Real Estate Investing: Why Paying Cash (or Putting Too Much Down) Could be a 6 figure Mistake

Writen by Joel McDonald

Most buyers who just won the lottery, received a large inheritance, or are fortunate enough to have enough cash decide that they want to pay cash for their home for the convenience of not having a monthly mortgage payment. However that convenience is costing those buyers nearly $5000 per month over $200,000 over 20 years! Here is an explanation.

Let’s say you have $250,000 in cash, and you have a choice of putting 10% down and carrying a 90% mortgage, or simply paying cash for a $250,000 home.

If you pay cash:
$0 monthly payments. Yeah!
No diversification in stock market.
0 profits per month.

After paying your $904 mortgage payment from your $1312.50 stock profits, you are left with $408.50 in profits per month! That’s $4902 per year!

If the above scenario isn’t a strong enough argument for not paying cash, think about this: Your home won’t be worth a penny more in 20 years if you pay cash than if you take out a loan, so it doesn’t really matter how much the market appreciates. However, if you took out a mortgage insteady of paying cash and invest in the stock market in addition to your home, your stock market returns compound annually and amount to over $200,000 in additional profits!

By paying cash for your home, you tie up that money in an asset that will grow at the same rate whether you paid cash for it or not, and you lose the opportunity to diversify and invest that money elsewhere.

The same principle even applies if you don’t have cash to pay for your entire home. If you are thinking about taking money from your existing stock portfolio simply to lower your monthly payment on your mortgage payment, you may want to think twice about what you are doing.

If you’d like to experiment with different mortgage payments for different loan amounts, visit this useful mortgage calculator.

Joel McDonald is the CEO of Automated Homefinder a Colorado company specializing in residential real estate.

What To Expect In Closing Costs On A Home Purchase

Writen by W. Troy Swezey

Many are taking advantage of this year’s low mortgage rates to purchase a home. Pent up with excitement, many families, who have scrimped and saved for a down payment, jump for joy when the mortgage lender finally approves their application. But, they should realize that there’s a whole new set of expenses that must be covered before actually closing on the sale.

New homeowners are often taken aback by up front closing costs such as mortgage and title insurance, attorney fees, recording fees and loan points, which can run into the thousands of dollars. But there is no need to be afraid of these charges. With a little background on their purpose and shrewd financial foresight, closings can be a breeze.

A lender’s charge for processing the loan can be determined at the beginning of your buying process. Referred to as “points,” these charges are expressed as a percentage of the total loan. For instance, three points are equal to 3 percent of the borrowed amount. “Points” can also become a tool for negotiation with the lender and seller. In a buyer’s market, home sellers will often agree to pay mortgage fees in order to close a deal.

Title insurance can be a substantial expense. The one time title fee, including search and examination, averages around $430 for a $100,000 home, but it’s recommended that you check with a local title insurance agent ahead of time to effectively determine what you’ll owe before closing.

Additional costs, such as attorney charges, and recording, transfer and inspection fees, can also be predicated ahead of time by the buyer. Most often pest and survey inspections, although included in the official closing statement, are conducted and paid for long before the closing date. However, buyers should consider them as additional up front costs.

Some closing costs, such as “points,” are fully tax deductible that tax year if you show proof of a separate lump sum payment. They are not deductible in a few cases when the loan is the result of re financing rather than a home purchase. Application, appraisal, documentation and broker fees can not be deducted.

Some states require payment of property taxes at closing. In some instances, buyers and sellers are asked to put money into an escrow account that will cover any past and future tax obligations. Be sure to check with an attorney or real estate agent before the closing to determine your property tax commitments.

Also, be prepared to pay any assessments if buying a condominium or into an association governed property. Fees for credit reports, notary public seals and assumptions, which includes the processing of official documents, may also arise.

Knowing what total closing costs will be before starting your home search can help you better understand what price range is right for you. In the end, the process of closing on a mortgage will be easier than you think, leaving more time to plan for your new home.

About The Author

W. Troy Swezey is the author of “WHAT TO EXPECT IN CLOSING COSTS ON A HOME PURCHASE.” As a Realtor at Century 21 Paul & Associates, he has helped many individuals with their real estate needs. Visit his web site to download his free e book, “REAL ESTATE SECRETS EXPOSED.” http://www.TroyIsMyRealtor.com or mail to: TroyC21@usa.net

Real Estate V. Stock Market : the Heavyweights Champ !

