The Commonwealth Blog

Monday, October 28, 2019

5 Common Types of Mortgages

When you're getting ready to buy a home, you have a lot of decisions to make. What neighborhood should you move into? How much should you offer? What if you get into a bidding war? One easy question to answer is: Should you have a mortgage? For most Americans, the answer to this question is yes.

Interest rates are low right now, and many Americans are taking out mortgages to buy new homes. At $9.4 trillion, Americans have more mortgage debt than ever before. However, this still leaves the question of what kind of mortgage you should use. When you take out a mortgage, it will be part of your life for the next 15 or 30 years. It's important to pick the right one.

Fortunately, choosing a mortgage isn't too difficult. When you have your budget figured out, and you know how big of a down payment you can afford, it’ll be easy to choose the right mortgage once you know which options are available.

The Five Most Common Types of Mortgages

Finances can be complicated in general, but mortgages are pretty simple. Here are the five most common types of mortgages on the market:

The Conventional Mortgage

A mortgage that isn't insured by the federal government is called a conventional mortgage. If the amount you borrow falls within industry guidelines for your income level, a conventional loan will probably work for you. Because conventional mortgages aren't backed by the federal government, lenders typically require that you carry private mortgage insurance if your down payment is less than 20% of your home’s value.

Fixed-Rate Mortgages

When you have a fixed-rate mortgage, you'll pay the same interest rate for the entire life of your loan. Fixed-rate loans are more popular when interest rates are low. Today, interest rates are less than 4%, so many buyers are currently opting for a fixed rate. 

Adjustable-Rate Mortgages

When you have an adjustable-rate mortgage, your interest rate can change. If interest rates go down, you save money, but if interest rates go up, you could end up paying more. Many lenders offer adjustable-rate mortgages with a cap on the maximum interest rate. This can save you if interest rates rise sharply.

Government-Insured Mortgages

The U.S. government doesn't loan money directly to home buyers, but there are three government agencies that back loans: the Department of Agriculture, the Federal Housing Administration, and the U.S. Department of Veterans Affairs. These agencies help buyers who may not qualify for many loans.

Jumbo Mortgages

If you want to purchase a home that exceeds industry loan guidelines for your income or area, you'll need a jumbo loan. These loans typically require more paperwork so lenders can be confident you won't default on the loan.

A home will probably be the biggest asset you’ll own, while your mortgage will usually be your biggest debt. A mortgage will be part of your life for a long time, so it's important to choose the right one for you.

Friday, October 25, 2019

What Is Title Insurance?

Buying a home is a complicated process. There are pages and pages of paperwork to fill out, and seemingly endless fees to pay. The costs associated with buying a home add up. Are you tempted to cut some corners and avoid some costs? Maybe you think you should forgo title insurance to save some money. This could be a mistake.

When someone sells a piece of property, the public records office in their city or county records the title change. Sometimes problems arise. When things go wrong, the sale could even be delayed until the buyers or sellers rectify the problems. Title insurance protects the buyer, lender, and seller from any extra costs resulting from the delay.

How Does Title Insurance Work?

Before a real estate transaction can go through, any claim or liens against the property owner must be settled. Title insurance covers the cost of these claims. Normal insurance protects you from what could happen in the future, but title insurance protects you from what has happened in the past.

How Do I Get Title Insurance?

In most cases, lenders require title insurance for anyone taking out a mortgage. Your real estate agent or lender will typically purchase coverage from one of the five major title insurance underwriters in the United States.

What If I Don't Get Title Insurance?

Going without the protection offered by title insurance exposes you to serious financial risk. Imagine purchasing a home without title insurance only to find that the previous owner owes back taxes. As the new owner, these taxes are now your responsibility. If you don't pay the taxes, you could lose your new home, but if you have title insurance, the fees will be taken care of.

Title insurance is not just for individuals. Banks and other lenders use it to protect themselves from borrowers who might default on a loan.

Many real estate investors specialize in foreclosures, which often have issues with titles. Title insurance protects everyone from the risks associated with these properties. If you want to be as successful as a real estate investor, or if you just want to protect yourself as a homeowner, title insurance is essential. Don't risk losing your money or your property—make sure you have title insurance.

Wednesday, October 23, 2019

Real Estate Basics: Rent or Buy?

