How much does your Real Estate professional need to know?
Real estate professionals would say that the more you tell them, the better they can negotiate on your behalf. However, the degree of trust you have with a professional may depend upon their legal obligation to their clients. Real Estate professionals working for buyers and/or investors have three possible choices: They can represent the buyer/investor exclusively, called single agency, or represent the seller exclusively, called sub- agency, or represent both the buyer/investor and seller in a dual-agency situation. Some states (including CA) require Real Estate professionals to disclose all possible agency relationships before they enter into a real estate transaction. Here is a summary of the three basic types:
* In a traditional relationship, real estate professional has a fiduciary relationship to the seller. Be aware that the seller pays the commissions, which is then shared with the sub- broker (buyer/investor representative) by mutual agreement, who brings the ready, willing and able buyer/investor to the table.
* Dual agency exists if two Real Estate professionals working for the same broker represent the buyer/investor and seller in a transaction. A potential conflict of interest is created if the listing professional has advance knowledge of another buyer’s/investor’s offer. Therefore, the law states that a dual agent shall not disclose to the buyer/investor that the seller will accept less than the list price, or disclose to the seller that the buyer/investor will pay more than the offer price, without express written permission.
* A buyer/investor also can hire his or her own professional who will represent the buyer’s/investor’s interests exclusively. A buyer’s/investor’s Real Estate professional usually must be paid out of the buyer’s/investor’s own pocket but the buyer/investor can trust them with financial information, knowing it will not be transmitted to the other broker and ultimately to the seller. Indicating it’s best to trust and know your Real Estate professional!!
How much should I spend on maintenance expenses?
Experts generally agree that you can plan on annually spending about 1 percent of the purchase price of the property on general maintenance chores that simply come with the privilege of property ownership. Newer properties will generally costs less to maintain than older properties. It also depends on how well the property has been maintained over the years.
What is the standard debt-to-income ratio?
A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower’s gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent — and still promptly make the payment each time — has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant’s income. Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.
What can I afford?
Know what you can afford is the first rule of property buying, and that depends on how much income and how much debt you have. In general, lenders don’t want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts. It pays to check with several lenders before you start searching for a property and also gives you an idea of what price range to look in once you get qualified. Most will be happy to roughly calculate what you can afford and prequalify you for a loan. The price you can afford to pay on a mortgage will largely depend on six factors:
1. gross income (calculate rental income if an investment and not owner occupied)
2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates
Another number lenders use to evaluate how much you can afford is the property expense-to-income ratio. It is determined by calculating your projected monthly property expense, which consists of the principal and interest payment on your new loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI. This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.
When is the best time to buy or invest?
Here are some frequently cited reasons for buying or investing:
* You need a tax break. The mortgage interest deduction can make property ownership very appealing. (not available on non owner occupied investment properties)
* You are not counting on price appreciation in the short term.
* You can afford the monthly payments.
* You plan to keep the property long enough for the appreciation to cover your transaction costs. The costs of buying, selling or investing in a property include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
* You prefer to be an owner and/or investor rather than a renter.
* You can handle the maintenance expenses and headaches.
* You are not greatly concerned by dips in property values.
Where do I get information on property market stats?
A real estate professional is a good source for finding out the status of the local property market. www.ypdocs.com is a great source since they have access to the statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards. For overall property statistics, U.S. Housing Markets regularly publishes quarterly reports on property building and property buying. Your local builders association probably gets this report. If not, the property research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-2422. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, “Who’s Buying Homes in America.” Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294. But all in all — www.ypdocs.com can get you the information you desire from all the very reliable sources.
What is Fannie Mae’s low-down program?
Fannie Mae is expanding the availability of low-down-payment loans in an effort to help more people nationwide qualify for a mortgage. Two new programs will help potential buyers overcome two of the most common obstacles to property ownership, low savings and a modest income. To address many first-time buyers’ struggles to save the down payment, Fannie Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate mortgage with either a 25- or 30-year loan term through Fannie Mae’s Community Home Buyers Program. Fannie Mae’s new Start-Up Mortgage will assist buyers with a 5 percent down payment who are at any income level. Yet applicants do not need as much income to qualify and less cash for closing than with traditional mortgages. Borrowers will receive a 30-year, fixed-rate mortgage with a first-year monthly payment that is lower than the standard fixed-rate loan. Freddie Mac, Fannie Mae’s counterpart, also offers low-down-payment loan programs.
How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider an borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender’s decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.
How do you determine the value of a troubled property?
Buyers and/or investors considering a foreclosure property should obtain as much information as possible from the lender, including the range of bids expected. Your Real Estate professional Yvette N. Prelle (email@example.com) can help you in obtaining this information. It also is important to examine the property. If you are unable to get into a foreclosure property, check with your Real Estate professional. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder’s and assessor’s offices, or through Internet sites specializing in property records. Again Yvette N. Prelle at www.ypdocs.com is an expert in obtaining this information not easily obtained by an unlicensed nonprofessional.