defer paying the capital gains tax on the sale of the first property.

You can use 1031 exchanges indefinitely. But, when you want to cash out your profits, you’ll have to pay any tax owed. There are a few different forms of the program available based on the timing of your purchase and sale transactions. Since the program can be complicated to navigate and take full advantage of, it’s wise to consult with a qualified financial professional.

6. Opportunity Zones

Designated by the US Department of Treasury, opportunity zones are low-income or disadvantaged tracts of land. The 2017 Tax Cuts and Jobs Act encourages investors to put their money into developing and economically stimulating these communities by offering tax breaks.

Alongside other real estate investors, you place your unrealized capital gains into a Qualified Opportunity Fund. Money from that fund goes toward improving the selected area.

If you play by the rules of the program, you can enjoy the following tax advantages:

Defer paying capital gains until 2026 (or until you sell your stake in the fund).
Grow your capital gains by 10% if you hold the fund for 5 years; 15% for 7 years.
Avoid paying capital gains entirely if you remain invested in the fund for 10+ years.

7. Business Tax Benefits

When you’re self-employed, you generally need to pay both the employer and employee portion of the FICA tax (covering Social Security and Medicare). However, if you own rental property, the money you receive isn’t classified as earned income. That means you’re eligible for one of the least talked about real estate tax breaks: avoiding the FICA tax, also known as the payroll tax.

Here’s the math in action:

Let’s pretend you own a freelance writing business that generates $50,000 in revenue. Since that money is considered earned income, you’re on the hook for the payroll tax. At a 15.3% tax rate, you’d have to fork over $7,650. But, if you’re a rental property owner instead, you would get to keep that cash in the bank.

Take Advantage of Your Tax Benefits

There are a lot reasons to invest in real estate, and tax benefits are just one. If you're considering real estate as an investment, get preapproved first. This will help you be prepared to make a great purchase.

Get started with a Gapital pro.

Get pre-appoved

10 Reasons and Benefits to Invest in Real Estate

Mon, 03 Oct 2022 12:55:39 -0500

Real Estate is arguably the best investment in the world. Income. Equity. Tax breaks. A hedge against inflation. The benefits that come with investing in real estate are enormous.

There can be some risk associated with investing in real estate, though. It's important to understand markets and how to choose properties that are going to grow in value over time. They don't always pay off, and if you invest poorly, you can lose money.

However, if you understand the risks, do your research and evaluate the benefits in detail, in can provide a nice source of income. Here are some of the biggest benefits and potential risks that come with it.

What is Real Estate Investing?

There are many ways to invest in real estate. You can buy a sing-family home, rent it to someone, and collect the monthly rent check. This can give you a nice source of income and also allow you to wait for the property value to rise. When it does, you can sell, making a profit, or you can cash-out the equity to purchase more real estate or make improvements. You can also buy commercial real estate and rent it to businesses.

If you want to leverage more time and money, you can invest in apartments, allowing you to multiply your profits.

The biggest thing is to research what type of real estate investing is the best fit for you.

REITs

Buying into REITs , short for real estate investment trusts, is one of the easiest ways to invest in real estate. Why? With a REIT, you invest in real estate without having to worry about maintaining or managing any physical buildings.

REITs are companies that own real estate, anything from retail properties to apartment buildings, hotels, offices or warehouses. When you buy into a REIT, you purchase a share of these properties. It's a bit like investing in a mutual fund, only instead of stocks, a REIT deals with real estate.

You can earn money from a REIT in two ways: First, REITs make regular dividend payments to investors. Secondly, if the value of the REIT increases, you can sell your investment for a profit.

You can invest in a REIT just as you would invest in a stock: REITs are listed on the major stock exchanges. The National Association of Real Estate Investment Trusts says that about 145 million U.S. residents are invested in REITs.

Residential Properties

Sinking your money into investment properties can also prove lucrative, though it does require some work. First you buy a residential property, either a single-family or multifamily building, and purchase it, usually financing this purchase with a mortgage loan.

You can then either live in the property or rent it out as you wait for it to appreciate in value. If you rent out the property, you might be able to use these monthly checks to cover all or part of your monthly mortgage payment. Once the property has appreciated enough in value, you can sell it for a big payday.

The challenge, of course, is that the property you purchase isn’t guaranteed to increase in value. You can lower the odds of a bad investment by researching local neighborhoods to find those in which home values tend to rise. You should also work with real estate agents and other professionals who can you show historic appreciation numbers for the communities you are targeting.

