How Much of Your Net Worth Should Be in Real Estate?

 Ever since the first settlers came to America, real estate has been a worthy investment. Even with the volatile economy we currently are living in, real estate is still a pretty safe way to invest and grow your net worth. The home prices are high currently, but those that have recently invested in a new home will still see a good return. There are some homeowners who have too little or too much of their net worth invested in real estate which can result in problems. So what is the magic number when it comes to investing your net worth into real estate?

According to professionals in the industry, you should use anywhere from 25% to 40% of your net worth for real estate. This will include your home that you live in and other real estate investments. By doing this, it allows you to capitalize on the advantages of real estate ownership while giving you plenty of flexibility to pursue other avenues of investment and wealth development. This is a broad percentage range but your age, risk tolerance and other various factors will play a part in determining how much you should go with.

Investors will tell you that adding real estate to a portfolio is very beneficial. You can enjoy predictable cash flow, excellent returns, tax advantages and diversification. Remember there are several pros to real estate investments. Real estate can appreciate over time, bring you tax incentives, provide a large chunk of income, allows you to use leverage and build equity, and allows the investor to have direct control over the investment.

Investors will need to know first hand how to calculate how much real estate should go into their net worth. This can be calculated with a net worth formula which is net worth = total assets – total liabilities. There are net worth calculators online that will provide you with the figure. An investor should always know the information needed to calculate.

To make it easier, an investor will need to divide their assets into four categories. These include tangible assets (furniture, cars, collectables, physical properties, etc.), equity assets (ownership in stocks, investments in partnerships and businesses, retirement accounts, life insurance cash value, etc.), cash and cash equivalents (cash, money market accounts, checking accounts, savings, etc.) and fixed income (bonds, etc.).

Once you have this total, then you will need to add up your liabilities. This can be divided into two categories which are secured debts (car loans, home equity loans, mortgages, etc.) and unsecured debts (credit card debt, student loans, personal loans, taxes, medical bills, etc.). Once you have your total for your assets and liabilities you will apply the net worth formula.

Remember, it is very important to understand how your net worth is calculated and what information you will need to do this. If you are in the market for a home or a real estate investment, talk to a local realtor who can help you with a real estate transaction.

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What To Expect With the Mortgage Process

 

Purchasing a home is a big life decision and the mortgage process is a big part. Especially in today's hot housing market, a buyer needs to have all their ducks in a row. Here are several steps to take which will walk you through the mortgage process.

1. Get a free rate quote (or two)

With anything you buy, you always shop around for the best deal. This is the same for mortgages. You will want to obtain a free rate quote from at least a couple of different lenders. Before contacting a lender, have the answers to these questions. Are you buying a home or refinancing your current mortgage? What kind of home are you looking for? Will this be your primary residence? When are you looking to buy/refinance? Where do you want to live? The majority of lenders will want you to answer these questions when you are asking them for a free quote.

2. Choose a loan originator

Once you find the best quote, you will want to choose a loan originator. Once you have chosen a loan originator, they will be your point of contact when it comes to the mortgage application. The loan originator is the middle man and can make communication between all parties run smoothly.

3. Get preapproved

In the current seller's market, this is a must. Getting preapproved lets a seller and an agent know that you as a buyer are serious. In order to get preapproved, you will need to give your chosen lender your credit score, income, debts, and any other financial obligations. Once you are preapproved, the lender will give you a letter that will last 90 days.

4. House shop

Once you know the amount you are preapproved for, it is now time to shop for a home. Remember to choose the right Realtor who can help you narrow down your options.

5. Make an offer

When you and your Realtor have found your dream home, you need to make an offer. This is where your preapproval letter comes into play. A preapproval letter will give you a leg up on other buyers.

6. Lock your rate and get an appraisal

Once your offer has been accepted it is time to get into the loan options and rates. You will want to choose the right type of loan and rate that fits your budget. During this time you will also want to get an appraisal on the home. Usually, the appraisal is requested by the lender. The lender wants to make sure the loan amount is not over what the value of the home is appraised for.

7. Apply for financing

Now is the time to apply for your loan. Plan on a week to two weeks to finalize your loan application. You will need to gather all your documentation which includes your most recent pay stubs, employment records, bank statements, tax returns, government-issued ID, and social security number.

8. Underwriting

This is part of the mortgage process where a lender will assess the risk of approving your loan. This is the final decision stage for your loan application.

