Real Estate Advisor: November

 
 

 

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Criteria to Obtain the Best Mortgage Rates

No doubt you’re aware that mortgage rates have been low throughout the year. You’ve also probably heard that this fall has seen interest rates dip to record lows for the modern era. But you may have also heard that some buyers or refinancing homeowners are having difficulty obtaining loans at the lowest advertised rates. The loan application process is much more rigorous than in years past and the processing time for loan applications has grown.

How can you know whether or not you realistically qualify for the great rates being advertised? Remember that lenders are all about assessing risk – they are looking for applicants with a very low risk of defaulting on their loan. There are five key factors that a mortgage broker will look at when determining the rate you will pay on the loan:

Down Payment

Mortgages can still be obtained with low money down, but having a 20 percent down payment is the best bet if you hope to obtain the best interest rates. If you can afford to make a down payment in excess of 20 percent on the house, you will be in an even better position to take advantage of the lowest mortgage rates.

Assets

Lenders these days are going to be very exacting when reviewing your financial records. They will want to verify that you have the necessary cash to cover the down payment and closing costs. Banks will also want to make sure you have some amount of cash buffer as an insurance policy of sorts. All of this will need to be proven with extensive documentation, and many lenders will want to review several months’ worth of your account statements. Lenders will also ask for copies of recent tax returns.

Credit Score

It’s no secret that the strength of your credit score greatly affects the type of loan you will qualify for. The magic number to aim for is a FICO score of 700 or better. Clearing the 700 benchmark will qualify you for the best mortgage rates, while a score even just a few points below 700 can cost you as much of a quarter of a point in interest, which equates to thousands of dollars over the life of the loan.

Job Security

Not surprisingly, lenders will want to make sure that your career situation is stable enough that you will be able to continue to make the loan payments on into the future. Banks will want to see documentation to indicate how long you have been with your current employer. Ideally, you will have two years or more employed by the same company.

Loan Type & Loan Length

Adjustable mortgages have lower initial rates overall than fixed-rate loans. FHA loans will typically have a higher interest rate, as will jumbo loans (mortgages taken out on higher-priced homes). As a rule of thumb, fixed rate loans will have higher interest rates as the length of the loan increases, so a 10 year fixed rate loan will have a lower rate than a 15 year mortgage, which will in turn be lower than a 30-year fixed loan. And all mortgage rates vary from state to state and even from city to city, so the rates you see advertised nationally may not be relevant to your search for the right loan.

 

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Inexpensive Home Updates

 

Curb Appeal

Regardless of whether or not you’re planning on selling in the short term, improving your home’s outer appearance will improve both the value and charm of your home. Re-painting the front door and trim will give the front of the house the feel of a newer home. A little minor landscaping work (trimming shrubs, cutting the lawn, replacing sod) over a long weekend can dramatically change your home’s look. Add some potted flowers on the front steps or entryway. Consider investing in new doorknobs, house numbers and a mailbox as well.

Light Fixtures

If you have older lighting fixtures that date the look of your home, consider replacing them with new, more appealing hardware. While you can certainly spend a lot of money on high-end fixtures, cheaper alternatives are available in a number of styles. Brushed nickel and stainless steel fixtures are especially possible. If replacing all of the fixtures in your house isn’t realistic from a financial standpoint, selectively change out fixtures in key areas such as bathrooms, bedrooms and exterior lighting.

Wash Exterior

You don’t have to re-paint the exterior of your home to achieve a facelift. Washing the exterior siding will breathe new life into the house’s appearance. Pressure washing sidewalks and driveways will clear away years of dirt, grime and dust. Avoid the temptation to use a pressure washer on the home itself, as it can easily peel off exterior paint.

Re-Caulk Plumbing Fixtures

Discolored, torn or crumbling caulking around plumbing fixtures can make your home look old and out of repair. By stripping out old caulking and replacing it with a fresh bead of silicon, your bathrooms and kitchen will look subtly revitalized. You can now purchase caulking in a variety of grades and colors, allowing you to match your décor.

