Get Rich By Buying Your First Home
How to Get Rich (or at Least Wealthier) by Buying Your First Home If you’re looking for ways to get rich, or at least richer than you are now, signing a 30-year loan doesn’t exactly sound like the best idea, but buying a home can be a great way to start building wealth. In fact, way back in 2013 the net worth of a typical homeowner was $195,400 while a typical renter’s was $5400, that’s 189% difference. So, how does buying a home help you get rich? You Have to Live Somewhere Some argue that tying your money up in housing means you can’t invest that money somewhere else where you might get higher returns. But you have to live somewhere and, unless you’re lucky enough to have a place to live rent-free, you’re going to need to spend a big chunk of your monthly income on those living expenses. Not only is paying a mortgage cheaper than renting in many cities, owning your own home also protects you against rising rents in your city, which is great if you live in an expensive city. And when you do pay off your mortgage, you’ll be able to live there without paying a monthly fee. Once you do, you open yourself up to new investment opportunities, like buying a new, affordable home and renting out the one you own outright. Get Richer with a Forced Savings Account Buying a house forces you to start saving money–starting with the downpayment. Starting to save toward a home will get you into the habit of saving a big chunk of money each month and once you have the home, you’ll need to save for the unexpected, which will help you continue that good habit. Your home forces you to save for more than maintenance, though. Every month you pay your mortgage, you’re building equity in your home. You can use that equity to do things like take out a home equityline of credit or you can just let it build until you decide to sell your house. Wondering how quickly your equity builds in your home? Use our mortgage payoff calculator to find out. Access to Home Equity Lines of Credit Speaking of equity, buying a home also gives you access to a home equity line of credit or HELOC. While it could get you into trouble if you use it to finance a vacation, it’s a great tool if you need to pay for something like a medical emergency, childcare so both spouses can continue working, or a college degree. The idea is you’re using a relatively low-interest loan to either offset some sudden, unexpected cost that would otherwise wipe you out financially. Or you’re using the HELOC as a way to improve your situation over time and give you the ability to earn more money either through your education, by staying in the job market, or adding value to your home. Tax Savings Owning a home is the American Dream, right? Well, our tax system definitely helps support that dream. When you own a home you can deduct your mortgage interest (up to a point). You’re eligible for other deductions, too. If you made any home improvements, use your home as your primary office, or made energy upgrades on your home, you might be eligible for a deduction. Check with your tax accountant to get all the benefits you can out of your home. Retirement Options When you own your home, that also opens up new options for you in retirement. You can downsize to a smaller home and invest the profits from the sale. You can continue to live in it without having to worry about your monthly mortgage. You can even use a reverse mortgage early in your retirement–a strategy recommended by retirement experts. Sure, we’ve seen a rise in interest rates at the end of 2016, but for now, if you want to get rich, buying your first house is still a great start. Credit to Mortgages.com as a resource for data. Written by Lisa Forss on January 30, 2023.
Preparing Your Home for Rain!