9. Final review

Once your loan is approved it is time to go over all of the paperwork. Your lend will review everything and make sure it is ready for closing. You will also get a closing statement which will show you how much money you need to bring to the closing.

10. Closing time

The final step is the closing. At the closing, you will sign documents and pay the closing costs. Once you have completed this, you are given the keys to your new home!

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Five Signs To Look for To Know It’s the Right Time To Buy a Home

 

Today’s housing market is booming, sales are up, inventory is low, and mortgage rates are low. This is a competitive market for a buyer. Timing is everything and you want to make sure that what’s going on in the market and in your personal life makes this the right time to buy. There are many factors to consider when purchasing a home. If you are having a hard time deciding if now is the time, consider these five factors to help with your decision.

1. Your lifestyle has changed – or is about to

There are many seasons in our lives that can sway our decision on buying a home. Examples are having a baby, moving to a desired location such as the mountains or the beach, or downsizing as empty nesters. Big changes in our lives can be both planned and unexpected.

It is always a good idea to reevaluate your current living situation when big changes are about to happen. Before making the decision take the time to go over your needs and your budget to make sure they are in sync.

2. It’s the right time of year for you

According to Rocket Mortgage®, the prime time for buying and selling a home is in the spring and summer. This is when the market usually has the most inventory for sale and buyers out looking for a home. This might be the typical time of season to look if you are a buyer, but it might not line up with what is going on in your personal life.

Typically the spring and summer seasons are the busiest because growing families are looking to settle in a new home before the next school year begins. If you are an empty nester and can wait, the fall or winter might be your best time to purchase.

3. Mortage rates are low

The current market has seen record-low mortgage rates. Right now, you can purchase a home at a higher listing price because the monthly payments might fit your budget.

Interest rates play a big role in the monthly cost. For example, if you want to have a payment of around $1,500 a month, in today’s market you can purchase a home for much more with the low-interest rates. With today’s rates, you could afford a home for around $357,000 on a 30-year-fixed with 20% down. If the rates go up to 3.75% you will only be able to afford a home with a listing price of $328,000.

4. You’re financially prepared

No matter what season it currently is or how low the mortgage rates currently are, if you are not financially ready it is not your time to buy. Your financial profile plays a big part in the purchase of a new home. This includes your credit score and debt and income.

Make sure you can afford to take the leap into homeownership without too many risks. It is never fun to be “house poor.” When determining if you can afford to purchase a home, consider the cost associated with buying a home. These include home improvements, unexpected repairs, home maintenance, insurance and property tax.

5. You’re emotionally prepared

Purchasing a home is a big life-changing event. The home-buying process has many facets and you will want to have a good lender on your side. A mortgage lender can help you with all of your questions on loan types, calculating payments and managing your mortgage.

Educating yourself and have a professional by your side will help make this process less stressful for you. Both a Realtor and a mortgage advisor can help you learn the mortgage basics and help you determine what you can afford and where is best for you to purchase a home.

Remember before you decide to purchase a home, go to the experts. Choosing the right experts to go along with you during the process will help you reach your goal faster and more confidently.

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Student Debt Is Not an Obstacle to Homeownership

According to a study done by Zillow.com, the only way student debt can negatively impact young professionals interested in starting a family and “settling down” to buy their first home is if that debt is combined with no degree at all.  According to the study, student debt is not an obstacle to homeownership with those students who finished with a bachelor’s degree or higher for the amount of debt they acquired.  Home buyers that are college graduates and never had to take on student loans have a higher chance (70%) of becoming a homeowner than home buyers that have student debt and at least a bachelor’s college degree, but not by much – the statistic only drops to 66% for these types of buyers.

Because of the Recession and the lack of jobs for college graduates upon completing college, many young people did not get married and start a family right away, so household formation was also a considering factor in the study done by Zillow.com.  The study seemed to indicate that people were waiting until their 30’s to have children, and the study included those couples that had actually started a family with at least one child.

High rents were also a factor as being a deterrent for young professionals to be able to buy a home.  The payment of higher rent made it impossible for them to get the larger down payment together upon trying to get financing for a conventional mortgage.  The FHA just recently reduced the percentage of down payment required for both FHA and Rural Development loans, so this factor will not be as pertinent moving forward.

The truth about young professionals becoming homeowners is that student debt is not an obstacle to homeownership, and the possession of a bachelor’s degree or higher and the acquisition of a good job after college has made it possible for these students to be able to buy a new or pre-existing home upon graduation (or later).  This is good news for the housing market as one more positive sign that the real estate market is moving in the upwards direction.

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