You will have to be mindful of location. A home on a busy street might be more affordable but might not appreciate as quickly as one located on a quiet side street. An apartment building located next to public transportation might see a quicker jump in value than one located miles away from the nearest commuter train station.

If you don’t want to take phone calls late at night from tenants complaining about furnaces that aren’t working or roofs that are leaking, you’ll have to pay a property management service. These services handle the daily work of maintaining and operating properties. They’ll also send repair technicians to properties that need emergency maintenance.

Commercial Properties

You can earn money by buying and investing in commercial properties much the same way you do by investing in residential real estate: First you buy your property. Then you charge monthly rents to tenants. If the property’s value rises, you can sell the commercial space for a hefty profit.

There are many types of commercial properties in which you can invest. You can purchase an office building and charge companies to rent space in that building. You can purchase strip centers or other retail properties and charge monthly rent to business owners. You can even purchase a warehouse and charge rent to manufacturing companies or retailers who need to store their products.

The risks are the same as they are when investing in residential real estate: There is never a guarantee that your commercial properties will increase in value, which is why researching the properties and the communities in which they sit is so important. You might also struggle to find enough tenants to fill that office building or retail center you purchased.

House Flipping

Investors who want to make money quickly often turn to house flipping. This is when you purchase a home for a lower price, renovate it quickly and then sell it for a fast profit. The key, of course, is to buy the right home. You’re not interested in monthly rents when flipping a home. Instead, you need to purchase a home for the lowest possible price if you want to make a good profit when selling.

Again, research is key. You want to find a home in an attractive neighborhood, one that attracts plenty of buyers. And you need to make sure the repairs required for the home aren’t so costly that they’ll swallow any potential profit.

If you’re handy enough to handle renovations on your own, you’ll greatly improve your chances of making solid profits through house flipping.

10 Reasons To Invest In Real Estate

Investing in real estate, like any investment, includes some risk, but it can provide a lot of cash to your bank account. Here are some benefits of investing in real estate.

DISCLAIMER: Nothin is guaranteed in real estate investing. You must do your own research.

1. Cash Flow

Real estate investing is a great way to raise your income. Whether your purchase residential real estate or commercial real estate, you can rent to tenants, producing passive income. You'll receive recurring checks from the renters in the form of checks. Remember to check payment history prior to renting to a tenant, though.

2. Profitable Returns

As real estate appreciates over time, you can sell it for a profit. You can also cash out equity to use in additional home purchases. As a reminder, appreciation is never guaranteed, though.

3. Hedge Against Inflation

Even if inflation is on the rise, and the dollar is losing value, often real estate continues to raise in price, allowing your money to stay safe from depreciation. In high-inflation markets, real estate can be a phenomenal tool. When prices or goods and services are rising, most of the time, real estate prices and rents do too. Therefore, even while you're paying more for normal living, your investments make you more, as well.

4. Tax Advantages

Investing in real estate comes with tax benefits. You can deduct several expenses associated with owning an investment property, including your property taxes, mortgage interest, property management fees, property insurance, the costs of ongoing maintenance, the cost of repairs and the money you pay to market your property to potential renters. If you sell your property for more than you paid for it, the gain you realized won't be taxed as income. Instead, it will be taxed as capital gains, which typically come with lower tax rates than does income. If you invest in opportunity zones – neighborhoods that are in need of investment – you'll pay even less in capital gains.

5. Diversification

During economic turmoil, often, the investors who are diversified are the ones who feel it the least. Real estate investing can offer you protection against other sub-markets, like stocks and bonds, so even if they are going down, your real estate may still be on the rise. This can protect you against losses you take in other investments.

6. Passive Income

Real estate investing can provide passive income alongside additional sources of other income. Your investments can still be making you money without having to work everyday. A lot of people start their investing career while still working full-time. Isn't that amazing?!

7. Leverage Debt and Other Funds

Very few people can afford to buy real estate with cash. Being able to take out a loan to invest in real estate solves this problem. You get to use other people's money to purchase properties and grow your wealth. Banks, mortgage lenders or credit unions can be a source for your loans, and you'll pay them back over time. This allows you to leverage your savings to potentially buy additional properties in a shorter amount of time.

8. Stability

Real estate is often a long-term investment, and you can hold on to it for several years. In the meantime, you can rent it out, making recurring income.

