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Buying A Second Home? 8 Things To Consider

Buying a second home is a major expense. You might have several reasons for wanting to buy a second house. Perhaps, you’re buying a second home for vacations or weekend getaways. Or, it might be that you want to use it as a rental property for rental income. However, there are things to consider before buying a second home.

The benefits of buying a second home

If you’re buying a second home for rental income, you’ll benefit from many perks, especially tax advantages.

For example, you will be able to deduct interest, property taxes, homeowners insurance and other expenses against the property’s income.

Even if the value of the property declines, you will still be able to deduct depreciation from your taxes.

While these benefits are great, the mortgage requirements for a second home are much stricter than for a mortgage on your primary residence. So, make sure you can afford it.

8 Things To Consider When Buying A Second Home

1. Financing options: When you bought your first home, you had available to you what’s called an FHA loan – a government loan program.

FHA loans are an appealing and favorite choice among first time home buyers due to their relatively low down payment requirement.

FHA loans require a 3.5% down payment and a relatively low credit score of 580. However, FHA loans are not available to second home buyers.

That is because FHA requires the home to be the borrower’s primary residence. So, if you’re thinking of buying a second home, you will need to either use a conventional loan or financing it with your own cash.

2. A larger down payment: If you’re using a conventional loan for your second home, you will need to come up with a larger down payment.

Lenders for a conventional loan usually requires a 20% down payment of the home purchase price.

But for a second home which will be used as a rental property or vacation home, expect lenders to ask for 30% or even 35%.

3. A higher credit score. For an FHA loan, you only need a credit score of 580 to qualify. But for a conventional loan on a second home, you will need much higher credit score — usually 750 or higher.

4. Expect a Higher Interest Rate: Lenders will likely charge you a higher interest rate on your second home than your primary residence.

The reason is because they see a second home — be it a vacation home or a rental property — as riskier. They feel that you are more likely to default on a mortgage on your second home than on your primary residence.

5. Do your research: Just as you did your homework when you bought your place to live in, buying a second home is no different.

In fact, you’ll need to spend more time researching rental property. That means researching the neighborhood you will want to invest in, knowing the zoning laws for a particular area, the sales price for the homes in the area.

You will need to know if the area has adequate public transportation, schools, grocery shopping, etc,– things that potential tenants will need.

6. Be prepared to be a landlord: if you’re buying a second home to rent, be prepared to be a landlord.

And be prepared to deal with all of the headaches that come with being a landlord. Do you have sufficient time? Can you deal with problems?

Owning a rental property and being a landlord is time consuming. It is also hard hard work and you have to do your due diligence.

You can hire a property manager to run the property for you. But if that is not feasible, you’ll have to do it yourself.

That means, screening new tenants, collecting rent, dealing with delinquent tenants, fixing problems in the property, such as a broken pipe.

So before buying a second home, make sure you have sufficient time and make sure you can deal with the day-to-day headaches that come with being a landlord.

7. Do you have a stable income? Dealing with a second mortgage on your second home is doable.

While you may be able to afford upfront costs, if you don’t have a stable income, you may have to think twice about whether it is a good idea.

Plus, you still have to consider the additional expenses of owning a second home such as insurance, property taxes, maintenance, repairs, property management fees, etc.

8. Are you out of credit card debt? If you have paid off outstanding and high interest credit card debts, then purchasing a second home may make sense.

But if you’re still struggling to pay your debt, you may need to put buying a second home on hold. 

The bottom line

If you’re thinking about buying a second home, whether it is for investment or vacation, be prepared to save some money, budget for expenses, and come up with a bigger down payment.

More importantly, spend as much time, if not more, researching for the home just as you did when your purchased your primary home.

