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How To Line Up Funding For Your Commercial Real Estate Deals

We talked briefly, if you watch prior videos, about residential lending and some of the basic mortgage programs. This is commercial lending. This is typically if you see on the screen, typically five units or more. Residential lending is a single family, two family, three, a triple decker or are four units.

Commercial lending tends to be five units or more. It can be something that’s less than five units if it’s held in a special purpose entity like an LLC. If you own the property individually and it’s under five units, it’s typically residential property or residential mortgage broker or a lender could help you. If it is five units or more or held in a special purpose entity like an LLC, then it is commercial lending.

Typically what you find with commercial lending it is performance based. When you’re dealing with residential lending you’re dealing with your credit score. You’re dealing with your debt to income ratio and you’re dealing with loan to value and a couple of other factors that affect you personally.

When you’re dealing with commercial lending, it’s more lenders are making the decision based on the performance of the property. When I say performance of the property I mean what rents are coming into the property? What is the rent roll for the property? What is the total gross rents that the property collects versus the total expenses or outlay of cash needed to operate the property on a monthly basis, on an annual basis?

Typically what commercial lenders like to see is what’s called a debt coverage ratio of let’s say 1 1/4 or 1.25 which means, I’ll give you the simplest example. If you have debt on the property or a mortgage on the property and that mortgage is about $1000 per month, most lenders like to see at least 1250 in income coming in or a 1.25 debt coverage ratio. They also want to see that the property is cash flowing on a regular basis. They want to see that you can sustain the property over a long period of time and that it is going to be successful for you. Again, it has less to do with your credit score and your personal debts. More to do with the property’s performance over time.

What else can we talk about commercial lending? Rates tend to be a little bit higher than residential lending. Typically a half a point I would say from my experience. You’re seeing a half a point, maybe a point more depending on the risk that the lender assumes with the property. Commercial lending can be recourse and nonrecourse as well. Nonrecourse loans means that you do not need to give a personal guaranty. If the property for some reason does not perform, and the note is not paid, you will not be personally liable for that. When you’re talking about residential mortgages, if you do not pay you get foreclosed on and that foreclosure goes onto your credit report there’s a ding there when you go to purchase another property.

If you are relatively new to the commercial lending space, most lenders probably will want you to give a personal guaranty to the LLC or the entity holding the property. Once you have a little bit more experience, or you hit a certain loan volume, a certain loan number, typically a million dollars you can usually look for a nonrecourse loans where you are not personally liable for that entity or the performance of that property if the property does not perform to expectations.

Last but not least, you are typically going to find LTV between 75 and 85% so loan to value ratios between 75 and 85%. Which means unlike residential lending where you can put as little as 0% down with a VA loan or a 3 1/2% down with FHA and 3% down with mass housing, most commercial lenders are going to want to see at least 15-25% what they call a skin in the game. They want you to have some equity into the property right off the top. That equity can be the equity pulled together by partners. You can have several owners of one LLC pulling funds together to make that down payment of 15-25%. That’s a lot of times what you see especially with properties of a million or two or three million dollars where it is unlikely that one individual has the capital or even if they do, wants to risk the capital themselves. You find that a lot of individuals tend to pool money together with two, three or more partners form that LLC to meet that down payment requirement.

That’s commercial lending in a nutshell. If you would like more information on commercial lending, or would like to be connected with some of our commercial lending contacts, please click the link in the description below and fill out the quick form. Tell us a little bit about yourself and we can connect you with one of our contacts, one of our lenders that we do business with.

Financing

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Never Pay Capital Gains Taxes On Your Investment Property Sale

What a 1031 exchange is, it basically is a tax vehicle that allows you to trade up to larger properties. Let’s say for instance you have a three family and you have some equity and you’re thinking about selling. If you sold that three family you are going to get hit with a capital gains tax, or you’re going to hit for capital gains taxes on the sale of that property.

If the value of the property went up, if you’ve obviously been taking a depreciation allowance every years so your basis is down, the federal and state government are going to say, “You received capital gains from this investment and you are going to get taxed on the sale. To avoid capital gains taxes and to use that money or the portion of tax that the federal government would have taken, to enhance your portfolio it makes a lot more sense to avoid those taxes and use that extra cash to grow your wealth and put it into the next property.

What a 1031 allows you to do is to avoid capital gains taxes, long as you’re following the IRS rules and you are trading up or using the proceeds of that sale to fund your next property. It’s typically used to trade up for a larger property. Let’s give you an example, I sold a $600,000 property and I bought it initially at, let’s say $400,000, I paid the debt down to three, and I was probably going to have a capital gain of let’s say around $200,000 on that property, if not a little bit more.

If I get hit with a capital gains tax and then use the proceeds to invest, I have less money to invest. A smarter, easier way would be to, not easier way but a more intelligent way, would be to use a 1031. Be within the law use a 1031 exchange to trade up to a larger property. Basically what you have to do is you have to use a 1031 exchange company and you have to follow certain guidelines to avoid that capital gains taxes. You have, I believe, identify a property within 60 days and close on that property within 90 days.

Those laws are changing depending on what administration is in, and where we are in housing and how the housing market is doing. Those are the type of things that you want to make sure, using a qualified company, because as those laws move and the rules change, you want to make sure that you are within compliance so you do not get audited or get hit with tax after the exchange

Make sure you’re following the time tables and identifying your property and purchasing and securing the property within a solid period of time. That’s what a 1031 exchange is. That’s how you can use it. Some of the best and the brightest real estate investors in the business are using 1031 exchanges over and over and over again to trade up to larger and larger properties and keep their money moving. They’re constantly keeping their money moving.

For more information about 1031 exchanges or to be connected with a 1031 exchange company, please click the link below in the description, tell us a little bit more about yourself and what you’re looking for. We can certainly connect you with some of the companies that we use on a regular basis. Thanks, hopefully this was helpful.

Financing

 

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How To Purchase Your 1st Home or Investment Property W/ Little Cash Out Of Pocket

 Just wanted to go over some basic mortgage programs with you today, some mortgage programs every home buyer should understand, understand that’s available to them so they completely understand their options. Some things, some of these you may have heard of, some of these you may not have. Let’s start right at the top. I think the most common throughout the country is our FHA or Federal Housing Administration loan program.

It allows for a minimum of 3.5% down. You’re looking at about $3,500 down for every $100,000 you spend. That’s the easiest way to look at it. It allows for a credit score as low as 580. If you’re in the 600s or 700s, you’re in great shape, but you can purchase a home with a credit score as low as 580. Some of the benefits of having a 600+ credit score is the rates start to become a little bit better for you, the mortgage interest rate becomes a little bit better for you. Mass Housing. Here in Massachusetts, in Boston, you can also purchase a home with 3% down. Mass Housing does require you to go through a firs time home buyer’s program where FHA’s does not. Mass Housing does have a few income restrictions. You can only make so much money before you are no longer qualified to use the Mass Housing program.