9. Build Your Net-Worth

The obvious goal of investing in real estate is to grow your net worth and own assets that pay you. When you sell a property that has risen in value, you generate revenue and boost your cash assets. This can be a vehicle for you to repeat the process of invest in other things. Over time, you can buy more valuable properties and make bigger profits. The key is to make sure you're making smart decisions and buying the right properties.

10. Fulfill Your Mission

When you own real estate, you control what you do with your money and how it gets to work for you. At the end of the day, it's a vehicle for you to fulfill your dreams, contribute to your family and community and be a positive influence on your country.

Get started with a Gapital pro.

Get pre-appoved

Rental Property ROI Calculator

Thu, 29 Sep 2022 08:36:07 -0500

Common Rental Property Expenses

Estimating and budgeting for expenses is crucial. The best way to do that is with a profit and loss statement, a report listing the income, expenses and profit for the rental property. It ensures that you know your net profits each month and each year so that you see a return on investment. The good news is that many rental property expenses are tax-deductible, so be sure to keep track of what you spend throughout the year.

Rental property expenses are typically at least 35 percent of the home's gross operating income, but they can vary. To get a good idea of how much you're likely to spend, talk to other property owners in your area and do some research. Here are 11 common rental property expenses you need to understand.

1. Repairs and maintenance

Chances are something in the rental home will break during the year and you'll have to repair it. Since most repairs seem to come out of nowhere, it's sometimes tough to budget for everything. But performing regular maintenance, such as checking the HVAC system seasonally and keeping up the landscaping, will make sure the home remains in excellent condition and can save you money on future repairs.

Some experts suggest setting aside at least one percent of the property's value each year for repairs and maintenance. But the age and condition of the home often factor into the costs of repairs and maintenance. Property owners are typically responsible for a home's repairs, but if you're expecting tenants to handle some of the maintenance, such as yard work, put it in the lease agreement.

2. Insurance

Insurance is another rental property expense you can expect to pay. Landlord policies should include liability, personal property and dwelling coverage. These policies usually cost about 25 percent more than a typical homeowners insurance policy, which averages $2,285 a year, according to Insurance.com. If you have a mortgage, insurance is often included in your monthly loan payment.

Along with the typical liability, personal property and dwelling coverage, you might also need flood, earthquake or other additional insurance, depending on where the home is. Contact your insurance company to determine what type of coverage you need and how much it will cost.

3. Property taxes

The cost of property taxes varies by state and even community. On average, American households pay $2,471 in property taxes every year, according to the U.S. Census Bureau. But, taxes are as high as $8,000 in some areas. The best way to find out exactly how much your property taxes will be is to contact your local county assessor. This office calculates tax amounts based on the current real estate fair market value. You'll usually pay your property taxes with your mortgage payment if you have a home loan.

4. Marketing and advertising

To find qualified tenants, you need to advertise the property. Placing an ad in your local newspaper or running an ad on Facebook is another rental property expense. Marketing and advertising expenses might also include taking professional photos of the home.

5. Property management

Property managers handle the day-to-day of the rental property, including advertising the home, taking tenant applications, screening potential renters, collecting rent and handling repairs and complaints. They're also experienced in drawing up leases and are knowledgeable about local landlord-tenant laws. Hiring a property manager will cost about 10 percent of the monthly rent, but it will save you the time and headache of dealing with the rental.

6. Tenant Application Fees

Part of selecting the right tenant for your rental involves screening applicants and running credit and criminal background checks. If you're doing this yourself, a credit check through one of the credit bureaus, including Equifax, Experian or TransUnion, will cost about $35 each. Criminal background checks typically run about $35, as well. If you hire a property manager, they'll handle the screening as part of their monthly fee.

7. Homeowners association fees

If your rental home is in a homeowners association, expect to pay a monthly HOA fee. These costs are typically $200 to $300 a month but can run up to about $1,000. It all depends on the HOA's amenities, such as a pool or fitness center, and what services they provide, such as yard work or other maintenance. Contact the local HOA to find out how much you'll pay.

8. Licenses and permits

Laws governing rental properties vary by state and municipality. In some places, you may need a license or permit to operate a rental property. Consult with a local attorney or do your homework to find out what's required in your area.

9. Legal and other professional fees

Owning a rental property is a complicated experience, especially when you're just starting out. There are complex landlord-tenant laws to understand, a few extra forms on your tax return to fill out and much-needed financial and legal advice. So, you might need to hire a professional, which is another rental property expense. It's a worthwhile cost, though, since these services will ensure you're following the law and that your finances are in check.