Speak with the Right Financial Advisor

  • If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
  • Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

Source: growthrapidly.com

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How to Make $30,000 a Month Flipping Houses

I have flipped more than 200 houses in my career and while I love flipping, it is not easy! We have flipped 26 houses per year multiple times, and I can truly say that the more houses you flip, the more problems you have. Now, when I say house flipping, I am talking about buying houses, remodeling them, and selling them. Some people say they “flip houses” when they are wholesaling, which is buying and selling houses very quickly without remodeling them. Over the years, I have made $30,000 a month flipping houses and even more. It takes money, a team, and thick skin to make that kind of money, but it is not impossible by any means.

How much can you make on a single house flip?

I have written articles like this before and I love to break down the numbers to see how to actually do this, not just live in a fantasy world where good thoughts allow money to fall into your lap. I am also a fan of good thoughts, but that is not all it takes! The last article I wrote in this format was how to make $10,000 a month with rental properties. I love rentals and to be honest, I prefer rentals over flips, but flips allow me to buy more rentals.

I buy flips from $100,000 to $300,000 and they tend to make me from $20,000 to $50,000 per flip. I have made $100,000 or more on a flip before and I have also lost money on flips before. For the most part, I want to make at least $30,000 on every flip I do. That also makes this article really easy to write. If you want to make $30,000 a month flipping houses, flip one house a month. There the article is done!

While that math is simple, the task of flipping one house a month is not simple. Flipping one house can be tough let alone 12 ina year. We have done more and will continue to do more but it was not easy to get to this point. You can see a video of one of my best and most interesting flips below:

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Why is flipping houses hard?

A lot of people watch the house flipping television shows and think flipping is like what they see on TV. You buy a house, change the floorplan, decide what are the best design choices, and boom you make $50,000 or $100,000. The reality of flipping is much different from the television shows. Here is a break down of how it actually works:

  • Line up financing: Most people do not have the cash to flip houses so they borrow money from hard money lenders, friends, or the bank.
  • Find the deals: There are a lot of people who want to flip houses. The deals are not just sitting there for anyone to buy who wants to make $50,000. It takes a lot of work and patience to find the deals from the MLS, wholesalers, auctions, direct marketing, etc.
  • Find contractors: I do not do any of the work on house flips myself. I use contractors and subcontractors to handle it all. If you want to make $30,000 a month flipping houses you will need to hire contractors as well. Finding decent people to work on the houses is one of the toughest parts of the business.
  • Decide on what to repair: On TV, they usually go all out making tons of repairs to properties because that is what gets attention. In reality, the goal is to make only the repairs that are needed to sell the house. The bigger the remodel, the longer it takes and usually the less money you make.
  • Manage the repair process: Things rarely go as planned so someone has to manage the repair process and make sure the work is being done on time and the right way. Some of the biggest disasters come when a flipper trusts their contractor without oversite and huge mistakes are made or no work is being done.
  • Sell the house: It is not always easy to sell flips either. I am a real estate broker and list my flips for sale on the MLS. It is in almost everyone’s best interest to use an agent to sell their houses which cost money. You also need to make sure the home is clean, the work is completely done, and possibly stage the home.

Many things can go wrong during a flip and even experienced flippers like myself sometimes lose money. You have to stay on top of things and constantly tweak the business model. Materials are always getting more expensive as is labor and other costs. We are always finding new ways to get better deals in order to keep that same amount of profit.

To get that $30,000 average profit on a house everything needs to run smoothly and you need to assume there will be extra costs along they want that you are not accounting for.

My book Fix and Flip Your Way to Financial Freedom (197 reviews) goes over the ins and outs of flipping and how to actually do what I talk about in this article. It is on Amazon as an ebook, paperback, and audiobook. 

How much money do you need to flip houses?

Another roadblock for many investors is finding enough money to flip houses, especially if they have a lot of deals at once. There are lenders who will finance flips but the investors almost always need some of their money as well. You may be able to finance 90% of the deal but it is tough to finance all of it. There are also carrying costs, and financing costs while you own the property. The more money you borrow the more that money will cost you. We tend to need $50,000 or more per flip we do. If we have 10 flips going at once, that means we have at least $500,000 of our own cash tied up in those deals when we use loans. If we used all cash we would have $3,000,000 tied up in those ten deals!

