What exactly is the 1031 Exchange and how does it work? Well let's first define 1031 Exchange.
1031 Exchange: "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of the like kind, which is to be held either for productive use in a trade or business or for investment".
This rule was based on the 1031 section of the IRS code and the term 1031 Exchange is a term that is used within the real estate business. Now let's take a look at how it works.
1. It will allow any taxpayer to defer the taxes on a property sale if it is exchanged one investment property for another similar type of property that is being used for business or investment purposes
2. You will need to hire a real estate lawyer to apply the legal processes that are required in the 1031 Exchange
3. If you would rather, you can hire a Qualified Intermediary or QI as a third party that is independent of the process. A QI will hold the profits from the sale of the first property that you sell until you are able to invest into another property or properties. You should have a minimum of two properties involved in this transaction
4. You are not allowed to use your own home to qualify for the 1031 Exchange. The 1031 Exchange only allows the exchange of one property for another of the like kind. When I say like kind, it does not mean the condition of the property or the value of the property but only that they are similar in their types like one investment property for another investment property
5. There are two very strict timeline guidelines: the Identification Period and the Exchange Period. These dates cannot be extended to meet your needs and the process has to be completed within the time that is allowed by the IRS to take benefits out of complimentary tax treatment
• Identification Period = 45 days from the actual date you sell your property and the time you view the new property that you want to buy
• Exchange Period = 180 days from the classification date up to the closing date. During this time you must get through the entire exchange process
Your best bet is to find a realtor who is very familiar with the 1031 Exchange tax code and dealing with investment properties. The 1031 Exchange can be very beneficial to you; however, you will have to make sure that you do everything accordingly. The only way you can make sure of this is if you have a realtor and a real estate lawyer to handle the proceedings for you.
Wednesday, March 14, 2012
Friday, March 9, 2012
What Is Escrow And How Does It Work?
So what exactly is escrow. If you have recently bought a house or are thinking about buying a house, you will need to know what escrow is. Here is a quick overview of what escrow is and how it works.
Escrow is a deposit that is held by a third party or escrow agent. So in other words, an escrow deposit, is the money you put down on your new home. Your escrow deposit is held in a secure location by a neutral third party.
The escrow agent works for both the lender and the buyer and their purpose is to carry out the instructions that both parties have agreed on. The escrow agent will release your money once all of the terms of your agreement have been upheld.
Your mortgage lender will more than likely require you to open an escrow account to make sure there is enough money to cover your insurance and taxes. The way this works is you will make an initial deposit to your escrow account followed my monthly installments. Most lenders will arrange to have this included in your monthly mortgage payments. When your taxes and insurance premiums come due the escrow agent will release the funds to the appropriate party.
The reasoning behind having an escrow account is to protect the lender in the event you default on your payments. The lender is then protected from external perils that could arise as a result of you not paying your taxes or your insurance causing the lender to be left with no collateral.
An escrow account also helps the buyer because it allows you to spread your payments evenly over a 12 month period. Just imagine if your yearly taxes were $3000 and your yearly insurance was $1400, that would leave you owing $4400 in one lump sum.
Your escrow amounts could change from year to year due to the possible increase in your taxes and insurance. Therefore, your lender will review and adjust your escrow amounts annually and you will be given a revised mortgage payment if your taxes or insurance go up. On the same token; however, if your taxes or insurance rates go down, you will be given a refund.
Sometimes an escrow requirement can be waived. Some buyers prefer to pay all of their taxes and insurance directly. Your lender may allow you to do this if your down payment is more than 20% but they will more than likely raise your interest rate slightly to compensate. One thing to remember is that once you begin putting your funds into an escrow account, it can be difficult to cancel this process so make sure that you fully understand what your options are before doing anything.
Well, I hope that I have fully explained what escrow means and how it works. However, if there is anything you don't understand or anything you have questions about, please call your realtor. Your realtor has many years of experience with these kinds of things and will be more than happy to assist you.
Escrow is a deposit that is held by a third party or escrow agent. So in other words, an escrow deposit, is the money you put down on your new home. Your escrow deposit is held in a secure location by a neutral third party.
The escrow agent works for both the lender and the buyer and their purpose is to carry out the instructions that both parties have agreed on. The escrow agent will release your money once all of the terms of your agreement have been upheld.
Your mortgage lender will more than likely require you to open an escrow account to make sure there is enough money to cover your insurance and taxes. The way this works is you will make an initial deposit to your escrow account followed my monthly installments. Most lenders will arrange to have this included in your monthly mortgage payments. When your taxes and insurance premiums come due the escrow agent will release the funds to the appropriate party.
The reasoning behind having an escrow account is to protect the lender in the event you default on your payments. The lender is then protected from external perils that could arise as a result of you not paying your taxes or your insurance causing the lender to be left with no collateral.
An escrow account also helps the buyer because it allows you to spread your payments evenly over a 12 month period. Just imagine if your yearly taxes were $3000 and your yearly insurance was $1400, that would leave you owing $4400 in one lump sum.