Hiring an attorney is a great idea to understand local legal requirements for owning rental property. These laws tend to include many caveats that are difficult to understand on your own. A certified public accountant (CPA) will help you file your taxes and offer advice about whether you need to form a company or continue operating the rental home as an individual.

10. Utilities

Tenants are usually responsible for paying their own utilities. But, you might consider paying the water bill or including the cost of Wi-Fi in the rent as a perk. These costs average a couple of hundred dollars a month. Also, keep in mind that you'll need to pay all utilities in between renters when the home is vacant.

11. Vacancies

This isn't a rental property expense in the traditional sense because you're not actually paying for something. But, a vacancy is money out of your pocket. If the property sits empty for a month or two, that could potentially cost you thousands of dollars. To minimize the chance of a vacancy, add a clause to your lease agreement that asks renters to notify you at least a month before the lease ends when they're not renewing. This will give you time to find a new tenant to move in immediately.

Home Budget Calculator

Thu, 29 Sep 2022 04:55:12 -0500

Managing a monthly budget can be difficult and frustrating. One of the most important aspects of controlling the budget is to determine where money is going. This home budget calculator helps you do just that. By entering income and monthly expenditures, view how much money is left to save and how much money is being spent.

Debt-to-income Calculator

Wed, 28 Sep 2022 11:35:56 -0500

Next Steps

Qualification

Getting pre-approved and knowing what you qualify for is easy. If you're looking to purchase a home or refinance, we can help.

Start Qualifying

Build a budget.

Preparing for big life events is essential to maintaining a healthy financial profile. A clear and effective budget can help.

Generate Your Budget

What is a debt-to-income ratio?

A debt-to-income, or DTI, ratio is derived by dividing your monthly debt payments by your monthly gross income. The ratio is expressed as a percentage, and lenders use it to determine how well you manage monthly debts -- and if you can afford to repay a loan.

Generally, lenders view consumers with higher DTI ratios as riskier borrowers because they might run into trouble repaying their loan in case of financial hardship.

To calculate your debt-to-income ratio, add up all of your monthly debts – rent or mortgage payments, student loans, personal loans, auto loans, credit card payments, child support, alimony, etc. – and divide the sum by your monthly income. For example, if your monthly debt equals $2,500 and your gross monthly income is $7,000, your DTI ratio is about 36 percent. (2,500/7,000=0.357).

What factors make up a DTI ratio?

Here's a simple three-step formula for calculating your DTI ratio.

Add up all of your monthly debts. These payments may include: monthly mortgage or rent payment, minimum credit card payments auto, student or personal loan payments, monthly alimony or child support payments or any other debt payments that show on your credit report
Divide the sum of your monthly debts by your monthly gross income (your take-home pay before taxes and other monthly deductions).
Convert the figure into a percentage and that is your DTI ratio.

Keep in mind that other monthly bills and financial obligations -- utilities, groceries, insurance premiums, healthcare expenses, daycare, etc. -- are not part of this calculation. Your lender isn't going to factor these budget items into their decision on how much money to lend you. Keep in mind that just because you qualify for a $300,000 mortgage, that doesn't mean you can actually afford the monthly payment that comes with it when considering your entire budget.

What is an ideal debt-to-income ratio?

Lenders typically say the ideal front-end ratio should be no more than 28 percent, and the back-end ratio, including all expenses, should be 36 percent or lower. In reality, depending on your credit score, savings, assets and down payment, lenders may accept higher ratios, depending on the type of loan you're applying for.

For conventional loans backed by Fannie Mae and Freddie Mac, lenders now accept a DTI ratio as high as 50 percent. That means half of your monthly income is going toward housing expenses and recurring monthly debt obligations.

Does my debt-to-income ratio impact my credit?

Credit bureaus don't look at your income when they score your credit so your DTI ratio has little bearing on your actual score. But borrowers with a high DTI ratio may have a high credit utilization ratio -- and that accounts for 30 percent of your credit score.

Credit utilization ratio is the outstanding balance on your credit accounts in relation to your maximum credit limit. If you have a credit card with a $2,000 limit and a balance of $1,000, your credit utilization ratio is 50 percent. Ideally, you want to keep that your credit utilization ratio below 30 percent when applying for a mortgage.

Lowering your credit utilization ratio will not only help boost your credit score, but lower your DTI ratio because you're paying down more debt.

How to lower your debt-to-income ratio

To get your DTI ratio under better control, focus on paying down debt with these four tips.