It takes a lot of flips going at once to make $30,000 a month because it takes a while to flip a house.

How long does it take to flip a house?

I would love to say it takes three months to flip a house but in reality it takes much longer. We have a lot going at once so we cannot always start working on them right away. It may be a month or two before we can start the work, then it takes time to complete the work, and it takes time to sell the house once it is done as well.

Our fast flips take from 3 to 6 months to complete but may take from 6 to 10 months and a few take over a year from the time we buy them to the time we sell them. I would say our average has been around 8 months from beginning to end.

Because it takes so long to flip houses we need to have a lot of flips going at once to flip 10, 20 or even 26 houses a year which we have done a few times.

How many flips do you need going to make $30,000 a month?

If you want to make $30,000 a month flipping houses and you make $30,000 per flip that is pretty easy math. You need to flip 1 house a month or 12 houses a year. If it takes us from 6 to 10 months to flip a house that means you would need to have from 6 to 12 house flips going at once.

It took me many years to get the point where I could do that many flips, but we usually have from 15 to 20 flips going at one time and that equates to 20 to 26 flips a year selling.

Just remember this is all theory and reality can be much different! You might have some flips that lose money or take way longer than you think that drag down all of your averages. It may take more flips to make that goal or less if you manage to increase your profit margins.

If you decide to build a business like I have where you hire people to help you must factor in those costs as well. I have a project manager, bookkeeper, and other people who help with the flips as well. I also have many other things going on like this blog, my real estate brokerage, my rentals, and more!

If you want to see all of our flips in action be sure to subscribe to the InvestFourMore YouTube channel!

Source: investfourmore.com

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If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders

Posted on November 9th, 2020

A lot of homeowners are looking to refinance their mortgages at the moment. That’s abundantly clear based on the record volume of refis expected this year, per the MBA.

And while mortgage rates are in record low territory, thus making the decision to refinance an easy one for most, it still pays to shop around.

I think we all have a tendency to care less about prices when something is on sale, but there’s no reason you shouldn’t strive for even better, regardless of how cheap something is.

Look Beyond Your Current Mortgage Lender

  • New technology is making it easier for lenders to improve borrower retention rates
  • This means using the same lender for life even if their interest rates aren’t the lowest
  • But like most things loyalty often doesn’t pay when it comes to a home loan
  • So take the time to shop around and negotiate like you would anything else

Thanks to emerging technology, it has become easier for mortgage lenders, mortgage brokers, and loan officers to improve their customer retention.

This means if and when a past customer looks to refinance their home loan or purchase a new home, they might be notified if they pay for such services.

There are companies that can keep an eye on your data over time to see if you’ve applied for a home loan elsewhere, if your home equity has increased, or if your debt load has gone up.

The same goes for your credit score, which if it’s improved enough, may prompt a call or email from a lender or broker you worked with in the past.

While this in and of itself isn’t necessarily a bad thing (sure, data collection is getting a little aggressive), it’s how you react to the sales pitch if and when it comes your way.

Ultimately, if you receive an inbound call or email regarding a mortgage refinance, HELOC inquiry, or even a referral from a friend or family member, don’t stop there.

They are just one of the many individuals/companies you should contact and consider before finalizing your home loan decision.

What If You Receive a Mortgage Mailer?

  • Consider an inbound solicitation a starting point if you’re considering a refinance
  • Don’t simply call the individual/company back and call it a day because they can offer a low rate
  • There are hundreds of mortgage companies out there and competition is fierce
  • Your mortgage will be paid for decades so every little bit matters if you care about saving money

I get mortgage solicitations all the time – and they’re often from a broker, lender, or loan servicer I worked with in the past.

