Purchasing An Investment Property or Second Home

 A great way to invest in real estate is in either a second home or an investment property. This type of real estate is a sound and profitable way to build wealth and generate a passive income. Fixed mortgage rates keep mortgage payments the same each month, so investors can predict their cost and profit. There is a risk with investment properties, so consider these four tips to find out if you are ready to purchase an investment or a second home.

Be sure to do your research and get advice

Like any decision, you will want to do your research before making the decision to purchase. There are many factors you will need to consider such as the condition of the property, location, and the area's demand for rentals. Before you take a step, do your due diligence when it comes to your finances. You will want to make sure your income can support two mortgages even if you plan on renting your second investment. Also keep in mind that there will be additional expenses such as home repairs, maintenance, and furnishings.

Budget for the expected and the unexpected

Second properties have some expenses that are different than your primary home. If you purchase a second property either to sell for a profit or rent, many areas have permitting fees and additional taxes for investment properties. Remember to work with a tax preparer who will help you with capital gains or an increase in income.

Knowing when the time is right

Right now home prices are rising, so you may be able to use the equity on your primary home to pay for your second home. This can be done through a cash-out refinance or a home equity loan. A cash-out refinance is the most popular choice. There are no limitations on what you can use the money for. A home equity line of credit is secured by your primary home's collateral. Right now is a great time to take advantage of these types of financing with such low rates.

Understand how you plan to use the second home

Either way, you need to speak with a mortgage lender whether you a using the second property for rental income or a second residence. Lenders follow the guidelines of Fannie Mae and Freddie Mac to ensure that you are able to afford both mortgages. There are different terms you must meet to be approved for a mortgage on a second home.

If the property will be a renovation or resell you will more than likely have to pay a higher downpayment and interest rates. Lenders take more of a risk when they lend money to someone who is purchasing a second home or investment property. Do not plan on trying to obtain a VA or FHA because these two types of loans cannot be used on second properties.

Not only do you want to secure a lender, but also secure a Realtor to help you with your purchase. A realtor can navigate the purchase from searching for your second home to closing the deal.

 

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Five New Rules To Follow When Purchasing A Home In This Current Red-hot Market

 The COVID-19 pandemic played a large part in the current strong housing market. Bidding wars have been predominant for the past year and a half. Now that the interest rates are starting to rise, the competition is getting even stronger. Here are five new rules to follow when buying a home in 2022.

1. Lock in a mortgage before you start your search

In the past, homebuyers would find a home and then get pre-approved. This is not the case in 2022 because of the strong demand. This fast-paced market makes it essential to get pre-approved before you start the homes search process.

“You should be pre-approved by a lender and knowledgeable about your finances before you even begin your home search,” says Beverly Burris, an agent with William Means Real Estate in Charleston, SC. “With houses going under contract as quickly as they are right now, often within days or sometimes hours of going to market, there is no sense in going to see a property before speaking to a lender and learning what you can afford.”

2. Shop for homes priced below what you can afford

Once you get pre-approved you then know how much you can afford. Homebuyers in the past have purchased a home on the high end of their mortgage approval and that resulted in a recession. Today, homebuyers are encouraged to purchase a home below the top of their price range.

“These days, houses are selling for more than their list price and, as a buyer, you’re more than likely going to end up in a bidding war,” Lori Ozley, a manager with Birmingham HomeBuyers explains. “If you look at properties that are under your budget, you’ll have room to submit a competitive offer that goes above the asking price.”

3. If you love a property, act fast

Purchasing a home is a big deal so most homebuyers want to think on it before they make the big leap. Today's market does not afford homebuyers this luxury.

“If you are interested in a property, you must act quickly or you risk losing out to another offer. When you really like a property, you should sit down with your real estate agent, go through the comp research, and work on putting together an offer the very same day,” says Bill Samuel, the agent and investor behind Blue Ladder Development.

4. Put your big number out there from the start

When it comes to purchasing property, negotiations have always been part of the process. This is not the case today in this hot market. Homebuyers need to put their best offer forward at first.

“Be prepared to make your best and final offer from the beginning,” advises Jodi Dougherty, a luxury broker at Downtown Realty Company in Chicago. “Since sellers often receive multiple full-price offers, you may not get an opportunity to counteroffer if you come in too low.”

5. It will probably take multiple tries before you succeed

Don't give up, there are tons of other homebuyers looking at the same homes in the same market. It might take more than once to put your best foot forward and have your offer accepted.

‘You can almost plan on having several offers not go through before one is accepted,” explains Brian Chinn, leader of the Brian Chinn Team at Newberry Real Estate in Tyler, TX. “While that isn’t always the case, it happens more often than not in this market.”

If you are interested in purchasing a new home, contact a Realtor who can help you through the process. “It’s easy to get frustrated,” Chinn adds, “but having patience is key.”

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NAHB Works with Congress to Help Low-Income Housing Laws

Without the help of the country’s federal government, many Americans could not see homeownership in their future.  The National Association of Home Builders worked with the House of Representatives and the Senate to pass a bill in Congress that would facilitate the chance for low-income Americans to become homeowners.  On July 29, 2016, the President signed The Housing Opportunity Through Modernization Act which consists of several reforms which will increase access to affordable rental housing, provide assistance to low-income renters and facilitate homeownership.

There are many facets to the bill which is now a new law.  In the past voucher holders had no chance in competing with market-rate renters.  Because of red tape in the inspection process, voucher holders were not able to move into a multi-family unit such as an apartment or condominium immediately.  Now with the new law inspection requirements in the Housing Choice Voucher Program are more efficient and allow a quicker approval.

The contract terms of HUD’s Section 8 Project Based Housing Choice Voucher program is now 20 years instead of 15 which enables project-based vouchers to be used with the Low Income Housing Tax Credit residences.  Voucher holders will now be protected from economic influences that are out of their control, which means that when the market rental rate goes up, voucher holders will not have to be displaced because their payments are not high enough.  This also allows property owners to preserve respectable renters.

The Rural Housing Service Single-Family Guaranteed Loan Program will also be updated to compete with other government loan programs.  This will allow more low-income renters to actually be able to get a home loan.

FHA regulations that are enforced on existing condominium projects have been reduced.  This means that the purchase of a condo will be less stringent in terms of required owner occupancy for the buyer.  Buyers will now find it easier to purchase multi-family units for rental purposes, creating more rentals in the market.  Also, condo owners who are able to sell will then be able to move up to a single family detached home, if they would like.

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