Choosing a Real Estate Agent
A real estate agent or broker will guide you through the entire home buying process. You will work closely with this person to find the house that is best for you and your family, possibly spending a few hours together every week for months. You need to know that you have the right partner in your search for a new home.
Many agents will ask your price range and show you only homes at the upper edge of what you want to spend. Some will go even higher. These real estate agents are thinking about their commissions first – not your needs. To prevent this situation, have a frank discussion with any real estate agent you are considering. Tell him or her your price range, and insist on seeing a variety of homes from the least expensive in your price range to the highest. This will give you a feel for how far a dollar goes in your particular market.
Settle for nothing less than honesty. If you have unrealistic expectations, your real estate agent should be candid with you. Trying to find a two-bedroom home for $100,000 in Manhattan, for example, would be a waste of your time and the agent’s. An experienced real estate broker would suggest that you revise your price range or look elsewhere. One who does not should be avoided.
Finally, only work with agents who have experience in the town or neighborhood where you would like to buy your new home. Every market is different, with nuances that can shape your hunt for anew home and ultimately the terms of the sale. A real estate agent who is familiar with the market where you would like to buy will be able to give you the best advice and help you secure the right home for a fair price. Also, a real estate agent who specializes in a particular town will be able to refer the services of experienced appraisers, real estate attorneys and other professionals associated with the home buying process.
Most important, you should be comfortable with the real estate agent you choose. Talk to more than one in order to find the best fit for your needs and your personality. Buying a home is a time-consuming, personal and expensive undertaking. Being comfortable with your chief advisor can make the experience faster, easier and more rewarding. Choose carefully, and remember that your real estate agent works for you.
Buying a Home for Retirement
Did you know that you can use an IRA to invest in real estate?
Most Individual Retirement Accounts contain liquid assets, such as stocks, bonds and mutual funds. But, an IRA can do much more. Using a “self-directed” IRA, you can put investment property aside for retirement. Most IRAs are not self-directed, but a few companies (such as Trust Company of America) are willing to put you in control. They administer the IRA for you, but you can put whatever you want in it. Unlike most financial institutions, self-directed IRA custodians are prepared to support the unique requirements associated with illiquid assets such as real estate.
The easiest way to put a home into an IRA is to use money already sitting in the IRA itself. If you have $50,000 in an IRA, for example, you could use that to cover closing costs and a down payment for an investment property. If you have more, you could even use IRA funds to pay cash for a home. Income from the investment property goes into the IRA. Some of it pays the mortgage (if you have one), and whatever is left stays in your retirement account. Everything in your IRA will grow tax-deferred; you only have to settle with the IRS when you withdraw funds from the account.
When you are ready to sell the property, the proceeds from the sale go into your IRA, where it will stay – and hopefully grow – until you retire. In fact, you could use these IRA funds to purchase another investment property!
The only catch is that you do not own the property; your retirement account does. As a result, you can’t touch that money until you turn 59 ½ without paying taxes and a 10% penalty to the IRS. But, if you use money already in your IRA, that’s not a problem. The money in the account is already subject to these restrictions.
Real estate is hot. Instead of riding the stock market rollercoaster, you can put your retirement money into real estate. This will allow you to take advantage of the appreciation of the property and any rental income it generates without incurring any income tax burden until you withdraw the funds. The tax savings can be quite large, and you will take the important step of preparing for retirement. This unique way to get ready for retirement is not difficult, as long as you plan properly and talk to an expert.
Start planning for retirement with investment property today!
Put Your Credit Cards to Work for You
Credit cards can work against you. When you apply for a mortgage, the bank assumes that you have reached your credit limits for all cards, even if that is not the case. Since you have such easy access to credit card debt, this is how the bank protects itself. Even if you have a stellar credit score and don’t carry any balances on your credit cards, all that plastic could work against you. Until now. Did you know that there is a way to put your credit cards to work without disrupting your credit rating?
Assume that you have $10,000 in available credit through three credit cards. By not using this money, you are behaving responsibly; credit card debt is costly and risky. On the other hand, you have $10,000 at your disposal, and it could help you in the home buying process.
Mortgage lenders reward you for saving. If you can show at least $20,000 in assets, you are usually eligible for a lower interest rate. Meanwhile, the mortgage lenders do not reward you for not touching your credit cards. In fact, they do the opposite in assuming that you have borrowed money when you haven’t. This creates an interesting situation. You could use your available credit to increase your total assets without (in the bank’s mind) incurring any additional debt.
When you are getting ready to apply for a mortgage, take cash advances on all your credit cards until you have maxed them. Using the example above, you would now have an extra $10,000. Put that money into a savings account, and don’t touch it! As you go through the mortgage approval process, the bank will note that you have an additional $10,000 in assets. Hopefully, this will help you get past a threshold such as the $20,000 level, earning you a more favorable interest rate.
When you have been approved for your mortgage, use that money to repay your credit cards. Your balances will go back to $0, and your total assets will decline. But, this doesn’t matter. You just return to where you started, though you have a much better mortgage rate to show for it!
Use your credit cards to your advantage, but be careful. It is easy to spend money once you have it, and credit card debt is the most expensive kind. If you don’t repay the cash advances as soon as your mortgage has been approved, you may incur hundreds of dollars in interest and fees, costing you money unnecessarily.
Dealing with a lowball appraisal
Most homeowners have an idea of what their homes are worth. Unfortunately, these suspicions may not be accurate, especially in today’s soft real estate market. You may have an idea of what your home is worth, but a professional appraiser uses a different set of criteria. The appraiser’s role is to tell the mortgage lender how much a home would be worth on the open market if the borrower defaults on his mortgage. The net outcome may surprise you.