They’re certainly appealing, don’t me wrong. Who doesn’t want to save potentially hundreds a month for simply redoing their home loan, especially if it’s from a trusted source?

But why stop at that mailer? Why not use that as a stepping stone to reach out to other lenders and get additional pricing and offers, then make your decision?

When we’re talking about something as important as a mortgage, which you pay each month for decades, the price you pay matters.

And even a small difference of say an eighth of a percent can equate to thousands of dollars over the life of the loan term.

As noted, companies are getting smarter every day when it comes to customer retention. Unfortunately, a customer retained is likely to miss out on even bigger savings elsewhere.

Don’t simply take the path of least resistance. Put in the time and you should save money.

This is even more critical for low-credit score borrowers, as a wider range of mortgage rates are quoted for those with lower scores.

But all homeowners can benefit from multiple mortgage quotes, as pointed out in a survey from Freddie Mac.

Those who gather just one additional mortgage quote can save between $966 and $2,086 over the life of the home loan, while those who take the time to get 5+ can save nearly $3,000.

So while your old company may make it easy for you to refi, you might be better served looking someplace else.

Read more: Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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When to Refinance a Home Mortgage: Now, Later, or Never?

Posted on October 28th, 2020

Mortgage Q&A: “When to refinance a home mortgage.”

With mortgage rates at or near record lows, you may be wondering if now is a good time to refinance. Heck, your neighbors just did and now they’re bragging about their shiny new low rate.

The popular 30-year fixed-rate mortgage slipped to 2.80% last week, per Freddie Mac, well below the 3.75% average seen a year ago, and much better than the 4-6% range seen years earlier.

Historically, mortgage interest rates have never been lower, making a mortgage refinance a veritable no-brainer for many homeowners out there.

In other words, there’s a good chance you won’t be holding off from refinancing because interest rates are too high (unless you just recently refinanced).

But even if you did, there’s a possibility it could make sense to refinance a second time.

Should I Refinance My Mortgage Now?

should i refinance

  • Consider your current interest rate relative to today’s available rates
  • Along with required closing costs and how long it will take to break even
  • Think about how long you plan to keep the mortgage/property
  • And any other factors like removing mortgage insurance or shortening your loan term

Well, the answer to that question depends on a number of factors that will be unique to you and only you.

First, what is the interest rate on your existing mortgage(s)? Is it higher or lower than current mortgage rates?

If it’s higher, how much higher? If it’s lower, is your current loan adjustable? Or do you want to refinance for another reason, perhaps to tap equity?

Once you’ve got those basic questions answered, let’s talk about the new loan. What will the rate and closing costs be on the new mortgage?

Have you started shopping rates yet? Do you even know if you qualify?

How long do you plan to keep this new mortgage? What about the house? Are you sticking around for a while?

Assuming you’re still here, it might be a good time to take a look at a common scenario to illustrate the potential savings of a refinance.

Let’s look at a quick home refinance example:

Loan amount: $200,000
Current mortgage rate: 4.25% 30-year fixed
Refinance rate: 2.75% 30-year fixed
Closing costs: $2,500

The monthly mortgage payment on your current mortgage (including just principal and interest) would be roughly $984, while the refinanced rate of 2.75% would carry a monthly P&I payment of about $816.

That equates to savings of roughly $168 a month if you were to refinance. Not bad. But we aren’t done yet.

Now assuming your closing costs were $2,500 to complete the refinance, you’d be looking at about 14 months of payments, give or take, before you broke even and started saving yourself some money.

Yes, you need to consider the cost of the refinance too…

So if you happened to refinance again or sold your home during that window, refinancing wouldn’t make a lot of sense.

In fact, you’d actually lose money and any time you spent refinancing your mortgage would be wasted as well.

But if you plan to stay in the home (and with the mortgage) for many years to come, the savings could be substantial. Just imagine saving $168 for 200 months or longer.

This “break-even” point is key to making your decision, at least financially speaking.