 

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Real Estate Advisor: November 2010

Eric P. Egeland, SFR,CDPE,e-PRO

Broker Associate

RE/MAX SUBURBAN

ChicagolandHomeSeller.com

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Real Estate Advisor: August

The First Time Landlord: Determining Rent Price

As a landlord, determining how much to charge for rent can be a difficult prospect. Setting a realistic market rent will be crucial to making the most out of your investment, regardless of whether you’re renting out your former primary residence following a move, leasing an investment property or renting out a vacation home on a seasonal/weekly basis. If you set rent too low you may end up leaving money on the table. On the other hand, if you ask too much in rent you risk having the property stay vacant for long stretches or seeing high tenant turnover.

Calculate your cost

Before you begin determining how much you can or want to charge in rent, it’s prudent to first gauge your total cost incurred from owning and renting the home. Your total cost will include mortgage payments, maintenance expenditures, any paid utilities and professional services you may require (such as property management, tax help or legal consultation). Avoid being too conservative when estimating potential maintenance and repair costs.

The cost of owning and renting out may not directly dictate the rent you charge in all cases, but it will serve as a vital baseline value which you can refer to as you get closer to setting a rent price.

Potential rental rates based on home value

Professional real estate investors often determine rental prices by looking at the total value of the home. A common rule of thumb is that for homes up to about $100,000, you can charge approximately 1.1% of the home’s value in rent ($1,100/month). With increasing home values, the percentage you can realistically charge will become smaller as the rental pool becomes more limited. For example, if your home is valued at $400,000, you may only be able to charge .75% of its value, or $3000/month.

In general, calculating rent in this fashion is mostly a useful theoretical exercise that can provide some framework for you to work within. While in some cases you may be able to price rent purely based on the current value of your home, in most cases the realities of the local rental market will play a far greater role in determining how much rent you can realistically hope to charge.

Understanding the renters in your market

Before investigating actual rental rates in your market, it’s important to actually understand the nature of the rental market and area renters. The needs of renters differ from those of potential buyers. For example, most renters will not be as interested as buyers in top of the line fixtures or brightly painted interior walls, because most lease agreements will prevent the tenant from changing such elements to meet their own taste. Things that will interest many renters include sturdy carpet that will resist wear and tear, appliances in good working order and plenty of storage space.

In addition, rental markets are often defined on a highly local level – notice how rental classified are often divided by neighborhood or sub neighborhood. The needs and wants of renters in your local area will greatly influence how much rent they are willing to pay for your particular property.

For example, a five-bedroom luxury house with attached three-car garage may have a tough time commanding high rent if located in a neighborhood whose rental demographic is predominantly students, single professionals or young couples. By the same token, a modestly sized studio or cottage will not rent for nearly as much in a suburban area popular with families and pet owners.

Establishing market price

To truly devise a competitive rent price, you will want to thoroughly research the prevailing rents of comparable homes. Start by scanning newspaper ads or online classifieds such as Craigslist to assess the price range for similar units in your area. Make sure to sample listings that are of comparable size and amenities, and which are near enough to your home to fall under the local conditions of your micro-market.

Once you locate some comparable properties, visit them to better compare their amenities, location, condition and level of maintenance with your own home. Rental listings often vary a great deal from what is advertised to what you see in person when looking over the property, and often this discrepancy can help explain drastic differences in advertised rent. Visiting three or four homes in person will give you the best idea of how your home stacks up against the competition.

Long term strategy

Before you settle on a final rental price for your property, take some time to consider what your overall goals are with the rental unit. Are you focused on making a profit from the unit or recouping as much of the ownership cost as possible? If so, you may decide to charge rent on the high end of the market, at the risk of experiencing higher tenant turnover or longer periods of vacancy between occupants.

If instead your goal is to ensure steady rental income from the unit, minimizing periods of vacancy, you will likely want have a pricing strategy more geared towards attracting long term tenants.

 

Eric P. Egeland, SFR, CDPE, e-PRO
Broker Associate
RE/MAX SUBURBAN
ChicagolandHomeSeller.com