Track your spending by creating a budget, and reduce unnecessary purchases to put more money toward paying down your debt. Make sure to include all of your expenses, no matter how big or small, so you can allocate extra dollars toward paying down your debt.
Map out a plan to pay down your debts. Two popular ways for tackling debt include the snowball or avalanche methods. The snowball method involves paying down your small credit balance first while making minimum payments on others. Once the smallest balance is paid off, you move to the next smallest and so forth. On the other hand, the avalanche method, also called the ladder method, involves tackling accounts based on higher interest rates. Once you pay down a balance that has a higher-interest rate, you move on the next account with the second-highest rate and so on. No matter what way you choose, the key is to stick to your plan. Rezzy's debt payoff calculator can help.
Make your debt more affordable. If you have high-interest credit cards, look at ways to lower your rates. To start, call your credit card company to see if it can lower your interest rate. You might have more success going this route if your account is in good standing and you regularly pay your bills on time. In some cases, you may realize it's better to consolidate your credit card debt by transferring high-interest balances to an existing or new card that has a lower rate. Taking out a personal loan is another way you could consolidate high-interest debt into a loan with a lower interest rate and one monthly payment to the same company.
Avoid taking on more debt. Don't make large purchases on your credit cards or take on new loans for major purchases. This is especially important before and during a home purchase. Not only will taking on new loans drive up your DTI ratio, it can hurt your credit score. Likewise, too many credit inquiries also can lower your score. Stay laser- focused on paying down debt without adding to the problem.

Mortgage Calculator

Tue, 27 Sep 2022 09:13:24 -0500

How to Calculate Your Mortgage Payment

Calculating mortgage payments is complicated, but Rezzy's Mortgage Calculator makes it easy.

First, next to the space labeled "Purchase Price", enter the price (if you're buying) or the current value of your home (if you're refinancing).

In the "Down Payment" section, type in the amount of your down payment (if you're buying) or the amount of equity you have (if you're refinancing). A down payment is the cash you pay upfront for a home, and home equity is the value of the home, minus what you owe. Enter this as a dollar amount.

Next, you'll see “Term”. Usually, this is 30 years, but maybe 20, 15 or 10 — and our calculator adjusts the repayment schedule.

Finally, in the "Interest Rate" box, enter the rate you expect to pay. Our calculator defaults to the current average rate, but you can adjust the percentage. Your rate will vary depending on whether you’re buying or refinancing.

As you enter these figures, a new amount for principal and interest will appear below. Rezzy's calculator also estimates property taxes, homeowners insurance and homeowners association fees. You can edit these amounts or even ignore them as you're shopping for a loan — those costs might be rolled into your escrow payment, but they don't affect your principal and interest as you explore your options.

Costs Normally in Your Mortgage Payment

The major part of your mortgage payment is the principal and the interest. The principal is the amount you borrowed, while the interest is the sum you pay the lender for borrowing it. Your lender also might collect an extra amount every month to put into escrow, money that the lender (or servicer) then typically pays directly to the local property tax collector and to your insurance carrier.

Principal: This is the amount you borrowed from the lender.
Interest: This is what the lender charges you to lend you the money. Interest rates are expressed as an annual percentage.
Property taxes: Local authorities assess an annual tax on your property. If you have an escrow account, you pay about one-twelfth of your annual tax bill with each monthly mortgage payment.
Homeowners insurance: Your insurance policy can cover damage and financial losses from fire, storms, theft, a tree falling on your home and other hazards. If you live in a flood zone, you'll have an additional policy, and if you're in Hurricane Alley or earthquake country, you might have a third insurance policy. As with property taxes, you pay one-twelfth of your annual insurance premium each month, and your lender or servicer pays the premium when it's due.
Mortgage insurance: If your down payment is less than 20 percent of the home's purchase price, you'll probably be on the hook for mortgage insurance, which also is added to your monthly payment.

Mortgage Payment Formula

Equation for mortgage payments

Symbol

M	the total monthly mortgage payment
P	the principal loan amount
r	your monthly interest rate Lenders provide you an annual rate so you’ll need to divide that figure by 12 (the number of months in a year) to get the monthly rate. If your interest rate is 5 percent, your monthly rate would be 0.004167 (0.05/12=0.004167).
n	number of payments over the loan’s lifetime Multiply the number of years in your loan term by 12 (the number of months in a year) to get the number of payments for your loan. For example, a 30-year fixed mortgage would have 360 payments (30x12=360).