Again, 3% down so about $3,000 for every $100,000 you spend on your home. $300,000 home, roughly $9,000 down payment. Conventional mortgages. If I can backup just a second, one of the downsides to the FHA program is there is a fee that you pay for using such a low down payment program. It’s called primary mortgage insurance. It’s something that you pay for the use of this program. It’s a fee that you pay every month, roughly. It can range from $100 to $400 a month depending on the size of your mortgage. In some cases, it may make a lot of sense for you to forego the FHA and put a little bit more down, go 5% down. You can do a conventional mortgage program with 5% down; owner-occupied conventional program with 5% down. As long as you plan to occupy the residence you can usually get in.

The rates may be a little bit higher than the FHA or Mass Housing, but again, if you were making a little bit too much money for the Mass Housing and you don’t like the idea of the PMI or primary mortgage insurance on the FHA, conventional may be the way to go. Again, your rates can be a little bit higher, but the total mortgage itself may be a little bit lower after you reduce or pull out the primary mortgage insurance payment. Conventional, you can also go conventional and purchase an investment property. Investment property, you would probably need 20% to 25% down depending on which mortgage lender you received.

Conventional programs go anywhere from a 5% owner-occupant to a 25% investment property. The VA loan programs. If you are a veteran, and I believe if you are a family member of a veteran, you can also use the VA program which requires nothing down at closing. You can actually purchase a home with zero down for your veteran status. You really want to check the VA housing website. I would google, I don’t know what the exact URL is, but I would google Veterans Administration Housing Loan Programs or Mortgage programs. I’m pretty sure the website would pop right up. There’s a great opportunity for you, yourself, a family member, or if someone of your friends is a veteran, definitely inform them about this program.

Last but not least is your 203K. A 203K allows you to buy property that needs a little work. You purchase a property, looking at a property, and let’s say you’re going FHA. You look at that property and if there is a missing stove, if there is peeling paint, if there are holes in the wall, FHA is not going to approve that loan. They want the house to be move-in ready, immediately ready to occupy. 203K steps in and says, “This house is right on the verge of being a good property but it needs a little work. It needs a new kitchen. It needs a new bathroom. It needs paint. It might need a roof.” The 203K allows you to purchase the property and also get rehab funds at the same time.

Let’s say, for instance, you’re purchasing a property at $200,000. The purchase price will be lent to you and then additional $30,000 to fix up your kitchen, your bathroom, and some other things that are needed to be done. You really want to, if you’re going to go through 203K program, you want to make sure that your lender has experience with the 203K loan. You do have to get a contractor involved. That contractor would need to submit bids to make sure that the money is being appropriated correctly. There’s a lot more involvement when they’re going to be giving you rehab funds as well.

FHA, Mass Housing, conventional, VA, and the 203K loan are your basic mortgage program.

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First talk a little bit about what equity is. Equity is the value that you have in your home, the difference between the market value of the property and the debt on the property. If you have $100,000 home, a home that’s worth $100,000, you owe $60,000 on that home, you have $40,000 in equity. Simplest explanation, 100,000 minus $60,000 in debt. If you sold the property today, you’d walk away with $40,000. Million dollar home, you have $300,000 in debt, you have $6, $700,000 in equity. One million, pay off the 300,000. The equity that remains is 700,000, which is yours.

Let’s talk a little bit about how to use home equity loans and home equity lines of credit to tap into the equity in your home and to accelerate your wealth building process. First, let’s talk about home equity loans. A home equity loan you borrow at a fixed amount. The payments are fixed. Your interest rate is fixed. The payments are fixed. You get a lump sum today and you are basically making payments over the 10, the 15, the 20-year term of the home equity loan, so you know what your payments are every month, and it’s predictable. No closing cost is listed on this screen, but please pay attention to that. You’re never going to take out a mortgage and have there be no cost. A lot of times, it’s just rolled into the back end. You take out 100,000, but your mortgage goes up by 103,000 or 104,000. There are always going to be costs there. Just pay attention to what they are and how does it affect your overall loan.

Interest, usually tax deductible. As of right now, the current laws in the United States allow for interest on mortgages to be tax deductible. The word usually is thrown in there because who knows if those laws are going to change in the future, but as of right now, interest on mortgage or your mortgage interest expense is tax deductible.

What is the difference between a home equity loan and a home equity line of credit? A home equity line of credit, you do not receive a lump sum. Basically, what you do is you’re basically taking $100,000 and tying that up. You basically are using the equity almost as a credit card. In that sense, you charge or you write a check for $5,000 and then you pay off that $5,000. Now you have $100,000 in available credit once again. You buy a car with your line of credit, and you spend $25,000 on that car. As you slowly pay off the $25,000 loan, that credit becomes available again. It’s like a credit card. It’s a more revolving line of credit than it is a loan. A loan you get a lump sum, payments are equal over the term of the loan. The line of credit acts more like a credit card, and also your interest rates are variable. They are usually capped or tied to an index.

You’ll have, I would say, if you start off with a 6% interest rate, it may be capped at 9, but over the life of this home equity line, you may not know exactly what your payments are. Your payments are going to be based on how much you spent or how much you borrowed and what the interest rate is at that particular time. Why would you use one versus the other? I’ll give you two examples of how they are used by investors to accelerate wealth building. Let’s say, for instance, I have a neighbor who wants to sell their property to me. They’re in no particular rush. I am very interested in the property. It’s maybe a multifamily and I know it’ll cash flow if I can just get in and rehab the property and put it back on the market with some new tenants. I’m going to tell my neighbor, “I’m going to take some equity out of my home, and I’m going to now use that equity as a down payment for a new mortgage so I can buy your property.”

In that case, I’m going to go after the home equity loan. I have a purpose. I already know what my purpose for taking this equity out of my home is to go purchase a new home. I would rather my payments be fixed so I can calculate them and I know what they are every single month. I”ll have two mortgages to worry about, two additional mortgages to worry about, the home equity loan, plus the new property loan. I’m most likely going to use the home equity loan as a down payment for my new loan to purchase my neighbor’s property. Depending on where you are in the country or how much equity you have in your home, if you have enough, you can borrow the entire purchase price from your home equity loan.

Why would I use the home equity line of credit? I do not have a neighbor who’s looking to sell, but I know I want to buy and investment property in the future. I want to have access to the cash. I know that when I make an offer on a property, a lot of times, I have to move quickly. I want to have access to the cash immediately and be able to write a check with no going to the bank. I already want my funds to be available so I can move quickly, and I do not know my purpose as of yet. I’d probably be in that situation be looking for a home equity line of credit that I can take, borrow against my house, and in anticipation of using that for some future purpose.

To sum it up, I would say home equity loan is I understand my purpose. I’m going. My purpose is there. I have an existing need for this money or an existing want. I’m going to go take out the loan. I’m going to make my payments fixed and predictable. I know that I want to do something in the future, but I’m not quite sure what it is just yet, but I want to have access to quick cash, I’m probably going to use the home equity line of credit to do that in the future.