Not everyone pays attention to real estate, but there are a few topics that seem to rile people up all the time. One topic that’s virtually guaranteed to get people talking is the seemingly innocent question, should I rent or buy?

Why does this topic get people so excited? It's one that everyone can relate to. For years, purchasing a home was something that all successful people did. After so many people lost their homes during the housing crisis, however, the experts started telling us it's better to rent. One problem is that there are good points to be made on both sides of the debate. Here are some usual arguments for buying:

  • Once you pay off your home, it belongs to you. You'll never have to pay rent again.
  • Real estate appreciates in value. If the increase in value is more than what you pay in interest, taxes, and maintenance, you come out ahead.
  • Buying is better for your taxes.

These arguments sound compelling, but there are also solid arguments on the side of renting:

  • When you rent, you don't have to pay for maintenance.
  • Buying a house can tie up so much of your money that you can't save for the future.
  • If the market goes south, renters won't lose their investment.

With so many reasonable-sounding arguments, it’s sometimes difficult to make an intelligent decision.

What's the Bottom Line?

So which is better, renting or buying? It depends on your situation. Here are some questions to help you decide:

How Long Will You Be in Your Home?

Buying usually makes more sense for people who are planning to be in their home for a long time. While homes often increase in value, it can take years for the increase to offset the costs of maintenance and taxes.

What Else Could You Do with Your Money?

Buying a home will tie up a significant portion of your assets, so it's important to know what else you could do with that money. If you are disciplined saver and plan to invest the money in securities, you could come out ahead. If you are more likely to keep the money in your checking account or blow it on an extravagant vacation, you're probably better off buying a home.

What Is the Cost of Buying Versus Renting in Your Area?

Depending on where you live, the amount you pay in rent could be higher than a mortgage. Determine the cost of both renting and buying in your city before making a decision.

If you still aren’t sure whether you should rent or buy a home, the answer depends on your situation. No matter what you choose, make sure you are basing your decision on the best information available.

Wednesday, October 16, 2019

The Rise of Co-Living in Boston

Living alone is expensive, especially in a major city. Take Boston, for example. The diverse research facilities, financial investment firms, healthcare providers, and Ivy League colleges are central to the economy of the entire United States, and yet, even amid all this prosperity, many people are struggling to keep a roof over their heads.

Nearly 82,000 low-income households in Boston spend over 30% of their income on rent or a mortgage. Around 52,000 of those households are severely cost-burdened, meaning they spend more than 50% of their income on housing.

Why Is Co-Living So Popular?

Co-living is popular and growing more so. There are many factors that drive city dwellers, particularly young city dwellers, to embrace co-living.  Here are three of the biggest:

Prices Are Out of Control

Even as wages have risen, the price of housing has risen even more quickly. People are spending a larger portion of their income on housing. In urban centers, where people congregate, the problem is even worse. As more people are competing for limited housing resources, prices have risen sharply 

Young People Are in Debt

Many young people are graduating from college with tens of thousands of dollars of student loans hanging over their heads. This is just one reason that young people are staying single longer. Without the pressure of caring for a family, there’s less reason to buy a house even for those who can afford to do so.

Societal Factors

Many young people are lonely. Starting a new job in a new city, far away from family and friends, is a frightening prospect. Many experts believe that relying heavily on technology for communication leaves people feeling isolated. Co-living is one way to be a part of a community and establish personal connections. Many co-living developments regularly host community events where residents are encouraged to socialize.

Investors and developers are taking notice of the situation. The 7INK development under construction in Boston’s South End will have 180 units, split among shared units and small studio apartments. National Development is funding the project with the hope of profiting from the trend of millennials and others looking for fully furnished co-living spaces.  

Co-living is here to stay. The benefits of reduced living costs and a greater sense of community make co-living attractive to many, especially young people. The co-living trend has led many real estate firms to invest in development meant for single people to live with roommates.

Monday, October 14, 2019

Why You Should Flip a House in Your Own Market

Do you want to get into flipping houses? You aren't the only one. You can hardly turn on the TV without seeing a show about house flipping. These shows are compelling to watch, and they’re inspiring many people—in 2016, more than 6% of all home sales were house flips.

House flipping shows have made a real impact, but that doesn’t mean everything about them is realistic. Many of the difficulties in flipping are glossed over for the sake of fitting the story into a 30-minute episode, and of course, the flippers always win in the end. Things aren’t so simple off screen, but there are steps potential flippers can take to increase their chances of success.