Writen by Luigi Frascati

There are out there essentially three places where you can stack up your hard earned money: the stock market, real estate and under your mattress. If you decide to put the money under your mattress, beware: it will fruit no interest and, hence, it won’t grow over time. In fact, it will devaluate.

Competition between Stock Market and Real Estate as the top source of investment returns has been going on since the mid 1960’s. Typically the Stock Market was seen as the place to invest and Real Estate as the place … well, to live in. But since the mid 1990’s the old axiom has changed more and more every year, and today it is entirely revolutionized. The purchase, holding, renting and reselling of real estate assets especially residential real estate is now the investment of choice for the majority of investors. Money is pouring in as a direct and proximate consequence of low interest rates, which favor mortgaging over deposits and low risk asset holdings over high risk speculative stocks. Demand for residential real estate throughout all urban areas in North America and to a lesser extent Europe has gone through the roof. This affects especially condominiums and townhomes located well inside urban cores, but it extends to single family assets into suburbia just as well. Real estate has become the psychological equivalent of gold, historically considered a tangible, safe store of value.

Tangibility of assets is, in fact, one of the primary psychological reasons of this financial revolution. Given the choice between the purchase of a piece of paper representing the share into a far away company over which the Investor has no control, and the purchase of four walls and a ceiling that the Buyer can see, touch and paint, the vast majority of consumers today are not going to hesitate for one second : they’ll take the latter. But there is also a very important practical reason: availability of financing. Scandals have scoured both Stock Market and Real Estate circles, but whereas scandals in Real Estate typically have affected one or a few Sellers and one or a few Buyers, scandals in the Stock Market have affected millions of Investors. Lenders, as a result, have become somewhat leery to lend for the purchase of stocks and bonds and are much more comfortable with real estate market values. Banks lend on appraised values, and it is far more likely for an appraiser of a residential condo to determine its true market value with a high degree of accuracy than it is for a stock analyst to evaluate the books of a corporation with the same degree of accuracy. Afterall, it can be said that House A and House B have sold for a certain price in a certain neighborhood so that it is reasonable to expect that House C will sell for a similar or equivalent price in the same neighborhhod. But it is more complicated to apply the same reasoning to Corporation A, B and C because variables are too great: location, number of employees, performance, market sector, technology, politics, taxes and all the rest. Therefore, a financial institution will lend money to a qualified Real Estate Buyer more readily than to a qualified Stock Market Investor.

The type of Buyer has also changed. With the advent of the internet and all other technological advances, Buyers today are more knowledgeable than ever before. As such, they want to see through things thoroughly and, once again, it is easier and preferable for them to determine by themselves whether they like a piece of real estate than it is to believe to a Stock Broker or analyst. More than ever they want sound advice and hot tips, and there is no question that those they can get from either a good Real Estate Agent or a good Stock Broker. But what the Stock Broker cannot offer is a tour of the company. A Real Estate Agent, on the other hand, will show them the house.

And, finally, population growth, density and age are other important factors in today’s prevalence of Real Estate over the Stock Market. For instance, here in the Greater Vancouver region population is expected to grow 58 percent to 3.3 million people in the next 25 years according to the Urban Futures Institute. That’s 1.2 million more people than are here now. The Institute reports that the Baby Boom generation now makes up about one third of the population. Their aging will result in a surge in the over 55 population of 146 percent by 2030, and that many baby boomers today are beginning to look towards their retirement years and golden age as a period of calm, enjoyment and relaxion free of the continuous buy and sell hustle typical of stock exchanges everywhere. They are more and more beginning to question Donald Trump’s make it or break it philosophy for a more solid and long lasting approach to the management of their own personal wealth and finances.

Luigi Frascati luigi@dccnet.com www.luigifrascati.com

Real Estate Chronicle

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He is the author of the Real Estate Chronicle, his weblog published online. Luigi holds a Bachelor Degree in Economics and has been practising real estate for the past eighteen years.

Buying a Home: Lender Letters

Writen by Julie Jalone

What do pre qualification and pre approval letters accomplish and what is the difference between them?

A pre qualification letter is from a lender who has done a quick review of your financial situation and based on the results believes, if additional information is provided you will qualify for a loan. In other words the lender is simply stating that there has been no negative information uncovered preventing you from getting a loan.

A pre approval letter indicates a thorough analysis of your credit, income, and assets has been completed and you are pre approved by a lender for a specific loan amount.

As you would imagine, a pre qualification letter is easier and quicker to obtain than getting pre approved but it is often the first step in the approval process. A pre qualification letter can be issued while information and documentation is being submitted and verified for the pre approval letter.