One other way that you can tap into your home’s equity that’s not exactly listed here is doing a cashout refinance. Let’s say you have a house. It’s worth $500,000, and you owe $200,000 on that piece of property. Instead of having two mortgages, instead of having your first existing mortgage and then a home equity loan on top of that as a second mortgage, you basically do a cashout refinance. You want to pay off the existing 200,000 and then take out an additional 100,000 or 50,000 or whatever it may be into one new mortgage. My new mortgage is going to be 300,000, paying off the old mortgage of 200,000, and putting $100,000 into my pocket. That is called a cashout refinance of your mortgage, and that is another way that you can tap into cash, as well.

Hopefully, this was helpful. If you are looking for mortgage brokers that you would like to speak to about home equity loans or home equity lines of credit, we work with some of the best in the business, especially here in Boston. Please click on the link below in the video description. Fill out the quick form. Tell us what you’re looking for. We would love to connect you with some of the people that we work with on a regular basis. Thanks for watching.

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BBRRR Investment Strategy (Boston’s Buy, Rehab, Rent & Refinance)

One of the best ways to invest in Boston real estate with little to no money out of your own pocket, is the BRRR strategy. BRRR stands for Buy, Renovate, Rent & Refinance. With this strategy the goal is to buy single or multifamily homes that need significant work. You would then renovate this property and bring it to current rental standards. Once the property is fully rehabbed, and rented, you would seek out permanent bank financing to pay off your construction financing.

Part 1: The goal is to create enough equity via your rehab, and to stabilize the property with tenants, that the banks will not require a down payment when you attempt to refinance. An ideal situation is laid out below.
Purchase Price – $350,000
Rehab Cost – $130,000
Financing Cost – $20,000
Total Invested = $500,000 (Refinance Amount)
ARV = $625,000
$500/ $625 = .80 or 80% LTV

Part 2: The second part of the equation, is making sure that your rents fully cover your monthly debts after refinancing. In other words you need your income to exceed your expenses and to producing cash flow for the banks to consider this a good loan. The numbers should look similar to below.
Total Rents Collected – $6,000 Monthly
Mortgage Payment – $2,000
Taxes & Insurance – $1,500
Other Cost = $500
Total Monthly Cost = $4,000
$6000 Rents – $4000 Expenses = $2000 Monthly Cash Flow

Want to see a current BRRR project in process? Come check out our latest 3 family investment as we prepare to bring this rental property back to life! This is a buy and hold deal that’s getting a full rehab. During the property tour we’ll explain:
• Exactly how we acquired the property
• How we raised the capital to purchase
• Our rehab budget & plans for the units
• Our timeline & issues we’ve had along the way
• Rental expectations & cash flow projections

For more details and to RSVP to the meeting, please visit the link below. Hope to see you there!

(BRRR Strategy) Buy, Rehab, Rent, Refinance – Property Tour!

Saturday, Mar 18, 2017, 11:00 AM

701 Walk Hill Street
02126 Boston, MA

56 Wealth Builders Attending

Come check out our latest 3 family investment as we prepare to bring this rental property back to life! This is a buy and hold deal that’s getting a full rehab. During the property tour we’ll explain:·  Exactly how we acquired the property·  How we raised the capital to purchase·  Our rehab budget & plans for the units·  Our timeline & issues w…

Check out this Meetup →

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Boston Home Loan Rates Tick Down A Bit

Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates moving lower for the third consecutive week.

News Facts

30-year fixed-rate mortgage (FRM) averaged 4.09 percent with an average 0.5 point for the week ending Jan. 19, 2017, down from last week when it averaged 4.12 percent. A year ago at this time, the 30-year FRM averaged 3.81 percent.

15-year FRM this week averaged 3.34 percent with an average 0.5 point, down from last week when it averaged 3.37 percent. A year ago at this time, the 15-year FRM averaged 3.10 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.21 percent this week with an average 0.4 point, down from last week when it averaged 3.23 percent. A year ago, the 5-year ARM averaged 2.91 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

Looking for home financing information? Click the ink below.

 
Click Here to Find Local Lenders

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Learn How To Avoid Buying More House Than You Can Afford

If you’re looking at realtor.com. If you’re looking at Zillow or Trulia and you’re looking through homes and you … Or you’re looking on MLS through your real estate agent’s news feed and you’re wondering exactly how you could calculate the mortgage on this. You really don’t want to keep going back and forth to your mortgage broker. You really want to be able to calculate or get a good idea of what your mortgage payments may be on your own, then you can use this mortgage calculator.

This mortgage calculator can be found at the bottom of our website. This is mandrellco.com. Scroll all the way down to the bottom of the page, and one of the resources is the mortgage calculator. It will bring you to this page right here.

Let’s assume we’re going through a scenario, you are buying a $300,000 home. I’m going to put in $300,000. Again, there are so many different variations of this that you can go through. It’s really going to be something that you’ll have to discuss with your mortgage broker, with your real estate agent. Find out what program is best for you.

Let’s say you’re in a conventional mortgage and you are putting 5% down, 5% of 300,000 is $15,000. That’s the down-payment. In terms of the interest rate, they’re asking you, “What is your mortgage interest rate?” If you’ve spoken to a mortgage broker already, you should have a very good idea of what interest rates are currently and what you could expect.

If you have not and you just really want to play around with it, what you could do, and what I’ve done, is just basically went to Google and just typed in average mortgage rates. This is what’s come up in the search. I’ve scrolled down here and I’ve just basically seen 30-year fixed mortgage rate as of January 2nd, 2017, is approximately 4%, but a little more. You can click on that, it will bring up Zillow. You could see what interest rates are being offered through different banks.

Again, if you have stellar credit, your number, or your rate may go down. If your credit is less than stellar, that number may go up a little bit more. If you’re putting a substantial amount down, that number may go down. If you’re putting the minimum down, say, 3 or 3.5% in an FHA or mass housing loan, then that number may go up just a tad.

Let’s use a number of let’s say four and an eighth today just to see where we are, 4.125. We’re going to stick with a 30-year fixed. PMI is primary mortgage insurance. Again, when you speak to your mortgage broker, if you’re on a Federal Housing Administration loan or an FHA loan, you will have PMI and your mortgage broker would be able to tell you exactly what that is.

If you are purchasing a condo, most likely on your MLS listing or where you’re pulling the information from, you will be able to pull the condo fee. You can plug that number in as well. If it’s a single family home or a multi-family home, it probably will not have a condo fee.

The taxes are usually listed right on your listing sheet as well. For this example, let’s plug in $25,000. Insurance is not typically listed. Rule of thumb. Again, this is not a hard and fast number, but just to give you a general idea. In Massachusetts, I usually use a number of about a half a percent.

In this case, let’s say we’re purchasing a half a percent of the home value. In this case, it’s 300,000, we’re purchasing at 300,000. One percent would be 3,000. I’m going to say a half of that is 1,500 bucks for my home insurance. I’m going to take all these number, $300,000 purchase price minus my 5% down, which means I’m financing 285 over 30 years at four and an eighth. I’m going to pay taxes per year of $25,000, a little over $200 a month. I’m going to pay insurance of $1,500, or a little over a hundred dollars a month.