Easy Mistakes to Make

Flipping houses can be a profitable business. Unfortunately, there are many ways for it to go wrong. Here are a few common mistakes first-time flippers make:

Ambitious Budget

One can quickly get carried away by the dream of making simple profits. It's easy to underestimate the cost of repairs and overestimate your eventual selling price. Unrealistic expectations may lead you down the pathway to disaster.

Overestimating Your Skills

Many house flippers go in thinking they will do much of the work themselves, forgetting that the houses with the most potential are selling cheap for a reason. They often need significant repairs that are beyond the reach of most DIYers.

Lack of Experience

If making money were easy, everyone would be rich—the most successful among us build their knowledge and skills over time. Consulting more experienced flippers is a good idea when you’re getting started, but get comfortable with the idea that you won’t know everything you need to know right off the bat.

The Right Way to Do It

It’s easy to get excited about house flipping and jump into a project you aren't ready for. The most important thing to remember about house flipping, at least when you're starting out, is to stick to your own market.

When you try to work outside your market, you’re more likely to have a limited understanding of the potential value of your property, the potential cost of repairs, and what homes are most likely to sell quickly.

How do you gain the insights you need about your market? Many rookie home flippers start by working with a local agent. An experienced agent can help you target the properties that work with your budget, your experience, and your plans.

Flipping houses is an exciting, possibly lucrative investment. The potential for profit has attracted many would-be investors and driven an entire segment of entertainment. Unfortunately, just like many things on TV, house flipping is oversimplified. It's easy to get started on a project only to find out later that the profits you were dreaming of never materialize. The best way to avoid this fate is working in the market you know best: your own.

Wednesday, October 9, 2019

Selling Your Home With Homeowner's Insurance

Homeowner’s insurance is an expense you may wish to pass off to a buyer as soon as possible, but getting rid of your insurance too soon can have detrimental effects. Let’s review the reasons why having homeowner’s insurance is so important and why you may want to hold onto it until your title has been transferred to the new owner. After all, a tree could fall on your house a day before closing, only to have all parties cancel their contracts—stranger things have been known to happen!

What Is Homeowner’s Insurance?

Homeowner’s insurance is a type of property insurance that protects your home and the things inside your home from damage. It can also cover accidents and bodily harm inflicted inside the house or on the property. Homeowner’s insurance is required in order to obtain a mortgage from most banks or lenders. Individuals can purchase homeowner’s insurance from the lending bank, in which case payments can be included in the monthly mortgage payments, or from an insurance provider of their choice. 

The amount of coverage a homeowner has depends on the plan’s liability limit, which is usually set around $100,000. Acts of war or acts of God (earthquakes or floods, for example) aren’t usually covered in basic homeowner’s insurance plans, so people living in areas prone to these events are wise to purchase special coverage. Most homeowner’s insurance policies cover damage done by hurricanes and tornadoes. 

Selling Your Home with Homeowner’s Insurance

While it’s not necessary to have homeowner’s insurance while selling your home, it’s smart to hold onto it until the new buyers take financial ownership of the property. Here’s why.

Financial Responsibility and Home Offers 

You never know when an unexpected accident will occur, due to extreme weather or other circumstances. If something happens to your home before you close the deal, you may be left with a huge financial burden, and a buyer may retract their offer if they see the property has suffered major damage.

Protect People from Accidents on the Premises

Homeowner’s insurance includes personal liability coverage, which includes personal injuries to others. In the unlikely event an individual is injured on your property during a showing, your homeowner’s insurance will help cover any medical bills. According to the Insurance Services Office (ISO), wind and hail, freezing water damage, and fire and lightning damage are much more likely to cause property damage—personal and bodily injury are rare, comprising only about 3% of total home insurance losses.

When Should You Transfer Your Policy?

All things considered, it’s best to transfer your homeowner’s insurance policy to your new home only after the closing is complete and your title company sends the funds to close the loan on your old home. You may end up paying for two homeowner’s insurance policies at once while purchasing your new home and selling your old one simultaneously. 

Contact your mortgage company one to three days after closing to notify them of your move. If you’ve prepaid your homeowner’s insurance and property taxes, and your insurance has been escrowed, you won’t need to cancel your current plan. Instead, your lender will send you a refund check.

