How the Fed rate cut affects real estate interest rates
By | February 18, 2008
There has been a reduction in the Feds fund Rate and though it doesn’t affect the mortgage rates directly it does indirectly have an impact on the interest rates that investors utilize. When they say that the Feds have slashed rates what they mean is that the lending rate between banks and other depository institutions has been slashed and this in turn means that when banks can borrow money at a lower rate, they in turn pass this gift on to the public. This means that the general public can borrow money at a lower rate.
The Prime Rate is linked directly to the Federal Reserve and this is something real estate investors should be paying attention to. The Prime Rate has fallen 2.25% in the last 6 months and this means there is a 2.25% saving for all investors that use lending that is tied to prime.
Though the Prime Rate is generally not used to secure an investment property long term the Fed Funds rate helps the cash flow of the average investor. Generally interest rates follow the lead set by the Feds and this has caused the decline in interest rates in the recent past.
The Prime Rate also affects the financing of spec homes and construction loans. Most investment properties are financed with interim construction loans which are based around the Prime Rate. Thus since the Prime Rate has fallen investors end up saving on a loan.
People finance rehab projects through hard money, credit cards or sometimes even home equity lines of credit. Most investors use lines of credit on their homes or existing properties to finance rehab projects. This again is favorable because home equity lines of credit are based on Prime Rate. Since that has now fallen investors again end up saving.
Topics: Interest Rates | No Comments »
Make your second home pay
By | February 15, 2008
A lot of people buy second homes but they stop after that. It is great to have another home, but there is a lot of spending on it including a second mortgage, cost of upkeep etc which is never easy to manage. For this very reason, many smart folks rent out second homes so that some of the cost incurred on the house is recovered through rent. If you plan out the whole thing properly, market the house well and use some common sense, owning a second home can be one of your best decisions.
What you should do first is a little research upfront. You should be aware of the things that attract people who are looking to rent, the rents for comparable houses in the neighborhood, how many people the house can accommodate, the features and facilities etc. This information can be obtained from a real estate agency or also with associations that own property and also various websites.
The next thing that is to be done is to do the math. Add up the costs that you have and will incur on the house and also add a buffer of 10-15% to be on the safe side to cover your losses, if any. This will help you figure out whether it will be profitable at all to rent out your home and what percentage of your investment you can recover through renting it out.
The final step is to let people know that your house is up for rent. The common, easy and effective method these days is to set up a website and advertise on it or advertise on popular websites. This will get you good exposure and it is cheaper than most other alternatives. There is however a requirement that you stay in the house for a minimum of 15 days a year for it to be called a second home and not something you bought as an investment.
Topics: Mortgages, Uncategorized | No Comments »
Home appraisal frauds
By | February 1, 2008
Very often the crooked and the unscrupulous have a way of influencing the just and making them go the wrong way. That is exactly what is happening to appraisers who are being pressurized by crooked lenders and realtors who are desperate to close a deal and are willing to go to any lengths.
There is a credit bubble which has formed and though money is easy to come by, there are also rising rates of frauds and people being duped. A home appraisal fraud is a continuing problem that is affecting home owners to a large extent.
In such a fraud the appraisal of a home is done incorrectly and a house is over valued. Since the house has been estimated to be more valuable than it actually is, home owners end up borrowing more than the value of their homes. Thus owners of homes are not able to sell their properties at the price it was appraised at and instead have to settle for less. This happens even if there is no downturn in the real estate market.
Apparently almost 50% of appraisers have reportedly been pressurized by loan sharks and mortgage agents to appraise a house incorrectly. Appraisers who do not comply do not get paid for their work at all.
Predatory lending is one such thing that contributes highly to the appraisal fraud. Problems are further compounded when home owners reduce their home equity to meet other expenses and in the end many are incapable of owning their own house.
There need to be new rules that ensure that an appraiser works independently of a mortgage lender or a real estate agent. The government should also look into the reasons behind the home appraisal fraud and tough sanctions should be imposed on those who flout rules. This will ensure a more healthy real estate market.