I calculate my payment. You’re going to have a principal and interest payment of 1381. If you escrow in. What that means, if you pay all your taxes and insurances with your mortgage payment, which is most common, you’re going to have taxes and insurance for a total payment of 1714.59.

If you bought a house for 300,000 and put 5% down over 30 years at this particular interest rate with these taxes and these insurance, this is what your total mortgage payment would be. This is an excellent way for you to play around with it. If you say, “You know what? I can afford up to about $2,000 on my own. I feel comfortable paying of about $200,000 on my own.” You can now adjust this and go 325, would put me up at about 1835. 375 may put you just over $2,000. Maybe 360 is somewhere where you really want to be.

Maybe you’re looking at homes in the 375 range with the idea of possibly negotiating your way down to a 360 mortgage payment hoping to land a total payment of no more than $2,000 a month where you’re comfortable.

Hopefully this was helpful. Again, you could access this calculator one of two ways. You could go to mandrellco.com, scroll all the way down the bottom of the page and capture the mortgage calculator, or click on the mortgage calculator. In the description of this video, there is also a link to this calculator as well. Hopefully this was helpful. Talk to you soon.

Thanks for watching our video. Did you find this information useful? If so, please remember to like the video and also subscribe to our channel for more useful information.

I would also encourage you to share this video with your friends and family. Thanks again and we’ll talk to you soon.

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FHA Reduces Monthly Insurance Rates | What Does That Mean For Home Buyers?

January 13, 2017 By Chris Graves, Mortgage Broker

The beginning of the new year comes with some BIG news for first time home buyers. FHA announced reduced monthly mortgage insurance rates for FHA loans starting January 27, 2017. This will reduce monthly payments for FHA buyers or allow them to qualify for a higher priced home. Here’s what you need to know about this change.
New Reduced Monthly Mortgage Insurance Rates for FHA Loans

The mortgage insurance rate on FHA loans is based on a the purchase price, down payment amount, and term. Most FHA buyers obtain a 30 year loan for under $625,500 and make a down payment of less than 5%. In this case, the monthly MI rate drops from 0.085% to 0.06% per month. On a $400,000 loan, this results in a $100 per month savings. Buyers making a down payment of 5% or more will see rates drop from 0.08% to 0.055%.

For loan amounts above $625,500, the savings is even greater. Loans with 5% down payment will drop from 0.1% to 0.06%. Lower down payment loans will change from 0.105% to 0.06%. On a $700,000 loan, this results in a $315-$420 per month savings.
Effective Date of Reduced Monthly MI Rates

In the past, FHA home loan changes were dependent upon the date that a case number was issued. This is not the case with the reduced monthly mortgage insurance rates for FHA loans starting January 27, 2017. All loans disbursed on or after that date will receive the new lower rate. The date that funds are disbursed is not always the same as the closing date. Contact your lender for details. If you have a loan scheduled to close this month, it may be worthwhile to look into altering the closing date in order to receive the new reduced monthly mortgage insurance rates.

Want to learn more? Need to get pre-approved? Learn more about Chris Graves Mortgage Services @ http://chrisgravesmortgageexpert.com

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On December 14th, 2016 I finally closed on my first rental property! For over a year I have been educating myself as much as possible in real estate investing to one day finally take the plunge. That day finally came. A couple months ago, a property on the MLS cam back on the market. It was a 3-family in Mattapan that needed a decent amount of work to get it up to rental condition. Listed at 390k, I initially tried to get the property at 350k, a price that, once I ran numbers, felt would put me in the best position when it came time to refinance out of my purchasing loan, which I ultimately used hard money for. I submitted the offer with no contingencies, all cash and gave up the buyer’s side commission because I knew on the back end it would be worth it, but that was still not good enough and after some continued negotiation, had to settle for purchasing it at the full asking price. This would create additional challenges, but at the end of the day, if you believe in the deal, you’ll make it work.

Financing the deal was another challenge as I really wanted to find a lender that would finance a percentage of the purchase price and renovations. It was not until it was too late that I found a couple lenders where this was possible. At least for the next one, I will have this component lined up for a more streamlined process. I ultimately had to settle on using hard money, which is great for a short turnaround, but is so incredibly expensive to someone like me who hates to waste money. When it comes to hard money, if you have any other option, please use it instead.

Since the closing, it has been a mad scramble to start the renovations and make sure everyone is working constantly and as efficiently as possible. This is just another thing you will have to do when you slightly overpay for a property. Despite the challenges early on, I couldn’t be happier or more excited to have closed on my first rental property. Every day that passes makes me want to find the next deal more and more. Just always be ready for the more than likely roller coaster ride!

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Do You Have A Bank America Pre-Approval? 4 Reasons You Should Toss It In The Trash!

 Thinking about getting your home loan with the same institution where you do your banking? This may not be the best option for you if you bank with a large commercial lender. Here are 4 reasons why going smaller is better when you shop for a mortgage.

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Work Your Financial Muscles To Better Credit

Financial habits and credit go hand in hand. Since your debt accounts for 30% of your credit score, it is safe to assume when your finances are in order, your credit should be as well (there are a few exceptions). This does not happen overnight. Similar to working out, you cannot eat a salad and go to the gym for 1 day and expect to lose 50 pounds. True success and results come with routine, discipline and sacrifice. Feel the burn!!

Set a budget – This is your foundation. Setting a budget will provide a guide for what expenses you have and how much income you have available to work with.
Monitor your spending – Mint.com is a free service that when connected to your acounts, tracks your spending and helps you set goals. CreditKarma.com is also great to automate monitoring your credit. They send you a message when there is activity or your score is updated. Numbers and facts are hard to deny. We can say that we are good with money but if you track your spending and see that you don’t save and eat out regularly and you have poor credit… something has to change.  Additionally, this can help you capture any kind of fraudulent charges if your info is ever at risk. 

Manage your debt – Pay off higher interest debts – Paying off higher interest accounts first will pay off in the long run. This will get you out of the rat race faster when it comes to minimizing debts, especially in credit cards.
Be proactive, don’t procrastinate – Avoid additional expenses and unnecessary late fees! Take advantage of any auto pay options to ensure payments are made on time. I simplified the process which helped me get focused very quickly… Do I want to give away my hard earned money? Interest payments are simply you giving your money away with no benefit to you. I am not cheap but I do not like giving away money if it is not for a good cause, my money going to a bank is not a good cause.

Eliminate bad spending habits – A little can go a long way. Bad spending habits will only set you back from your bigger goals. The monthly shoe subscription, coffee, eating out can add up to thousands yearly that you could be saving towards your financial goals. Spending less than you earn and sticking to your budget will allow you to have extra funds. Start setting these savings aside for your major purchases or for a cushion to fall on in case of emergencies. I save in a separate account that I do not have a card for, so in order for me to access the money, I need to transfer between banks which takes 3 days. This kills the urge to drain my savings. 