Better Safe Than Sorry

While it might seem like a hassle to sort through homeowner’s insurance during a sale or move, it’s a good idea to safeguard yourself from potential liabilities that could cost you most of your savings. You’ll be thankful to have a policy that covers expensive damages when you need your home to be in tip-top shape.

Monday, October 7, 2019

Renovations That Make Money in the Long Run

Does your house work perfectly for you? Are the kitchen, bathroom, and yard designed and decorated just the way you want them? Unless you had your house custom-built from the ground up, your answer to these questions is probably “no.”  If you want your home to be just the way you want it, you’ll probably have to make at least a few renovations.

Remodeling your home can make it a more comfortable, more functional place to live, but it can also impact the property’s value. Even if you aren’t planning on selling your house right now, it’s wise to consider the potential impact of renovations on the value of your home. While a pink bathroom with a bright orange bathtub might look good to you, it could put off buyers when you try to sell your house.

Increasing your house’s value is a good thing even if you aren’t ready to sell—it can improve your credit rating and be a successful stockpile for your wealth. The best part is, unlike many concrete investments, the price of your home is likely to increase.

What Renovations Pay Off?

Here’s our list of the potentially profitable home renovations you should consider, including some you may not have expected:

Upgrade to High-Efficiency Windows

Replacement windows look great, and depending on the age of your home, they can make a big difference in your utility bill. Upgrading your windows makes sense for your comfort and your pocketbook.

Add a Deck

If you have a good-looking, functional backyard, adding a deck is almost like adding a whole new room to your house. A deck is one of the most attractive and useful things you can add to your home.

Replace Your Garage Door

Replacing your garage door may not be the most obvious way to upgrade your house, but if you think about it, you use your garage door every single day, and it’s one of the property’s most visible features. A new garage door can do more than just look better—it can also be more energy efficient and make your garage more usable.

Update Your Kitchen

No discussion on home renovation would be complete without covering the kitchen. Most experts agree that updating your kitchen will significantly increase the value of your home, as long as you don’t go overboard with restaurant-style appliances or high-end finishes.

Home renovations can make your life better by improving the place you spend most of your time—however, not all renovations are created equal. When you plan a home renovation, keep your future buyer in mind. Your house’s extra value can benefit you in unexpected ways even before you sell.

Wednesday, October 2, 2019

Financing Your Home

Most people don’t purchase a home with extra cash they have lying around. Instead, they rely on loans to make their mortgage payments—this is especially true for first-time buyers. In order to qualify for a loan, you’ll need to let lenders review your financial history so they can make sure you’ll pay off your mortgage.

Lenders will check your credit score to determine the amount of money they’re willing to loan you. After you know your loan amount, you’ll have a better idea of how much money you can put toward your down payment, which in turn gives you a realistic idea of what homes are in your price range. 

Qualifying for a Home Loan or Loan Preapproval

Approach your house hunt with a good sense of your own purchasing power. After all, you don’t want to tour a home you can’t afford. Before setting foot onto a property, make sure you possess the financial backing needed to submit an offer. Opt for mortgage prequalification or loan preapproval to get an idea of your ideal price range.

  • Mortgage Prequalification: During the prequalification phase, a lender will evaluate your financial trustworthiness (your creditworthiness) to determine if you’re eligible for a loan. Prequalifications are an approximation based on the financial information you provide—they don’t guarantee you’ll receive a loan. Prequalifications are best used during the window shopping phase, before you’ve decided you’ll purchase a home in the immediate future.
  • Loan Preapproval: During this phase of the home buying process, lenders investigate your financial history to offer a specific loan amount. To determine a loan number, lenders will ask for your income, credit score, credit history, and the amount of money you have in savings. This process gives you a realistic idea of the homes you can afford within a specific price range. 

Rely on a Loan Officer for Help

No matter your financial state, a loan officer is there to assist you. If you’re not in the best financial position to purchase a home, your loan officer can recommend ways to improve your credit score and trustworthiness. Alternatively, if you’ve got the go-ahead, a loan officer can prepare you for purchase by letting you know which loan programs you qualify for, what your purchase price limit is, what your monthly payment might look like, and how much money you need for your down payment, closing costs, and reserves.

Don’t Skip These Important Steps

Don’t jump into the game without the skills you need to win! Before you get too excited about a potential new home, first go through your finances to see what you can realistically afford. This allows you to put your best foot forward while placing an offer on your dream home.