A pre qualification letter is normally issued by a loan officer after an initial interview, credit check and determining a loan amount. Loan officers and mortgage brokers do not make final loan approval decisions, so a pre qualification letter is not a commitment to make a loan. Since no verification of information has been completed, the pre qualification letter is an opinion and the lender is not bound to make a loan when you are ready to buy. There is no guarantee you will actually qualify for the loan amount for which you have been pre qualified. The letter is used when you are making an offer on a home and indicates to the seller you are qualified to purchase the property based on the information you provided the lender and subject to verification.

Pre approval is a formal process based on documented and verified information. It involves your assets, liabilities, down payment employment history, and credit score. Your application is sent to an underwriter and a decision is made regarding your loan. If your loan is pre approved, you are provided with a pre approval letter or certificate. Having a pre approval allows you to close or get a final loan commitment quickly when you find the right property. In addition, a pre approval for a loan gives strength to your offer and in some cases may improve your negotiating power, since being pre approved is closer to having cash to pay for the property.

If the loan approval letter is better why pre qualify? Because sooner or later you will have to make a formal application and getting pre qualified is the first step in the process. It also speeds up the loan process and can save you time and headaches by only looking at homes you are estimated to be able to afford while you seek pre approval.

Although not a requirement, a pre approval from your lender demonstrates you have good credit history and are qualified for a mortgage loan of a specified size. In today’s competitive market, this letter or certificate can provide negotiating power and strength to your offer. Sellers will generally select offers with a loan pre approval over offers without. Maybe even more important, being pre approved for a loan takes some of the stress out of looking for your next home. You avoid any disappointment in selecting a dream home only to find you can’t qualify for the loan. In addition, you will not have to worry about meeting the lender’s loan requirements.

Please understand the definition of pre qualification and pre approval can be somewhat flexible and the meanings may vary from place to place and lender to lender. Neither is viewed as a loan commitment. Final approvals take into account the property, title and undated review of financial conditions to make sure there have been no negative changes since the initial review.

Getting pre qualified and/or pre approved by a reputable mortgage company is the first step in buying a property, and should be done before you start looking for your new home because it will let you and your Realtor know what price range of home to be looking at.

The list of information your lender will want to get the loan pre approval process started generally includes a standard residential loan application, two year’s history of your residence , employers name, other income sources, copies of W2 forms or pay stubs, copies of bank statements, verification of brokerage accounts, and estimated value of other owned real estate. In addition the lender will order a credit report to determine if there are any unusual or derogatory items in your credit history which may require additional explanation or work to remove.

Julie Jalone is an experienced professional Realtor serving the needs of buyers and sellers of residential real estate in the Greater Sacramento area. Her site includes news, analysis, listings, real estate resource links and her daily blog, “Keep it Real in Sacramento.”

To learn more about Julie Jalone take a look at her website, http://www.jalone.com/ where you will find additional articles, monthly market analysis and her daily blog, “Keep it Real in Sacramento.”

Rent to Own / Lease Option Your New Florida Home: Scam Alert Part 6

Writen by Mike Payne

Do You Know The Future Purchase Price?

Where in the contract is the future purchase?

Get the future purchase price locked in and in writing in the contract! Do NOT sign a contract with a floating future purchase price, unless you know exactly how the future price will be determined and you agree to the method used to determine the future purchase price.

SAMPLE:

Purchase Option.

A. Tenant shall have the option (hereinafter “Purchase Option”) to purchase the Premises as follows:

(1) Purchase Price. The total purchase price for the Premises shall be $265,331.00 and 00/100 DOLLARS and shall be payable as follows:

**Both parties know exactly what the future purchase price shall be, and presumably both parties know that the buyers can afford the home at the future purchase price.

Non Refundable Option Payment. A non refundable option payment of $7,050.00 and 00/100 DOLLARS shall be due and payable upon full execution hereof of this option agreement, with $7,050.00 being applied 100% to the future purchase price.

(2) The balance of the Purchase price shall be payable in cash at closing.

B. In the event Buyer is unable to obtain financing at the end of the fourteen month lease term, Seller will extend this Lease Option agreement for an additional term provided Tenant has paid all rents on time, maintained the property according to the Agreement, and improved condition currently preventing financing.

C. In the event the property does not appraise at end of the lease term, Seller will extend the lease term with no increase in purchase price or monthly payment in order for the property to appraise, provided Buyer has complied with all terms of this Agreement.

**Both parties have tangible, measureable guidelines for determining whether Tenant/Buyer receives automatic lease term extension.