Stop impulse expenses – Rely on the bare necessities. I’m not going to lie, it’s very hard to pas up sales that are thrown at you, especially in the coming months but if you don’t need it….walk away. 

Invest in your future – I will put the disclaimer that I am a real estate professional so my investment advice is a little biased, moreso because I know that it works. If you do not own a home, consider purchasing a multi-family as opposed to a single or condo. You will have assistance with the mortgage and hopefully be cashflowing (passive income) from the rents you collect. This allows you to invest in other things and also brings a little more peace of mind. 

Feel free to connect with us on FACEBOOK or visit Urban Money Matters for FREE financial literacy seminars to help work those financial muscles.

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The majority of Bostonians hate writing a check to their landlord every month, particularly if you live in Roxbury, Jamaica Plain, and Lower Mills areas. Sometimes you are cursed with noisy neighbors, or a super strict landlord who is looking for any reason to push you out so he can get the next highest paying tenant.

If any of the above applies to you, you probably want to buy a home…yesterday! Wanting to buy a home and being ready to do so are two different things. Are you financially ready for the monthly mortgage payment and budgeting for repairs?

Here are five signs that you’re not ready to buy a house just yet. But don’t fret; even if you are struggling with these financial issues, you can still become a homeowner. You’ll just need a bit of patience and improved financial skills.

Buying a home is expensive. You’ll need money for a down payment. If you are buying a home with an FHA loan, you’ll need a down payment of 3.5% of your home’s final purchase price, depending on your credit score. For a $300,000 home, that comes out to a down payment of $10,500. Thanks to Mass Housing, we have a 3% down payment program, but that still equates to $9,000. These numbers do not include closing costs, moving costs and other miscellaneous costs associated with moving into a new home. 

Closing costs are the fees that mortgage lenders, title insurers, attorneys and others charge you to originate your mortgage loan. We generally tell people plan for an additional 2% to cover these costs which equals $6,000.

It’s true that you can get help with some of these costs. You can use gift money from relatives, for example, to pay for all or part of your down payment. You might be able to convince a home’s seller to pay for all or part of the closing costs. In our current market, sellers are not inclined to do closing cost assistance unless you plan to purchase well above asking. 

What to Do

It’s best to start searching for a home only after you’ve saved enough money to cover a down payment and your estimated closing costs. Another option would be to look into programs available by your municipality that encourages home ownership by providing financial assistance. There are also some non-profits and other organizations that allow you to purchase with 0% or a rate lower than industry standard. (NACA.com)

Sign 2: Your Credit Score Is Bad

Your credit score is a key number when you’re applying for a mortgage. The best interest rates go to individuals with the best credit scores (above 740). The lower your score, the higher your interest rate and subsequently, the higher your monthly mortgage payment. You can purchase a home with a 580 credit score according to FHA guidelines but there are only a few lenders willing to accept a score this low. 

What to Do

First, order at least one of your three credit reports from AnnualCreditReport.com. You are entitled to one free copy of each of your three credit reports — maintained by the national credit bureaus of Experian, Equifax, and TransUnion — once every year. Once you get your report, read it carefully. It will list how much you owe on your credit cards and how much you owe on student loans and car loans. It will also list whether you have any late or missed payments during the last seven years. Those late or missed payments will send your credit score tumbling.

Next, order your FICO credit score. You can do this from the credit bureaus, too, but you’ll have to pay about $15 to do so. If your score is low, and there are negative marks on your credit report, it’s time to start a new history of paying all your bills on time. You also need to pay down as much of your credit card debt as possible. Both of these actions will steadily increase your credit score, though it could take months or even more than a year before your score recovers enough to make you a good candidate for a mortgage loan.

Sign 3: You Have Mount Everest of Credit Card Debt

Your debt-to-income ratio is another key number when it comes to buying a home. Lenders want your total monthly debts, including your estimated new mortgage payment, to equal no more than 43% of your gross monthly income. If your debt-to-income ratio is too high, you’ll struggle to earn approval for a mortgage. Some lenders will go as high as 50% due to the high cost of rent but generally, they want to see that you are not up to your eyeballs in debt.  

What to Do

I would say pay off your credit card debt but if you could have, you probably would have by now. I will STRONGLY recommend you always make more than your minimum monthly required payment. 

Sign 4: You Routinely Miss Your Monthly Payments

Making late payments, or missing payments completely, is a sure sign that you’re not ready for the financial responsibility of owning a home.

If you miss a mortgage payment by more than 30 days, your credit score will fall by 100 points or more. If you miss enough, you could lose your home to foreclosure. This is not like a landlord where you get warnings before it affects your credit… this is immediate. 

What to Do

Learn better financial habits before you apply for a mortgage. Set up reminders on your phone or computer alerting you when bills are due or use my favorite method… automatic payment. You could set aside one day each month dedicated to paying bills if you prefer the old fashioned paper method. Don’t apply for a mortgage until you’ve broken the habit of regularly missing your monthly payment due dates. 

Sign 5: You Don’t Have a Stable Job

You’ll need a steady, reliable stream of income if you use a mortgage to finance the purchase of a home. If you’re worried that you’ll lose your job, or your income is sporadic with no real pattern, you should probably NOT purchase a home. Generally, you need 2 years of full time work history. If you are self employed, you will need other documentation to help qualify you for a loan. 

What to Do

Find a job that is reliable and that pays you a stable income each month. Don’t take the risk that everything will work out. You don’t want missed mortgage payments on your credit reports. And if your job is unstable? You’ll greatly increase the risk of these red marks. If you are self employed or you operate on seasons… then you should think of yourself as a chipmunk… get good at storing away for the slow months. 

I hope this advice was helpful. We strive for our clients to be responsible home owners and want to ensure you will not be putting your home up for sale due to foreclosure. We want to help you BUILD WEALTH THROUGH REAL ESTATE!

 

For More information, please contact one of our agent specialists for your area or connect with us on… 

Dorchester Real Estate Agent

 

 

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8 Simple Ways To Save Up Down Payment Cash

One of the largest obstacles between you and home ownership is coming up with enough money fund the required mortgage down-payment. Let’s assume that we’re looking for the average single family home in Massachusetts which is roughly $350,000. Let’s also assume you are like the majority of home buyers in this state and qualify for an FHA Loan, which is a 3.5% down payment or roughly $12,250. This isn’t amount of money most people have sitting in there bank accounts. So how do you find the cash to fund your dreams of home-ownership? Here are a list of things most buyers do to save up some cash:

Side Job or Temp Work –  Can you pick up a side job or work for a temp agency?  It’s may not be something you  ant to do permanently, but it’s worth it to reach your home-ownership goals.  Let’s assume you can pick up a part time job working 10 hours per week at $15 per hour. If you worked 48 of 52 weeks in the year you’d have an extra $7200 (before taxes) to add to your home savings account.