Topics: Real Estate Agents | No Comments »
Negotiate your way to a better deal
By | January 24, 2008
Mortgage deals are always tough on the borrower who may struggle quite a bit to pay off the loans. But it is up to you to lower your burden. Negotiating with the lender almost always helps you get a better deal. This is how you can get yourself a more profitable mortgage deed:
Compare the values of prices in and around your area. In order to know how much your house is worth it is important to know what the houses around yours are priced at. You should find out how much houses in the locality have been sold for in the recent past so that you know how much you should pay.
One more very important thing is to keep your emotions under check. Letting the other party know how much you want the house will only cause them to increase the mortgage rates.
Negotiate about pricing and when doing so also be open to and discuss the possibility of including other appliances and additional features in the deal. This way you can get more things for a lesser price and result in a significant discount for you.
Seal the deal closely because quick action on the part of a buyer is always valued and this will result in your being preferred for the deal. Also people are always looking to find buyers at the earliest possible and this could lead to them offering the house at a lower price to you.
When you are in negotiations be sure to drag in mention of the other competitors. This will show that you are not sold on this house but are considering other options also and also that you are well informed. Once you bring in the competition better deals will be open to you.
Topics: Mortgages | No Comments »
what is a foreclosure?
By | January 16, 2008
It is quite common to finance your home with a mortgage loan. These mortgages can go up to 100% of a home and is repaid over a period ranging from 15 to 30 years. If a person falls back on his monthly mortgage payments the bank is left with no option but to call in the loan. After all when debtors fail to pay it is the bank and its investors that suffer the most. When banks call in loans and repossess houses it is known as foreclosure.
In most cases foreclosure is resorted to only in the end when people are unable to pay their bills. In some cases the homeowners are given opportunities to bring their payments up to date in order to avoid foreclosure. However sometimes a person struggles with mortgage payments because of a loss of a job, a medical condition that has heavy costs or because of any other contingency. A bank in such a case has no option but to repossess the house and sell it to recover their money because the borrower is unable to pay back the amount.
When the lenders take the money from the bank it is made clear to them that they have to make monthly interests along with paying back the principal amount. After the bank sells the house they will take what is owed to them and return the rest to the borrower in compensation for the existing equity. Though everyone takes foreclosure to be a negative thing, the truth is that banks have no other option available.
Foreclosure is always the last thing they look at but when there is no chance of their money being returned they have to get back what is theirs. Hence foreclosure happens and people lose their homes. Cruel but inevitable.
Topics: Mortgages | No Comments »
choosing the agent for you
By | January 8, 2008
A Real Estate Agent is very important to your chances of getting a good price for your house or to get you a good house for the price you pay. So when you select an agent it should be with great care and deliberation. The mistake people make while choosing an agent is choosing one who charges a lower commission or one who makes tall claims about the price he will fetch you for your property.
The first step would be to ask people to recommend agents to you. Speak to past clients of a particular agent about his service, trustworthiness etc before setting up an interview with him.
When you get around to meeting the agent in person it is important to ask him certain question such as his qualifications, the experience he has etc. It is important to ask him the following things also:
Question him on the volume of sales he has had in the past year and whether he has made sales in your neighborhood and if so how many.
Ask him his price range and how much he has been charging in the past few months. Ask him what all services he provides. This is important because though an agent may charge a higher commission he will also provide more and better service which could result in a higher price for you.
Go ahead and question him on the price he would fix for your house, on what basis he fixes such a price and asking him how he proposes to go about in order to get you such a price.
Ask him about his staff, how well equipped they are and whether you will be in contact with him or one of his staff members.
Ask the agent to list the USPs of your house which will fetch you a higher price and do some more research on him. If you feel you can trust this person and that he could get you what you’re looking for, go ahead. Or else thank him for his time and go through this routine with another.