This formula can help you crunch the numbers to see how much house you can afford. Using our Mortgage Calculator can take the work out of it for you and help you decide whether you're putting enough money down or if you can or should adjust your loan term. It's always a good idea to rate-shop with several lenders to ensure you're getting the best deal available.

How a Mortgage Calculator Can Help

As you set your housing budget, determining your monthly house payment is crucial — it will probably be your largest recurring expense. As you shop for a purchase loan or a refinance, Rezzy's Mortgage Calculator allows you to estimate your mortgage payment. To study various scenarios, just change the details you enter into the calculator. The calculator can help you decide:

The loan length that's right for you. If your budget is fixed, a 30-year fixed-rate mortgage is probably the right call. These loans come with lower monthly payments, although you'll pay more interest during the course of the loan. If you have some room in your budget, a 15-year fixed-rate mortgage reduces the total interest you'll pay, but your monthly payment will be higher.

If an ARM is a good option. As rates rise, it might be tempting to choose an adjustable-rate mortgage (ARM). Initial rates for ARMs are typically lower than those for their conventional counterparts. A 5/6 ARM — which carries a fixed rate for five years, then adjusts every six months — might be the right choice if you plan to stay in your home for just a few years. However, pay close attention to how much your monthly mortgage payment can change when the introductory rate expires.

If you're spending more than you can afford. The Mortgage Calculator provides an overview of how much you can expect to pay each month, including taxes and insurance.

How much to put down. While 20 percent is thought of as the standard down payment, it's not required. Many borrowers put down as little as 3 percent.

Deciding How Much House You Can Afford

If you're not sure how much of your income should go toward housing, follow the tried-and-true 28/36 percent rule. Many financial advisors believe that you should not spend more than 28 percent of your gross income on housing costs, such as rent or a mortgage payment, and that you should not spend more than 36 percent of your gross income on overall debt, including mortgage payments, credit cards, student loans, medical bills and the like. Here's an example of what this looks like:

Joe makes $60,000 a year. That's a gross monthly income of $5,000 a month. $5,000 x 0.28 = $1,400 total monthly mortgage payment (PITI)

Joe's total monthly mortgage payments — including principal, interest, taxes and insurance — shouldn't exceed $1,400 per month. That's a maximum loan amount of roughly $253,379. While you can qualify for a mortgage with a debt-to-income (DTI) ratio of up to 50 percent for some loans, spending such a large percentage of your income on debt might leave you without enough wiggle room in your budget for other living expenses, retirement, emergency savings and discretionary spending. Lenders don't take those budget items into account when they pre-approve you for a loan, so you need to factor those expenses into your housing affordability picture for yourself. Once you know what you can afford, you can take financially sound next steps. The last thing you want to do is jump into a 30-year home loan that's too expensive for your budget, even if a lender is willing to loan you the money. Rezzy's How Much House Can I afford Calculator will help you run through the numbers.

How to Lower Your Monthly Mortgage Payment

If the monthly payment you're seeing in our calculator looks a bit out of reach, you can try some tactics to reduce the hit. Play with a few of these variables:

Choose a longer loan. With a longer term, your payment will be lower (but you'll pay more interest over the life of the loan).
Spend less on the home. Borrowing less translates to a smaller monthly mortgage payment.
Avoid PMI. A down payment of 20 percent or more (or in the case of a refi, equity of 20 percent or more) gets you off the hook for private mortgage insurance (PMI).
Shop for a lower interest rate. Be aware, though, that some super-low rates require you to pay points, an upfront cost.
Make a bigger down payment. This is another way to reduce the size of the loan.

Next Steps

A mortgage calculator is a springboard to helping you estimate your monthly mortgage payment and understand what it includes. Your next step after exploring the numbers:

Get pre-approved by a mortgage lender. If you're shopping for a home, this is a must.
Apply for a mortgage. After a lender has vetted your employment, income, credit and finances, you'll have a better idea how much you can borrow. You'll also have a clearer idea of how much money you'll need to bring to the closing table.

Mortgage Calculator: Alternative Uses

Most people use a mortgage calculator to estimate the payment on a new mortgage, but it can be used for other purposes, too.