Cut Cable & Phone Bill – Many of us have Comcast or Verizon packages that consist of every movie channel, sport package and various other upgrades. Are these things we can live without for a little while?  The same goes for many phone bills. Many of us are paying $40 per month or more for data packages while the only thing we do with our phone that require data is posting to Facebook. If you can reduce one of these bills by $50 or two of them by $25 each, you would be saving a total of $600 for the year.

Cut Gift Spending – We all love our family and friends but could you cut back on birthday and holiday gifts for one year? I think your friends and family would stand by you if your gift were less expensive this year because you’re saving to purchase a home. Statistics show cutting this spending out entirely can put another $600 in your pocket for the year.

Work Overtime – Are there overtime hours available at your current job? Maybe it’s time to stay late or come in early. It may be a good idea to approach your manager and see what extra hours he/she can offer you.

Save Your Tax Returns – Getting a nice check back from the government this year? Don’t view this influx of cash as discretionary spending. Many Americans look at this check(s) as chance to buy a bigger TV or various other luxuries. Be smart and save this money for your down payment. The big screen will look better next year in your new home.

Hang At Home – Let’s assume that you’re like most of us and you love to hang out on the weekends. If you’re spending an average of $100 per weekend (drinks, food, movies etc) and your going out every other weekend, you’re spending an average of $2600 per year on entertainment. Can you cut than down this year to just 1 weekend per month? If so you’re saving $1300 per year and you’re that much closer to you saving goals.

Cut Your 401K Contributions – I’m a big believer in saving for your retirement, but I believe even more that every individual should own their own home. It may be a good idea for you to speak with your HR department and cut down (or cut out) your retirement contributions and add those additional funds to your savings.

Ask Your Family For Help – When your family sees all the lifestyle adjustments you’ve made to save for home ownership, they will see how important it is to you and will become important to them as well.  Can they help you with your down payment?

Are you looking for more helpful home ownership tips? Like us on  Boston Investment Specialist

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What Is Your “Commitment Day” When Purchasing A Home?

Many first time homebuyers are unaware of the timelines and deadlines associated with purchasing a home. They understand the list in that there is a close date on their offer but as real estate professionals we must inform our clients that sometimes, these dates are flexible depending on a few different factors. 

If there are delays in the checklist of items lenders, attorneys, inspectors, appraisers, buyer/seller documentation, then there can be a delay of the closing date in which we would request an extension.

On every offer submitted, we have a mortgage commitment date and a closing date. 

The mortgage commitment date is the date by which the bank says YES, you have truly satisfied all requirements and we are granting you permission to purchase this home. In order to issue a commitment letter, banks need current information on the following items which all have expiration dates as well. Here are 4 items that are good for 90 days, after which you will need to supply new documentation:

  • Income: Pay Stubs
  • Assets: Checking, Savings, Investment, Retirement
  • Credit: Must be re-pulled after 90 days but should not be re-pulled until needed (communicate with loan officer)
  • Appraisal: Good for 120 days before a new appraisal is required

The timing on these documents can create issues.  

If there is any change in employment status, let your loan officer know immediately. This is a MAJOR issue that will need to be addressed so you know what your options are moving forward.

Statements for your assets vary in terms of dissemination. A lot of real estate is about timing. Speak with your loan officer regarding the current statement for your investment and retirement funds. Checking and savings generally comes out monthly.

ALL loan approvals are at risk if the borrower ruins their credit, loses or quits their job or if they spend their down payment money.  This is true whether their Commitment Letter is issued 3 weeks prior to the closing or 3 months. Essentially, we advise our clients not to change anything in their life until the transaction is complete. Do not make any major purchases to alter your credit (I have seen client’s credit score drop as a result of a purchase and the reduced score disqualified them from purchasing. thankfully, the seller was flexible and we were able to extend the dates but this is few and far between)

We hope you found this little tidbit helpful.

As always – if you have questions, thoughts or concerns about the timing of a transaction, give us a call and we will coordinate with your loan officer to walk through the scenario with you to find a solution that is beneficial for everyone. Please feel free to reach out at 617-297-8641 or Contact@mandrellco.com.

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Pros And Cons Of Using a Hard Money Lender

Whether you’re investing in a property to fix and sell, a landlord looking to invest in rental property, or a builder looking to get a construction loan, you’ve likely heard that hard money loans from private lenders are the best way to go. This all sounds like a no brainer but you should truly understand the difference between the two and if it makes financial sense for what you are trying to accomplish. Here we’ll talk about the pros and cons of choosing a hard money loan, and some things to expect when going through them.

Pros Of Hard Money Loans

  • Quick Approval: For Fix and Flips or construction loans, the borrower will typically be hard-pressed to get the loan within a certain amount of time that traditional lenders may have difficulty adhering to, due to the mountains of paperwork required and long standard approval processing times. With hard money loans, however, you can expect to close on a deal much more quickly – some within as little as 24 hours, for Boston we’ve average around 7 days. Once you’ve developed a relationship with a lender, the process can move even more quickly, allowing you to turn your properties around and make a faster profit.
  • Flexibility: because hard money lenders don’t use a complicated standardized underwriting process, they are able to evaluate each deal individually, and depending on your situation, and your relationship with the lender, you may have a little more wiggle room. This makes them much easier to work with than traditional lenders.
  • More Collateral Options: with hard money lenders, they are investing in the value of the property or properties themselves, not your individual credit. Due to this, they are typically willing to accept different types of collateral as long as the borrower can present profitable collateral to secure the loan. This means presenting them with solid plans for the property, as well as value of the land and the property as it is currently, to give them a better understanding of what they are working with. 

Cons Of Hard Money Loans

  • Higher Interest: the one major downside of hard money loans is the typically higher interest and fee rates due up front. The higher terms are due to the fact that they focus on the property value rather than the borrower, but may increase the risk on the borrower’s part. When choosing a hard money loan, make sure you’re managing your investments carefully and properly to avoid default or loss of property.
  • Short-Term Only: because they are private loans and are used primarily for the renovation, building, or flipping of property, many hard money loans are only available as a short-term means of financing. These usually range anywhere from 6 months to 2 years, and because of this the payments per month are typically higher along with the higher interest rates.

If you are interested in finding competitive rates for funding your investment real estate deal, check out one of our partners US Flip Funding. They make lenders compete for your business, ensuring you get the lowest rates in town.

For more information on Real Estate Financing or to learn from industry experts, feel free to contact us directly at Contact@Mandrellco.com or visit our networking group at Boston Wealth Builders where seminars are free but the resources are priceless.

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With mortgage rates remaining near historic lows, many financial experts are making the case that student-loan debt doesn’t have to hold back millennials from buying a home. But the message isn’t getting across: Nearly 70 percent of millennials say they are delaying a real estate purchase because of their student debt load, according to a new survey by CommonBond.