Topics: Real Estate Agents, Uncategorized | No Comments »
Investing in Real Estate
By | January 4, 2008
Real Estate is a great option to put your money in. Real Estate is basically immovable property such as land and anything attached to it like trees. Even if it is not something you would ever live in or use, real estate is a great investment option. Real Estate appreciates continuously and this your investment will never be a waste. A piece of property will be 2 or 3 times its price within a few years of buying it. Property rates are known to escalate as the area becomes more and more populated and thus even areas which are on the outskirts of cities become part of the mainstream in a few years time and the value really appreciates. Real Estate is beneficial in the following ways:
Real Estate generates rental income. If you own a piece of property and you don’t intend to live there or use it, you can always rent it out and earn extra income. Thus your property will never depreciate nor will it be useless.
Real Estate can also be used as collateral security to raise loans for business etc. Banks do not generally hesitate to advance loans on the basis of real estate.
Real Estate is also tax-deductible so it offers some benefits by reducing your tax liability.
Moreover people also trade in Real Estate and this has also proven to be quite rewarding.
It is always good to invest in real estate as compared to other commodities because every other commodity depreciates and new variants are released at a lower price. Real Estate however never depreciates and as cities and towns become more and more populated the price of land keeps skyrocketing. Thus if you have cash that you don’t quite know what to do with, put it in Real Estate. You will never regret it.
Topics: First Time Buyers | No Comments »
Buying a home
By | December 28, 2007
There are a million reasons one buys real estate, it may be because they are relocating to another place, because they need a bigger home. Some people however buy property as an investment. What is very important when buying real estate is the presence of a person who will advice you correctly in all your decisions.
For this purpose most people go to real estate agents who know the in and outs of the real estate market, can help you find a place that suits your needs and guide you through any problems you may face while buying a house. A real estate agent is a person who acts as an intermediary between the buyer and the seller. He tries to fetch the best price for a seller’s real estate by marketing it and they also try to help buyers buy their dream estate at the lowest price possible. For this service he earns a commission from both sellers as well as buyers based on the value of the real estate property.
Real estate agents first consult with buyers about their needs, their budget etc and accordingly inform them of the kind of home they are likely to get within their budget and other things. A real estate agent is knowledgeable about this area, will know what each piece of real estate is worth and this way he will safeguard you from being taken advantage of.
As estate agent also fills out the forms for sale and prepares the contract and negotiates terms on behalf of the party whom he is working for. He also ascertains whether a buyer is financially sound enough to purchase the property and he may also help the buyer in making an offer for the property.
Topics: Buying a Home, First Time Buyers | No Comments »
The concept of title insurance
By | December 22, 2007
A policy of title insurance is designed so that the owner of the property is safeguarded from problems that may arise from the title of the property being defective or some other such problem. Property may have had several previous owners and have been through many transactions and there could be numerous problems such as unpaid liens or illegal contracts, forged signatures or unpaid taxes on the property. Therefore the purpose of title insurance is so that a good title free from all encumbrances passes to the policy holder. It is meant to protect the owner or lender’s interest in the property against losses arising out of title defects, liens etc. It will protect the property from a lawsuit or provide reimbursement to the insured up to the amount of the policy in case of a loss arising to the policy holder. Although the concept is present in other countries like Canada, The United Kingdom, China, Mexico, Korea etc it is most prevalent in the United States. There are primarily two kinds of title deeds: owner’s policy & Lender’s policy.
Owner’s policy:
Such a kind of policy vests the title of the property with the purchaser and guarantees that it is free from all defects, liens and other kinds of encumbrances and also covers losses that might arise from unmarketability of the title.
Lender’s policy:
This kind of policy is also known as a loan policy and it is transferred along with the assignment of the mortgage loan. Thus the policy benefits the purchaser of the loan if the loan is sold and that it allows the sale of the mortgage into the secondary market.
Construction loan policy:
Special policies for construction loans are also available and they require a down date endorsement while recognizes that the value of the property has increased due to more funds having been invested in the construction property.
Thus title insurance is imperative for land owners and lenders in order to safeguard them from defects in title or any other encumbrance that may arise and cause losses and damage to them.
Topics: Title Insurance | No Comments »