Here are some other uses:

Planning to pay off your mortgage early.
Use the "Extra payments" functionality of Rezzy's mortgage calculator to find out how you can shorten your term and save more over the long-run by paying extra money toward your loan's principal. You can make these extra payments monthly, annually or even just one time.
To calculate the savings, click the "Amortization / Payment Schedule" link and enter a hypothetical amount into one of the payment categories (monthly, yearly or one-time), then click "Apply Extra Payments" to see how much interest you'll end up paying and your new payoff date.
Decide if an ARM is worth the risk.
The lower initial interest rate of an adjustable-rate mortgage, or ARM, can be tempting. While an ARM may be appropriate for some borrowers, others may find that the lower initial interest rate won't cut their monthly payments as much as they think.
To get an idea of how much you'll really save initially, try entering the ARM interest rate into the mortgage calculator, leaving the term as 30 years. Then, compare those payments to the payments you get when you enter the rate for a conventional 30-year fixed mortgage. Doing so may confirm your initial hopes about the benefits of an ARM -- or give you a reality check about whether the potential pluses of an ARM really outweigh the risks.
Find out when to get rid of private mortgage insurance.
You can use the mortgage calculator to determine when you'll have 20 percent equity in your home. That's the magic number for requesting that a lender waive its private mortgage insurance requirement. If you put less than 20 percent down when you purchased the home, you'll need to pay an extra fee every month on top of your regular mortgage payment to offset the lender's risk. Once you have 20 percent equity, that fee goes away, which means more money in your pocket.

Terms Explained

Using an online mortgage calculator can help you quickly and accurately predict your monthly mortgage payment with just a few pieces of information. It can also show you the total amount of interest you"ll pay over the life of your mortgage. To use this calculator, you"ll need the following information:

Home price - This is the dollar amount you expect to pay for a home.

Down payment - The down payment is money you give to the home's seller. At least 20 percent down typically lets you avoid mortgage insurance.

Loan amount - If you're getting a mortgage to buy a new home, you can find this number by subtracting your down payment from the home's price. If you're refinancing, this number will be the outstanding balance on your mortgage.

Loan term (years) - This is the length of the mortgage you're considering. For example, if you're buying a home, you might choose a mortgage loan that lasts 30 years, which is the most common, as it allows for lower monthly payments by stretching the repayment period out over three decades. On the other hand, a homeowner who is refinancing may opt for a loan with a shorter repayment period, like 15 years. This is another common mortgage term that allows the borrower to save money by paying less total interest. However, monthly payments are higher on 15-year mortgages than 30-year ones, so it can be more of a stretch for the household budget, especially for first-time homebuyers.

Interest rate - Estimate the interest rate on a new mortgage by checking Rezzy's mortgage rate tables for your area. Once you have a projected rate (your real-life rate may be different depending on your overall financial and credit picture), you can plug it into the calculator.

Loan start date - Select the month, day and year when your mortgage payments will start.

What is a Home equity line of credit (HELOC)?

Wed, 24 Aug 2022 14:12:22 -0500

A home equity line of credit, or HELOC, is a type of home equity loan that allows homeowners to borrow money against the equity they have in their home and receive that money as a line of credit. Borrowers can use HELOC funds for a variety of purposes, including home improvements, education and the consolidation of high-interest credit card debt. HELOCs typically have lower interest rates than personal loans. You'll likely get a better rate if you have a high credit score, a low debt-to-income ratio and a lot of equity in your home.

Find out how much you can draw.

Let a Gapital Pro help you with the best refinance options.

Start Your Application

How to Pay Back a HELOC

A HELOC has two phases that separate borrowing and repayment, also known as the draw period and the repayment period. Be aware, however, that you’ll make payments on the loan during both periods.

Phase 1: The Draw Period

The first phase, called the draw period, is when your line of credit is open and available for use. During this period, you’ll be allowed to borrow from your line of credit as needed, making minimum payments or possibly interest-only payments on the amount you’ve borrowed. If you reach your limit, you’ll have to pay off some of what you owe before you can continue borrowing.

If you want to extend your draw period, you may be able to refinance your HELOC to do so.

Phase 2: The Repayment Period

Once you reach the end of your draw period, you’ll no longer have access to the HELOC funds and will have to start making full monthly payments that cover both the principal and interest. This is the repayment period. If you’ve been making interest-only payments up to this point, be prepared for your payments to go up, potentially by a lot.

The length of both periods will depend on the loan you get. For example, you may decide that a 30-year HELOC, with a 10-year draw period and 20-year repayment period, makes the most sense for you.

Typically, lenders won’t allow you to borrow against all the equity you have in your home in order to keep your loan-to-value (LTV) ratio below a certain percentage. This is because lenders want you to have a certain amount of equity in the home, since you’re less likely to default if you could possibly lose the equity you’ve built up.