Forbes.com recently highlighted whether a person with student-loan debt was ready to become a home owner with the following assessment:

  • Debt-to-income ratio isn’t everything. Yes, the proportion of your income that goes toward paying your debt is a central determinant of whether you’re ready to buy a home. Most lenders require a debt-to-income ratio of 36 percent or less to qualify for a mortgage. But a buyer with student-loan debt shouldn’t worry that their number will automatically disqualify them. The key is that they pay their bills on time and still have enough income left over to compensate for their debt.
  • You can still handle more debt. Life is all about balance. Take a serious look at your monthly budget/income. You either need to have a large enough cushion (20% down payment) or calculate what your monthly expenses would be to own a home. If the cost of owning is around the same as renting (all included), then you should be adjusting and preparing to purchase. The best interest rates tend to go to those who can offer a 20 percent down payment, but loans are available that require as little as 3 percent down on a home.
  • Make a budget. To save for the down payment, would-be buyers need a budget in place. Katie Brewer, a certified financial planner in Dallas, suggests budgeting with broad buckets: fixed expenses, variable expenses, and longer-term goals (e.g. paying down debt, buying a home, or saving for retirement). Brewer recommends keeping fixed expenses to 50 percent or less of your overall budget. There’s no one budget style that is more effective, however. The important part is to just pick a method and then start working toward the goal — saving for a down payment, in this case. With the Boston rental market being as aggressive as it is… It may be a great idea to downsize for a bit so you can save. Get Roommates, Eat out less, Decrease leisure spending. You have to tweak your “budget” to what makes logical and financial sense to you. I am a firm believer in those who want something bad enough…will do everything in their power to make it happen. The question then becomes: HOW BAD DO YOU WANT IT?

If You would like more strategies on saving up for a home or would like to speak with one of our trusted mortgage lenders for more strategies on preparing for home ownership, please email us at Buy@MandrellCo.com.

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Unrealistic Buyer Expectations (Pt II)

I think I came down a little hard on some buyers the last time I discussed unrealistic expectations. Although I stand by my statements… I do understand that misinformation is the root of all of this. That being said… came across two other misconceptions we hear a lot in this business…

Foreclosure sale and Auction purchase as a first time home buyer.

Most people do not understand the auction protocol, and do not understand it is sometimes difficult to finance. Definitely not possible with traditional financing as auctions need money almost immediately, sooner than a traditional lender can provide.
Foreclosures are an awesome option for getting properties at a discount. Unfortunately Boston is extremely competitive and you are probably competing against cash buyers… you don’t stand a chance as an FHA buyer with these properties unless no investor wants it. 
 
Many first-time homebuyers have FHA pre-approvals, so they have other stringent property condition requirements to facilitate their lender. If you’re going conventional shoot for the stars. 
 
I think my favorite buyer is the one where every property is overpriced. I switch the question on them, and advise one day they’ll be there seller. Are they going to offer a deep discount. Probably not!
This is an off the cuff post so not as detailed as my last on this topic but still… let’s be realistic this  house hunting season.
 
Be sure to sign up for our blog alerts to stay current on what’s happening in the real estate world. 
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Mortgage Rates Slowly Rising

For the third consecutive week, mortgage rates inched higher, but potential home buyers shouldn’t sweat it too much. Mortgage rates are still hovering below levels from a year ago. When evaluating interest rates, it matters for your monthly payment adjustments. If a .2% increase only changes your monthly payment by a couple dollars, no need to worry. However, a rate change that affects your monthly payment by hundreds of dollars, warrants a closer look and re-evaluating your situation. 

Freddie Mac reports the following national averages with mortgage rates for the week ending March 17:

  • 30-year fixed-rate mortgage (FRM) averaged 3.73 percent with an average 0.5 point for the week ending March 17, 2016, up from last week when it averaged 3.68 percent. A year ago at this time, the 30-year FRM averaged 3.78 percent. 
  • 15-year FRM this week averaged 2.99 percent with an average 0.4 point, up from last week when it averaged 2.96 percent. A year ago at this time, the 15-year FRM averaged 3.06 percent. 
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.93 percent this week with an average 0.5 point, up from last week when it averaged 2.92 percent. A year ago, the 5-year ARM averaged 2.97 percent.

Considering getting Pre-Approved? Need recommendations on lenders? Send us an email and we can forward some suggestions. Contact@mandrellco.com

Source: Freddie Mac
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Know to Own

A recent Bankrate.com survey finds while 29 percent of renters say they can’t afford a down payment, nearly a quarter report they don’t have a clue how much they would put down to buy a home.

Only 9 percent of non-homeowners said they would put down 1 – 5 percent of the purchase price as a down payment. It’s possible to get an FHA loan with just 3.5 percent down, or a conventional loan with 3 percent down.

As real estate professionals specializing in multi-family properties, we come across a lot of rental clients. Many of them are unaware of what is required to purchase a home. They are uninformed about the various programs available to assist with down-payment costs. As the real estate market continues to rebound and home values increase, many renters are feeling the heat with rising rent costs, making it harder to save for a down payment. 

We take time to research programs and educate potential clients on what is needed to purchase a home and provide resources to assist them in setting goals, finding financial assistance programs and becoming more financially responsible to build wealth through real estate. For more information on our upcoming FREE seminars, please visit www.urbanmoneymatters.com or contact us at Contact@MandrellCo.com

We look forward to serving you. 

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I have 2 friends who both recently purchased their first homes in the Boston area. While I’m happy for them both, my friends took two completely different approaches to home ownership, which resulted in two wildly different financial scenarios. Below are the details

Larry (friend #1) makes about $40,000 annually, has very little consumer debt and a fair credit score (650). Larry was pre-approved by his mortgage broker for a $300,000 homes purchase based on his financials. As of 2016, $300,000 in Boston will buy you an entry level single family in the city which is what Larry decided to purchase. His mortgage, taxes, insurance, and water bills cost Larry about $2,077.30 after a 5% down payment and paying his own closing cost. His monthly cost of detailed below.

Larry’s Payment Information
Principal & Interest: $1,360.63
PMI: $250.00
Water/ Sewer: $50.00
Taxes: $250.00
Insurance: $166.67
Total Monthly Payment: $2,077.30

Pros & Cons:

  • Larry has the joys of single family living and doesn’t have the responsibilities that come with tenants 
  • If anything happens to Larry financially, he is on his own when it come to covering his monthly obligations
  • Larry was able to purchase this home with 5% or just 15,000 out of pocket.

John (friend #2) makes nearly the same annual salary of $40,000. John also has very little consumer debt and a 650 credit score. Instead of accepting the same $300k pre-approval Larry did, John decide to talk to his mortgage broker about purchasing a multifamily property, more specifically a Boston triple decker. John planned to live on one floor and rent out the other 2 units to help cover his monthly cost.

