We’ve previously discussed Return on Investment (ROI) about how much more (or less) than an asset’s cost it is (or will be) worth at resale. It went a little something like this.
OK. The same concept of ROI applies, perhaps but not always on a lesser scale, to the effect of improvements made after purchase to the resale value of that asset.
Many (not all) buyers want gorgeous granite, jacuzzi tubs, bedroom fireplaces and similar creature comforts. And where these add great value…prestige, will they amount to a dollar for dollar increase in financial value? It depends.
It’s never good to have the most expensive house in the neighborhood. First, they can stand out like the a Taj Mahal near Quonset huts. Gaudy is definitely not good, IMHO. Worst, pride in ownership can be a bitter pill to swallow when no one cares how much that Italian marble tub cost. When it comes to comparable values, a tub’s just a rub-a-dub-dub. Sorry, couldn’t resist.
Quickly. What is relatively worth more, adding attic insulation or a bathroom that will relieve congestion come school time? Before we tell it, understand you’ll recoup about 67% of improvements on average. Drum roll, please…
Attic insulation, by a long shot of 2:1. Sad but true.
Rehab Loans – Pennies from Heaven
So be careful what you ask for, you might not get it. Unless it’s help to pay for remodeling projects on that would be perfect home were it not for the host of improvements needed to make it your castle, whether necessary or not.
As an incentive for new and existing homeowners to buy homes with high energy efficiency ratings or make upgrades (furnace, insulation levels, windows, etc.) to an existing home, the state of Colorado is offering up to $8,000!
New or existing homes (existing homeowners OK)
Lender must reserve the incentive amount before closing
Energy upgrades completed within 120 days of purchase
Additional Down Payment Assistance Programs
There are hundreds, if not thousands of extra programs that help with adapting homes for folks with disabilities, down payment. closing and other costs. Check them all out here!
In a recent article by the Wharton School of Business at the University of Pennsylvania, it was revealed that some millennials are not looking to buy a home simply because they don’t believe they can qualify for a mortgage.
The question, what credit score do I need to buy a home is a difficult one to answer because, dependent on numerous factors, not the least of which being the type of buyer, the answer can run the gamut.
For example, if you are a traditional first time home buyer seeking institutional lending rates (high 3% to low 4% as of this writing), you’d be hard pressed to qualify with anything less than a 620 yet, are there exceptions? Of course there are.
On the other hand, if you are an investor, the distinction being one that will not occupy the home as their primary residence, or someone with difficulty qualifying for more traditional lending, then you may not need any credit at all depending on how much you can buy it for versus how much it’s worth, repairs, and the like.
Perhaps most important is the question not asked meaning, contact a local professional with your desire, wants/needs and qualifications (or lack thereof) and let us sort it out. That’s what we do. Until then, all the best!
Norberto Villanueva is a licensed broker and experienced loan officer offering full service real estate and related services in Colorado Springs and surrounding areas. Contact Norberto at 719-453-8690 for a free consultation or by submitting a request in the lower right hand section of this page.
Mortgage interest rates, as reported by Freddie Mac, have increased over the last several weeks. Along with Freddie Mac, Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors are all calling for mortgage rates to continue to rise over the next four quarters.Th
A mortgage loan professional starting in 1997 and a licensed real estate broker today, it should come as no surprise I am a huge proponent of real estate. Using lease options, land contracts and traditional financing, I have personally experienced the joys of home ownership, building (and losing) equity and, in inaugurating many into the club, have also shared this joy with others.
For many others, getting started is no easy undertaking, starting with financing, especially when it comes to using conventional, FHA/VA or similar institutional financing. The three C’s of credit (character, capital and capacity, not necessarily in that order) requires would be home owners (investors) submit to an increasingly thorough examination of DTI, employment history, credit use…that read like lions, tigers and bears, right? Yes, not only can it be brutal, but also an exercise in futility for many, especially the non-owner occupied type.
Enter hard (and private) money, which mostly and sometimes only cares about the property…what it is or will be worth in the future in comparison to how much it’s selling for today, that is. They don’t call it hard money for nothing, as the cost and fees (double-digit interest rates when owner-occupied is in the low single digits, 4% of the loan amount, application fees) associated with this strategy can hurt yet, so can a vaccine when you tense up in anticipation. Right? But when in the hands of a learned professional, look away and, not only do you barely feel a thing, it’s all better in no time, except for when you get sick from it, but I digress.
Take the median home, $240k in the Colorado Springs market. Being short-term financing (3 – 12 months, max), held for 12 months the total interest at 14% is $33,600. Add 4% in points and 10% in holding costs, and the cost is an admittedly hurtful $100,800 AKA a real kick in the pants. You might ask, what logical investor would want to pay $100,800 in fees and costs to acquire a $240,000 asset? One who understands the time value of money, that’s who.
You’ll need to look at this differently to understand. But first, let me take this opportunity to mention the most important factor here is the need to be working with a motivated (unemployed, bank, divorced, estate, probate) seller because it won’t work otherwise. What hasn’t been mentioned is this asset was purchased for say, 70 cents on the dollar ($156k) or less. I also left out the part that factors a shorter holding time, say 3 months or just enough time to rehab the property at a cost of about 10% of purchase price say, $16k. Effectively cutting time and fees by 75%, we now have a cost of funds equal to roughly $41,200 including rehab. Get the picture? We “just purchased” a $240,ooo asset for $156,000, added $41,200 in costs and fees and came up with an “investment” of $197k, theoretically netting $43,000 in three months. What’s so hard about that? By the way, and where the intrinsic value is different from that of a non-owner occupied investor, any home owner who has looked at a truth in lending statement as they were called will say, “what a deal” as they look at the total interest paid during the life of a 30 year loan, even at 4%!
Of course, the process, including costs and fees has been simplified tremendously but the scenario is real and it works.
Interested in getting started? With our experience and relationship with lenders at every spectrum, including hard money financing at up to 100% of ARV (after repaired value), we are uniquely qualified to you invest in real estate. Just use the contact form in the lower right to get started.
The added clarity provided by the Federal Housing Administration s revised single-family handbook comes at the expense of lender flexibility to get loans qualified, including a popular workaround for borrowers with deferred student loan debt.
The government giveth, the government taketh away.
FHA just closed the loophole that allowed borrowers to not count deferred student loan payments in their debt to income (DTI) ratio, meaning borrowers will qualify for less than they were able to before. However, consumers with pending tax lien payments couldn’t get a FHA loan, new rules allow borrowers with a payment plan and three months of on-time payments to qualify.
So…that’s a wash, right? Wrong. “It tightens certain underwriting guidelines that were on the ‘why people love FHA’ list,” according to a source named in the article.
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