An appraiser is a professional in the field of home valuation. An expert, the appraiser is trained to evaluate a home, the surrounding community and the real estate market to discern what a particular property is worth. Keep in mind that home appraisal is not an exact science. Different appraisers may value a home differently. They evaluate factors differently, and with sales occurring every day, a home’s value can be a moving target.
The type of appraisal can make a difference in the value of your home. A full appraisal involves a visit to your home by a human being, and it tends to be the most accurate approach. The other type of appraisal is electronic. This increasingly popular method is completed entirely by computer, and it can be quite inaccurate. If your mortgage lender requires a home appraisal, insist that the full, human method be used.
If you feel that the value determined by the appraiser is too low, you can get a second opinion. But, you will have to pay for this second appraisal. If the second appraisal leads to a higher value, the bank still can choose which appraisal to use. If the second appraisal is at least 5% higher than the first, you may be able to convince the bank that the first appraisal was not accurate. Bring as much proof as you can in order to support the claims that you make to the bank. Find as many variations between the two appraisals as you can, particularly if they favor you.
Some approaches and mortgage lenders will be open-minded as long as you supply sufficient support for your opinion. You are the only person who has your best interests in mind; remember that. Be vocal, and do your homework. The results may wind up saving you a considerable amount of money. You just have to be willing to roll up your sleeves and do some work on your own behalf.
Always do your mortgage homework
The house-hunting process starts at home. Before calling a real estate agent or thumbing through the real estate section of the Sunday newspaper, take a look at your finances. Know what you can afford. Understanding your financial situation can save you a considerable amount of time and aggravation. The best way to get a realistic view of what you can afford is to get pre-qualified or pre-approved. Friends, mortgage calculators and other informal methods may give you a rough idea, but nothing works like the opinion of a mortgage lender.
When you first decide to buy a home, you will receive advice from everybody. At least a few will tell you the mortgage amount you can afford. Don’t pay any attention to them. Your next step may be to go to a mortgage calculator. This can help, but remember that the information you receive will not be accurate. It is a rough estimate that can help you get started.
You will not know what you can afford until you go through the pre-approval or pre-qualification process. Thus, your first call should be to a mortgage broker rather than a real estate agent. The mortgage broker will help you understand what you can afford, information that will shape the entire house-hunting process for you. Buy the time you talk to a real estate agent, you should know for how much you have been pre-approved or pre-qualified and what your monthly payments on that amount are likely to be. As a result, you will not waste time looking at homes that you cannot afford.
Your mortgage broker will work with you to be pre-approved or pre-qualified. Pre-approval and pre-qualification are similar, and they serve roughly the same purpose. The difference between these two processes is subtle. In both, you supply information to the mortgage broker about your income, debt and assets, and the mortgage broker tells you how much you can afford. Verification differentiates the two processes. To be pre-approved, the information that you provide to the mortgage broker has to be verified. The broker will call the bank, for example, where you have your savings account. In a pre-qualification, the mortgage broker simply accepts your claims.
Plan ahead. The first thing you should do when you decide to buy a home is talk to a mortgage broker about pre-approval or pre-qualification. This will tell you how much you can afford. All the house-hunting that follows will be much more productive, because you will be abele to focus on what you can afford.
Reverse mortgages make healthcare easier
It is no secret that most health care spending comes later in life. This, unfortunately, is when illness, hospital stays and rehabilitation become much more common – and expensive. For those in retirement, especially if they are living on fixed incomes, the high costs of healthcare may prohibit certain types of treatment. There is a solution, though. You could use your home as a way to finance your health care while you continue to live in it. In the process, you won’t have to pay a penny in taxes for the extra money.
With a reverse mortgage, the bank pays you. The payments come from a loan that the bank provides, and the amount that you can receive depends on the value of your home and your current age. A higher home value and more advanced age will result in larger monthly payments from the bank, as there is more principal against which to borrow, and the bank does not expect to make payments for as long as it would to a younger borrower. To participate in a reverse mortgage transaction, you must be at least 62 years old.
The borrower does not make any payments while collecting on a reverse mortgage. Upon the borrower’s death or decision to move, the account is settled. The sale of the house – either by the borrower or his estate – is used to repay the bank for the proceeds of the reverse mortgage. Any funds remaining from the sale of the house are given to the homeowner (or the homeowner’s estate) in compensation for any equity he had in the property following the reverse mortgage. With a reverse mortgage, you collect now and pay later – the reverse of a traditional mortgage.
The proceeds from a reverse mortgage are tax-free. The government does not tax reverse mortgage proceeds because it can’t! The funds that the borrower receives are not income; instead, the money comes from a loan. The loan is just structured a bit differently from most other loans. But, since there is no actual income in this transaction, the IRS cannot get involved.
The high costs of health care, especially later in life, may make a second source of cash important, especially if home health care, a hospital stay or lengthy rehabilitation is necessary. Pensions, savings and Social Security payments can do little to help when one is faced with an astronomical doctor or hospital bill. A reverse mortgage can make this process a bit easier. You can use the equity that you have in your home to make health care more affordable.
Put your home to work for you. You spent a lifetime paying for it, and now is the time that you can regain some benefit. If you are struggling with the high cost of health care, own a home and are over age 62, a reverse mortgage is worth a look. It could be the key to a healthy retirement!