TOP 8 TIPS TO KEEP THE RAIN FROM WREAKING HAVOC Clear the gutters: Make sure your gutters are clear of debris so that they can properly divert rainwater away from your home. Clogged gutters can lead to water damage, and can even cause roof leaks. Trim trees and shrubs: Make sure to trim trees and shrubs away from your home. Fallen branches can cause significant damage to your roof or windows during a rain storm. Check the roof: Check for any loose or missing shingles, and repair any damage that you find. This will help keep rainwater from seeping into your home. Check the windows: Make sure that your windows are properly sealed and in good condition. If you find any leaks or cracks, seal them with an appropriate sealant. California does not have many basements but if you do have one; install a sump pump: A sump pump can help keep your basement dry by pumping out any excess water. Put away all outdoor cushions or rugs and secure or store any umbrella’s: Storms often bring heavy winds and it’s best to not have those blowing around or into your garden or pool. Have an emergency plan: In the event of a power outage, have a plan in place to regain power or have a place to go. Keep important documents and valuables in a waterproof container or safe. By taking these steps, you can protect your home and belongings from damage during a rain storm. Remember to also have an emergency plan in place and know your evacuation route in case of severe weather. When thinking about selling or buying, reach out…we have an entire booklet with FAQ and secret insights to selling or buying a home. Just shoot us an email at Info@TeamForss.com
Lender Paid Private Mortgage Insurance
Lender Paid PMI: Redefining the View of Needing 20% to Put Down Home ownership is the ultimate goal for everyone but there are so many hurdles that need to be jumped. The economic crash of 2008 caused rules and regulations to be tightened, especially when the amount of down payment required is set at 20%. That is a hefty amount for some, such as new buyers. But, there is an alternative – a lower down payment with lender paid PMI – Private Mortgage Insurance. There are even some cases of loans without PMI all together. Private Mortgage Insurance Explained Mortgage lenders can work with homeowners who can’t afford to put 20% down, provided a Private Mortgage Insurance policy (PMI) is in place with the borrower. This provides lenders security, offering mortgages to borrowers unable meet the traditional 20% down. Borrowers can choose to include it in their monthly payments to the lender. Depending on finances and the lender, there is sometimes an option for Lender Paid PMI (LPMI) which allows for the lender to pay the annual PMI upfront on behalf of the borrower and include the costs as part of the monthly payment with a slight increase in the interest rate. This is an amazing option for buyers as client with good credit scores can see a very minimal change in the interest rate when comparing a 20% down rate to a 10% down rate with Lender Paid PMI. PMI Charges Costs for PMI are based on a number of factors: Down payment percentagePut simply, there is a direct relationship between the percentage of the down payment and the level of PMI payment. The costs are linked to tiers of 3%, 5%, 10% and 15%, therefore the PMI for a down payment of 15% and over will be the lowest and 3% and over the most. Credit scoreThe PMI will be lowest for applicants with a credit score of 760 and over, and again the cost is based in tiers of 20 points, therefore the tiers are 740, 720 etc. Debt to income (DTI) ratioThe DTI ratio is the percentage of the total monthly debt to gross monthly income. A DTI ratio of over 45% will result in a high PMI. Number of borrowersThe greater the number of lenders the least risk to the lender, therefore the PMI will be less for two borrowers taking a mortgage out on one property. Whatever the circumstances, are there are options for homebuyers looking to make that move into that new home – they just do not have 20% to put down on. It is not always easy to save for a down payment or rely on your current home’s equity to provide. The word PMI has a negative connotation to it opens the door for homebuyers to get home’s equity to provide. “PMI” has a negative connotation to it, when in reality it has been an amazing option for so many buyers. Lender paid PMI opens the door for homebuyers to get themselves in a new home with less than 20% down with a much lower payment than most anticipated. The amount of time a buyer or homeowner would need to save say 20% down compared to only 10% down coming from their sale could be as much as 5 years in many cases. Imagine the amount of equity someone would have now if they bought with just 10% down in 2016 compared to waiting until 2021 to buy. Remember the rise in your home’s value is not contingent upon your down payment. Saving up for a down payment requires a lot of restraint. Borrowers can build up a significant level of savings and it may be too tempting to pay for improvements in the rented property or go on an extra vacation, or buy new clothes etc. All resulting in increasing the time it takes to build up a down payment of 20% for that ideal home. In the meantime, a lot of money is spent paying for rent or continuing to pay on their current home that could have been used to build equity in a new home. This is why some borrowers choose to take advantage of the Lender Paid PMI option in order to purchase a home. Lender Paid PMI options are available with just 5% down on purchase prices up to $1,000,000 in Riverside County. ARTICLE COURTESY OF:
Make a Home Down Payment Without Wrecking Your Finances
Maximizing a home down payment can make sense: The bigger the down payment, the lower the monthly mortgage bill and the better the chance of building equity more quickly. But putting too much down could leave you without enough cash for home maintenance — or anything else. Pinpointing the right amount involves balancing the advantages of boosting the down payment against the need to hold back money for urgent upgrades, life’s emergencies, and having some fun with your new home. “There’s really no one-size-fits-all solution,” says Jason Speciner, a certified financial planner in Fort Collins, Colorado. Effect of a higher down payment Calculating how different down payments would affect a monthly mortgage payment is eye-opening. Some lenders require only 3% down for conventional home loans, which makes getting in the door easier but means assuming more debt than with higher down payments. Many borrowers ask if they should scrape together a little more, such as 5% versus 3%, says Rick Bechtel, head of U.S. residential lending at TD Bank. But that probably wouldn’t make enough difference in the monthly mortgage payment to justify doing so if it left you strapped, he says. “The need for post-closing cash is always greater, and sometimes significantly so, than people expect,” he says. But a higher down payment can make a significant difference if it means lowering or avoiding mortgage insurance. The insurance, which can involve upfront and monthly fees, protects the lender if the borrower defaults. Depending on the type of loan, making a higher down payment may eliminate some of that expense, if not all of it. Kristin Phillips, a Tampa, Florida, psychologist and author of The Debt Shrink blog, says she and her husband, Brandon, couldn’t put down the traditional 20%, but they wanted to put down more than the minimum when they bought a home in 2013. “Ten percent was a good compromise,” she says. That kept the monthly mortgage under 25% of their income so they could live comfortably. Eventually they made extra mortgage payments to build enough equity to eliminate private mortgage insurance. Borrow with care When deciding on down payment size, consider its effect on other aspects of your financial plan. Twenty-nine percent of homeowners ages 21 to 34 borrowed from retirement accounts to help fund down payments, according to the Bank of the West’s 2018 Millennial Study. But the decision to do so shouldn’t be taken lightly. Borrowing from a 401(k) is particularly risky. After a job loss, the loan must be repaid by the next tax filing deadline or it’s taxed as ordinary income, with a 10% penalty if the withdrawal is taken before age 59½. Using a Roth IRA to boost a down payment is a better option, says Aaron Clarke, a certified financial planner and wealth adviser at Halpern Financial in Ashburn, Virginia. There are no taxes or penalties on withdrawals of contributions. First-time home buyers who have contributed to a Roth for at least five years can withdraw up to $10,000 of earnings on the contributions, tax- and penalty-free. But Linda Rogers, a certified financial planner and owner of Planning Within Reach in Memphis, Tennessee, says she doesn’t recommend borrowing from retirement savings. Many people are behind on saving anyway, she says, and borrowing from an IRA means losing tax-free growth. Expect the unexpected Thirty-four percent of recent first-time buyers say they no longer felt financially secure after buying their current home, according to NerdWallet’s 2019 Home Buyer Report, based in part on a survey of 2,029 adults by The Harris Poll for NerdWallet. To maintain security, resist draining your savings for the down payment and closing costs. Leave some for emergencies, such as a car breakdown.“Emergency reserves are for ‘Oh, shoot’ moments,” Speciner says. And homeownership includes plenty of those. To minimize surprises, review the home inspector’s report and negotiate repairs with the seller before purchasing. Budget for immediate upgrades, such as fencing the yard for your dog. Include some cushion. Alexandra Geneser, a neuropsychologist, used a portion of her savings for a 7% down payment and reserved the rest to remodel a fixer-upper in Charlottesville, Virginia, in 2018. The money for upgrades included a 20% cushion in case the project cost more than expected. The approach left her with enough to create the home she wanted without derailing her financially. “I am so overjoyed with my house,” she says. Finally, leave some cash for fun stuff, like furniture. “You just achieved a dream,” Bechtel says. “You’re going to spend money because you’ll have rooms you didn’t have before.”
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