John’s mortgage broker did some research and found that apartments in John’s area were renting for $1650 per month on average. If John occupied one unit and collected rents from the other two, he would be putting an additional (after his own salary) $3700 per month in his pocket. In this scenario, John’s mortgage broker re-evaluated John’s financials and determined that if John was to purchase a triplex, he could afford to spend up to $550,000. Simply put, the additional rental income allowed John to purchase a larger home. After John collected rental income from his tenants each month, John was left with a balance of $4.17 that he need to cover. John was essentially living for free. ($1650 per month x 2 rental units = $3700 – Monthly Cost of $3,704.17 = $4.17 balance)

John’s Payment Information
Principal & Interest: $2,554.17
PMI: $400.00
Water & Sewer: $150.00
Taxes: $350.00
Insurance: $250.00
Total Monthly Payment: $3,704.17

Pros & Cons:

  • John was able to purchase this property with 5% (27,5000) out of pocket.
  • John has a very small obligation every month  (4.17$) to cover but what if one of the tenants moves out? John will need to save money to cover the cost of vacancy. He will also need to cover the cost of repairs to the building/ tenant units. 
  • John doesn’t have the privacy single family home provides.
  • John will eventually raise his tenants rents. If rents go up, John’s income from the property goes up as well. Now he’s putting money in his pocket every month after his expenses…”cash flowing”
  • If John ever moves out of his apartment he could also rent it for market value. In the near future he could be putting $2000 into his pocket every month.
  • John does need to create a reserve account for the raining days that come as a landlord.

 

Would you like to speak to one of our mortgage brokers and find out what you qualify for? Are you interested in purchasing a multifamily home and need more information? Give us a shout at 617-297-8641 or email us at Contact@MandrellCo.com

 

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Assessed Value Vs. Market Value – Do you know the difference?

When searching for properties many first time home buyers often get confused about how the value of real property is determined. It’s falsely assumed that the assessed value (on a listing sheet) is also the “market” value of that particular home. Here in the city of Boston and throughout Massachusetts that couldn’t be further from the truth.

The “assessed” value of a home is the value the local municipality places on the property for the purposes of assessing taxes. The government (simply put) looks at the size of the lot, the square footage of the home and any improvements recently done and determines the value for assessing taxes. The total tax bill given (annually) to that particular property is determined by dividing the total amount needed for the municipality by the local homes and the associated values.

The “market value” or true value of a piece of property is determined by supply and demand and a few other factors. Market value is based on what the market (or able and willing buyers) are willing to pay for that home. The market value can be higher or lower than the assessed value.

In Massachusetts the market value is often much higher than the assessed number. Taxes can be paid on an assessed value of $200,000 while the home recently sold for its market value of $300,000. Local governments typically review assessed values annually and adjust accordingly.

One last point. The “listing price” for a home is not always an indication of the property’s value. A seller’s real estate agent can list a property for any number they want. Unless they can find a buyer to pay that price, the listing price is just a seller’s wish.

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Due to the rise in home values in recent years, many first time home-buyers and novice investors have a hard time coming up with all the necessary funds to purchase a home. They may qualify for a mortgage but now they have to come to closing with several thousand dollars to take ownership. This is difficult with rent prices, student loans and other responsibilities that make it difficult to save. One strategy seller’s and buyer’s implore to get the property under agreement is to have the seller pay the buyer’s closing costs. 

Many homebuyers look to FHA financing which requires 3.5 percent down to close. On a $400,000 home, this means, they must come to the table with $14,000 just for the down payment, excluding attorney fees, pre-paids etc. If you are purchasing a multifamily, this number jumps to 5 percent or $20,000 and to avoid Private Mortgage Insurance (PMI) requires 20 percent or $80,000. Please bare in mind these numbers are just the down payment. This can be extremely overwhelming and discouraging for first time homebuyers. One way to ease this burden is to negotiate buyer credits in which the seller will cover some or all of the closing costs associated with a borrower’s home loan. This option makes a home more attractive to buyers because they are required to come up with less at closing. The seller can then ask for full asking price offers and cover buyer closing costs.

With this strategy, a specific amount of the seller’s proceeds, is used to cover the buyer’s closing costs, pre-paid items and settlement costs etc. This number is not unlimited, rather for an FHA mortgage, the credit cannot exceed 6 percent and for most conventional mortgages cannot exceed 3 percent of the purchase price. Generally, we advise you give a dollar amount of how much is needed and whatever is unused, comes back to the seller. 

Although it sounds terrible for a seller to “give away” money, sometimes offering a credit is needed to get them the most money for their home in the end if there aren’t that many offers on the table. A seller can provide a buyer credit for a specific dollar amount but require the buyer to increase the sale price by said amount to cover their own closing cost. Essentially, the buyer is financing their closing costs over the duration of their mortgage and the seller will net the same amount at closing.

To learn more about how this process can benefit you as the seller or buyer, please contact our office at contact@mandrellco.com and one of our agents will be in touch to explain the process with greater clarity.

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Mortgage Rates Remain Low Despite Boston Values Skyrocketing

 Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing the average 30-year fixed mortgage rate declining for the third consecutive week on disappointing national manufacturing data. While many cities and towns across the country seem to still be feeling parts of the recession, Boston’s economy (and as a result our home values) seem to be flourishing. The consistency in low mortgage rates are allowing Boston borrowers to also pull equity from their homes and make improvements and repairs.

News Facts

  • 30-year fixed-rate mortgage (FRM) averaged 3.93 percent with an average 0.6 point for the week ending December 3, 2015, down from last week when it averaged 3.95 percent. A year ago at this time, the 30-year FRM averaged 3.89 percent. 
  • 15-year FRM this week averaged 3.16 percent with an average 0.5 point, down from last week when it averaged 3.18 percent. A year ago at this time, the 15-year FRM averaged 3.10 percent. 
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.99 percent this week with an average 0.5 point, down from last week when it averaged 3.01 percent. A year ago, the 5-year ARM averaged 2.94 percent.
  • 1-year Treasury-indexed ARM averaged 2.61 percent this week with an average 0.3 point, up from 2.59 percent last week. At this time last year, the 1-year ARM averaged 2.41 percent. 

Would you like to speak with a mortgage broker about buying a home or refinancing an existing mortgage? Call us at 617-297-8641 to be connected with some of the best home loan professionals in the city!

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How Much Equity Will I Have In My Home 10 Years From Now?

Have you ever wished you could take a look into the future and see what things are like? Do you own a home and wish you could estimate the amount of equity you’d have at any given point in the future? If so, we have two videos just for you!

A property’s equity is made of of two simple factors; the value of the home and the amount owed on the mortgage. Simply put, your homes value (the asset) minus the amount of your current mortgage(s) (the liability) = equity. For example, if you own a home worth $500,000 and the current balance of all mortgages is $300,000, you have $200,000 in home equity.

Great! I know both of these numbers today, but how do I determine these two values 10 years from now? Good question! The two short videos below are going to show you just how to do that.

The 1st video takes you through the use of an amortizing mortgage calculator. This calculator will help you determine the principal balance of your mortgage at any point in the future. In addition to the use of this calculator, you should have received a loan amortization schedule with your mortgage documents.

 

The 2nd video is a compounding calculator. A compounding calculator will assist you in estimating the future value of your home. Once you’ve estimated your homes future value, you can simply subtract your future mortgage balance and BAM! There you have it. A quick look into the future!

 

Would you like to view more real estate videos like these? Subscribe to our You tube channel at https://www.youtube.com/user/wmandrell

 

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