 

Wednesday, September 25, 2019

Close a Deal Faster with Special Offers or Terms

Keeping your home on the market can cost you money. As long as you still own it, you’re responsible for maintenance, property taxes, and utilities. Depending on your situation, a house that doesn't sell quickly can be a weight around your neck. You may find yourself forced to pay two house payments or even unable to accept a new job, start a family, or take the trip you’ve been dreaming of for your whole life.

Are you stuck in a home that seems like it will be on the market forever? There are a few things you can do to encourage buyers to close a deal and sell your home faster.

Pay the Closing Costs

Offering to pay the closing costs is a common strategy for sellers who want to speed things along. Selling a home involves several costs and fees, including things like real estate agent and lender fees and charges for title insurance and home appraisals. When you total everything up, it may run from 2-5% of your home’s value. Many buyers have difficulty saving for a 3% down payment, let alone any additional costs. Offering to pay closing costs can encourage an otherwise reluctant buyer to pull the trigger.

Pay for Necessary Repairs

Did the home inspection uncover a leaking roof, bad wiring, or termite damage? You typically have two options: reduce your price to cover the cost or pay for the repairs yourself. The second option is better from the buyer’s perspective—he or she can be confident they’re moving into a home, not a money pit 

Consider Seller Financing

If you live in an especially depressed market, buyers may have trouble getting a loan. In extreme cases like this, some sellers work the purchase out directly with the buyer. No bank or other lender needs to be involved in this arrangement—the buyer and seller handle it all on their own. You have a right to determine the interest rate, payment schedule, and any penalties that may apply if the buyer defaults. While this allows you, the seller, to offer whatever terms you like to get your home off the market more quickly, it also means you’ll take on all the risks of a lender yourself. Depending on your financial position, this may or may not work for you.

No matter what the terms are, it’s a good idea to have an attorney review the contract before you sign.

Do you need to sell your home off of the market quickly? While it may cost you in the short term, making special offers can help you seal the deal and move on.

Monday, September 23, 2019

When Is It Worth It to Hire a Home Inspector?

Buying a home is a major commitment, and many people worry they’re making the wrong choice. How can you make sure the home you’re considering doesn’t turn into a money pit after you buy it? Hiring a home inspector can help you spot trouble before it hits your wallet where it hurts. While you may not need to have an inspection, it is one of the most valuable home buying tools you can use.

What does a home inspector do? Put simply, they search for problems that can cost you money. Even a house that looks good on the outside may be hiding many costly and potentially dangerous problems.

The price for a home inspection can vary from one market to another, but it’s typically less than $500. Considering the potential price of home repairs, the cost of a home inspection is money well spent.

What Does a Home Inspector Look for?

A home inspector can search for many issues. Here are just four of the potential problems they can alert you to:

  • Mold and Mildew

Mold and mildew can not only leave ugly marks on your walls and floor but may also be toxic to your family or pets. Once mold and mildew set in, they can be very costly and difficult to remove.

  • Leaky Roof

Very few things are more frustrating than buying a house on a beautiful summer day only to discover that the roof leaks during the first rainstorm. Replacing the roof could cost you thousands of dollars, and it's something that can make a big difference in the price you pay for a home.

  • Plumbing Issues

The pipes that carry water to and from your fixtures live inside the walls and under the floor. When everything works on the surface, it’s easy to forget about what’s happening out of sight.

  • Old Wiring

An older house may have been built with outdated wiring technology that is no longer considered safe, while a newer home could have an issue with shoddy workmanship. In either case, you’re better off knowing ahead of time whether the electrical system has potential problems.

This Isn't the Time to Do It Yourself

You may think you have the skills to spot any potential issues with your new home, but unless you have significant experience in the home construction and repair industry, this job is better left to the professionals—it’s just too difficult to be objective.

How to Find a Good Home Inspector

Most times, your real estate agent or your lender can recommend a home inspector. If you would rather find your own, ask around. You probably know someone who has bought or sold a house recently, so they can be a good source of information.

Some states have certification and licensing requirements for home inspectors.earn about Massachusetts home inspection requirements here.

While hiring a home inspector is your choice, the few hundred dollars you spend on an inspection can save you thousands. It’s a price that is well worth paying.

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