You also need to consider whether it makes sense to buy down your interest rate by paying points, which will increase the time to this break-even point.

For example, those who paid upfront points on their refinance a year ago might be kicking themselves, knowing they’ll benefit from a subsequent refinance thanks to today’s even lower rates.

So sit down and determine your future housing plans before you decide to refinance to determine if it’s the right move.

If you don’t know what your plan is for at least the next few years, you may want to hold off until you do.

[The refinance rule of thumb.]

How Long Have You Had Your Existing Mortgage?

when to refinance

  • You also have to consider how long you’ve had your current home loan
  • This can play a big role in determining whether a refinance makes sense
  • Take note of how much it has been paid down since that time
  • And how much of each payment is going toward interest

Here’s another consideration. If you’ve already paid down your mortgage substantially, it might not make sense to refinance, assuming you want to pay the thing off.

Even if rates are super low, as there’s a good chance you’ll pay more interest overall if you “reset the clock” and start your full loan term over again. But this isn’t always the case.

To determine if a refinance is still the right move, get your hands on an amortization calculator.

That way you can see what you’ll pay in interest if you keep your mortgage intact versus what you’ll pay in interest with the new mortgage, factoring in what you’ve already paid on the old mortgage.

You can also use my refinance calculator to plug in all the pertinent numbers, including what we discussed above, to get a quick answer.

If your calculations reveal that you’ll pay more interest over the entire term of the refinance mortgage, there’s an easy strategy to reduce both interest paid and the term of the new mortgage.

Simply make the same monthly mortgage payment you were making before the refinance, with the excess going toward principal each month.

This will shorten the loan term and could save you a lot of money. I explain this method on my mortgage payoff tricks page, which you can read about in more detail.

If you can afford it, you may also want to look into shortening the loan term by going with a 15-year fixed mortgage.

For example, if you’re already 10 years into your 30-year mortgage, reducing the term to a 15-year fixed will ensure you don’t extend the aggregate term.

And with mortgage rates so low, you may be able to retain your low monthly mortgage payment and pay the mortgage off even earlier than expected.

Also, 15-year mortgage rates are lower than those on the 30-year fixed.

Other Mortgage Refinance Considerations…

  • Even if interest rates are comparable to what you already have
  • It could make sense to refinance out of an ARM or an interest-only loan
  • The same is true if you want to get rid of mortgage insurance
  • Or if you’d like to consolidate two mortgage loans into one

If you’re currently in an adjustable-rate mortgage, or worse, an option arm, the decision to refinance into a fixed-rate loan could make a lot of sense.

Even if the monthly savings aren’t tremendous, getting out of a risky product and into a stable one could pay dividends for years to come.

Or if you have two loans, consolidating the total balance into a single loan (and ridding yourself of that pesky second mortgage) could result in some serious savings as well.

You’ll have one less mortgage to worry about and ideally a lower combined monthly payment.

The same might be true if you have mortgage insurance and want to get rid of it. Many homeowners will execute an FHA-to-conventional refinance to drop MIP and reduce monthly payments once they’ve got some equity.

Additionally, you might be able to get your hands on a no cost refinance, which would allow you to refinance without any out-of-pocket costs (the rate would be higher to compensate).

In this case, if the rate is lower than your existing rate, you start saving money immediately.

As mentioned earlier, a cash-out refinance could also contribute to your decision to refinance if you are in need of money and have the necessary equity.

Heck, with mortgage interest rates this low you could even make the argument to tap equity and invest it elsewhere for a better return.

Again, you’ll want to aim for a lower rate and cash back, but there could be a scenario where borrowing from your home is the best deal, even if you don’t save much or anything mortgage payment-wise.

This is really just the tip of the iceberg. There are countless reasons to refinance your home loan, including many seemingly unconventional ones you may have never thought of.

Whatever the reason, be sure to put in the time (and the math) to ensure it’s a good decision for you and not just the bank or a loan officer pushing you to do it!

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

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