I'm putting together this real estate investing faq page because I still get quite a few home buying related inquiries.
It has been a couple years since I left the mortgage broker industry. I still try to keep up on the changes. And there are many changes. I don't anticipate returning to that line of work, but I don't close any doors. I liked my time in that business.
I do fully expect to get back into real estate investing. That was the most enjoyable and satisfying time in my life. We transformed abandoned houses into sparkling, renovated homes at very affordable prices.
That is another reason I try to keep up on the changes. If you read the two part pages on education in real estate investing that I posted some time ago, you know that buying the great bargain is just part one. Eventually you need to get it sold. Having a solid knowledge of home financing will help you help your potential buyers.
So the first real estate investing faq I get is the obvious one...Is this a good time to be buying a house as a personal residence? (We know that buying a house for yourself is not an investment don't we? Click here if you haven't seen that page and check out the short video near the bottom of the page.)
Price wise of course houses are pretty cheap right now. Current mortgage rates are very low. There are still decent options in home financing.
The biggest negative to buying a first home now is that I really believe home values in most parts of the country are going down again. So all you first time buyers need to know, you will be losing some equity at some point in the not too distant future.
If you plan on living in the house for years, then it won't matter. If you plan to sell in five years, it will very much matter. You may owe more than what it will sell for at that time.
Real Estate Investing FAQ two...What kind of loan can I get? I don't have a big down payment!
For first time buyers, the two favorite programs have usually been FHA and USDA loans.
FHA was one of the few government programs that didn't operate in a sea of red ink. "Was" being the operative word. That program is running about a $16 million deficit due to the wave of foreclosures.
In order to not be another taxpayer bailout plan, they have changed their rules.
1.) Higher mortgage insurance premiums per month
2.) Higher upfront MIP premium. This can be added to the mortgage, but you still have to pay it.
3.) You now need a 580 credit score to qualify for a loan requiring only 3.5% down payment. If you have a very compelling reason, they may approve a lower score. If not, you'll need 10% down payment.
4.) They will enforce the three years away from past foreclosure rule. No more walking away from one house and then getting a new mortgage again.
5.) Here is the big one! It used to be that when you hit 78% loan to value, the monthly mortgage insurance went away. Very soon that will change. You will keep paying it throughout the loan period.
There is talk of increasing the minimum down payment to 5%. That could be another big game changer.
USDA loans are not as well known. They are also called Rural Development loans. They are limited to areas with smaller populations.
On the plus side, they provide for 100% financing. They are fairly strict with property inspections. They don't want new buyers to be stuck with big repair bills, so much of the needed fix ups must be paid by the seller prior to closing.
These loans will require a 2% upfront fee paid at closing. Like FHA, this fee can be financed into the new mortgage. And the monthly mortgage insurance as I write this page is .40% of the loan balance. On a $100,000 loan that is about $33 per month.
Real Estate Investing FAQ three...Can my parents still help out with closing costs or down payments?
Both programs above still allow gift funds from family members. Those funds will need to be sourced. In other words, your Dad cannot take out a credit card advance to give you cash. It needs to be verified as seasoned funds.
Keep in mind that both programs also allow for the seller to pay part of the closing costs. A well written purchase agreement will take care of that for you.
Which leads us to real estate investing faq four...What do I look for in a mortgage broker and a real estate agent?
Easy question to answer. Business ethics and honesty. If they have those two, it is certain they have the technical knowledge to guide you through the process. Ask them upfront how many house sales they have been involved in that used either FHA or USDA financing. If you feel good about being around them, you've made a correct decision.
Real Estate Investing FAQ five...Isn't this a great time to get back into investing in real estate?
I wrestle with this one all the time myself. I see houses that are selling for very low prices. I know I could assemble my team and go through them in a few months or less and make them into a great new home for someone.
In many parts of the country, there have actually been upticks in home values being reported. So if you know for sure that you can get it done quickly, and within budget, ( You did budget carefully didn't you?), then maybe it is worth the shot. But be sure. Part two of education in real estate investing has a good plan for you to follow. It always worked for me.
But as I answered in question one, I don't believe the real estate bubble has fully deflated yet. And I don't believe the required fundamentals for long term real estate investing, in particular buying, fixing and re-selling are in place yet.
It all comes down to the unemployment rate. Until jobs come back, there cannot be a full, genuine recovery. The markets can be manipulated for a while, but eventually market forces dictate their own direction.
I'll get back into it when I know the real estate market has hit rock bottom. Then it will make sense for me to do the work in that area.
Real Estate Investing FAQ six...Are there any good real estate investing books that you recommend?
There are plenty of great real estate investing books. But they were all written prior to the real estate crash. Still good ideas in many of them. But the financing options are outdated now.
If you do buy a fix up house, be sure to get "The Complete Photo Guide To Home Improvement." I used that book on every renovation. I still use it.
The biggest real estate investing faq is this one..Is it right for me in my situation right now?
We'll try to give you timely information and good books to help you. But in the end, it will be your decision.
Do you have a great story about this? Share it!