Legacy Prime Lending - Resources , Calculators

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.