Pros and Cons of HELOCs

HELOCs offer a combination of relatively low interest rates and the flexibility to borrow what you need when you need it. If you need money over a staggered period, a line of credit is ideal. However, there are always risks when you take out a loan, especially one that's secured by your home. Here are some of the key considerations for getting a HELOC.

PROS

Typically lower upfront costs than with home equity loans.
Lower interest rates than with credit cards.
Usually low or no closing costs.
Interest charged only on the amount of money you use.

PROS

Lenders may require minimum draws.
Interest rates can adjust upward or downward.
Lenders may charge a variety of fees, including annual fees, application fees, cancellation fees or early closure fees.
Late or missed payments can damage your credit and put your home at risk.

HELOC vs. Home Equity Loan

While HELOCs and home equity loans are similar in some ways, they have a few distinct differences. These are some of the key factors you should consider when deciding between a HELOC and a home equity loan.

	HELOCs	Home Equity Loans
Interest Rates	Variable	Fixed
APRs	Slightly lower	Slightly higher
Disbursement	When needed	Lump sum
Repayment Terms	First 5-10 years: Interest-only payments Last 10-20 years: interest and principal	10-30 years of fixed payments
Best for	Ongoing home improvement projects, college tuition payments, medical expenses	Debt consolidation, large home improvement projects, major purchases

HELOC vs. Cash-out Refinance

A cash-out refinance replaces your current home mortgage with a larger home loan. The difference between the original mortgage and the new loan is disbursed to you in a lump sum. The main difference between a cash-out refinance and a HELOC is that a cash-out refinance requires you to replace your current mortgage, while a HELOC adds a loan to your current mortgage.

A HELOC may be a better option for you if:

You want more flexibility.
You already have a good mortgage rate.
You plan to use your HELOC only for tax-deductible home improvement projects.

A cash-out refinance may be a better option for you if:

You prefer a fixed monthly payment.
You want a lower mortgage rate.
You want to withdraw more home equity.

Apply for a HELOC.

A Gapital Pro will walk you through your options and help you make the best mortgage choice.

Start Your Application

How Homeownership Can Help Shield You from Inflation

Wed, 18 May 2022 14:10:02 -0500

If you’re following along with the news today, you’ve likely heard about rising inflation. You’re also likely feeling the impact in your day-to-day life as prices go up for gas, groceries, and more. These rising consumer costs can put a pinch on your wallet and make you re-evaluate any big purchases you have planned to ensure they’re still worthwhile.

If you’ve been thinking about purchasing a home this year, you’re probably wondering if you should continue down that path or if it makes more sense to wait. While the answer depends on your situation, here’s how homeownership can help you combat the rising costs that come with inflation.

Homeownership Offers Stability and Security

Investopedia explains that during a period of high inflation, prices rise across the board. That’s true for things like food, entertainment, and other goods and services, even housing. Both rental prices and home prices are on the rise. So, as a buyer, how can you protect yourself from increasing costs? The answer lies in homeownership.

Buying a home allows you to stabilize what’s typically your biggest monthly expense: your housing cost. If you get a fixed-rate mortgage on your home, you lock in your monthly payment for the duration of your loan, often 15 to 30 years. James Royal, Senior Wealth Management Reporter at Bankrate, says:

“A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.”

So even if other prices rise, your housing payment will be a reliable amount that can help keep your budget in check. If you rent, you don’t have that same benefit, and you won’t be protected from rising housing costs.

Use Home Price Appreciation to Your Benefit

While it’s true rising mortgage rates and home prices mean buying a house today costs more than it did a year ago, you still have an opportunity to set yourself up for a long-term win. Buying now lets you lock in at today’s rates and prices before both climb higher.

In inflationary times, it’s especially important to invest your money in an asset that traditionally holds or grows in value. The graph below shows how home price appreciation outperformed inflation in most decades going all the way back to the seventies – making homeownership a historically strong hedge against inflation (see graph below):

So, what does that mean for you? Today, experts say home prices will only go up from here thanks to the ongoing imbalance in supply and demand. Once you buy a house, any home price appreciation that does occur will be good for your equity and your net worth. And since homes are typically assets that grow in value (even in inflationary times), you have peace of mind that history shows your investment is a strong one.

Bottom Line

If you’re ready to buy a home, it may make sense to move forward with your plans despite rising inflation. If you want expert advice on your specific situation and how to time your purchase, let’s connect.