Your escrow amounts could change from year to year due to the possible increase in your taxes and insurance. Therefore, your lender will review and adjust your escrow amounts annually and you will be given a revised mortgage payment if your taxes or insurance go up. On the same token; however, if your taxes or insurance rates go down, you will be given a refund.
Sometimes an escrow requirement can be waived. Some buyers prefer to pay all of their taxes and insurance directly. Your lender may allow you to do this if your down payment is more than 20% but they will more than likely raise your interest rate slightly to compensate. One thing to remember is that once you begin putting your funds into an escrow account, it can be difficult to cancel this process so make sure that you fully understand what your options are before doing anything.
Well, I hope that I have fully explained what escrow means and how it works. However, if there is anything you don't understand or anything you have questions about, please call your realtor. Your realtor has many years of experience with these kinds of things and will be more than happy to assist you.
Thursday, March 8, 2012
Unique Ways To Fund Your Downpayment
One of the biggest concerns many people have when it comes to buying a home is coming up with the down payment. Or perhaps coming up with a down payment that is large enough to lower their monthly payment. These are very legitimate concerns ; therefore, we have come up with some unique ways to help you afford your down payment.
1. The most popular(and maybe not so unique) is to dip into your savings account
2. Hit up some of your friends - who knows what kind of money they have lying around
3. Ask all of your relatives - if all of your relatives can give a little, perhaps you can reciprocate the next time they need a favor
4. Check with your 401k administrator - in certain cases you can borrow some money from it without penalties
5. Look at your entire portfolio - do you have stock proceeds you can use or maybe you could sell some stocks to beef up your down payment
6. What assets to you have - do you have anything that you could sell to come up with that extra down payment
7. Sometimes, depending on the lender , a co-signer might be an option
8. Does your city offer any down payment subsidy programs - sometimes these subsidies are $5000 to $10,000 - this is free money - who doesn't want free money. This will also significantly lower your monthly payments as well
9. Some banks still offer zero percent down - which means you have no down payment - these are usually reserved for first time home buyers with extremely good credit
10. Perhaps you might consider a lease with an option to buy
11. Sometimes a seller is willing to fund part or all of your down payment just to get the deal - this is called a carry back mortgage - it will help the seller sell their home faster and help the buyer buy a home that they could not otherwise afford
12. Talk to your lender about a second mortgage
There are many, many ways to fund your down payment. Ask your realtor to help you come up with the options that will work best for you. You might be surprised at just how well versed they are in helping buyers reach their down payment goals. So use their experience to your advantage and don't let a little thing like a down payment get in your way.
1. The most popular(and maybe not so unique) is to dip into your savings account
2. Hit up some of your friends - who knows what kind of money they have lying around
3. Ask all of your relatives - if all of your relatives can give a little, perhaps you can reciprocate the next time they need a favor
4. Check with your 401k administrator - in certain cases you can borrow some money from it without penalties
5. Look at your entire portfolio - do you have stock proceeds you can use or maybe you could sell some stocks to beef up your down payment
6. What assets to you have - do you have anything that you could sell to come up with that extra down payment
7. Sometimes, depending on the lender , a co-signer might be an option
8. Does your city offer any down payment subsidy programs - sometimes these subsidies are $5000 to $10,000 - this is free money - who doesn't want free money. This will also significantly lower your monthly payments as well
9. Some banks still offer zero percent down - which means you have no down payment - these are usually reserved for first time home buyers with extremely good credit
10. Perhaps you might consider a lease with an option to buy
11. Sometimes a seller is willing to fund part or all of your down payment just to get the deal - this is called a carry back mortgage - it will help the seller sell their home faster and help the buyer buy a home that they could not otherwise afford
12. Talk to your lender about a second mortgage
There are many, many ways to fund your down payment. Ask your realtor to help you come up with the options that will work best for you. You might be surprised at just how well versed they are in helping buyers reach their down payment goals. So use their experience to your advantage and don't let a little thing like a down payment get in your way.
Wednesday, March 7, 2012
Making Sense Of Points, Rates And Fees
You have just found the home of your dreams and the seller has accepted your offer. Now the fun begins. You keep hearing terms like "buy down", "discount points", "purchase points, but you have no idea what all this means. Do they all mean the same thing or is each term something different? This is where your realtor comes in. Of course you can always call your lender; however, your realtor is the one you have been dealing with and the one that will be more than happy to explain everything to you.
Purchase Points - which are also known as a buy down or discount points. Points is a term used to define an amount of money given to the lender at closing to lower your interest rate for your mortgage loan. Every point is equal to one percent of the total amount of your loan. So if you have a mortgage that is $100,000 then one point would equal $1000. Every point you buy will lower your interest rate by a certain percentage. Just remember, the more points you buy, the more money you are going to have to come up with at closing.
The question is - is it smarter to buy points or to hold on to your money? Well, that depends on how long you plan on staying in that home and of course what you can afford to pay. If you are planning on staying in this home for more than five years then my advice is for you to buy as many points as you can. Because this will lower your monthly payments and will save you interest over the life of the loan.
Interest Rates - interest rates fluctuate daily, and when you apply for a loan it doesn't mean that the rate you were quoted that day is the same rate you will get at closing unless you "lock in" your interest rate. Locking in your interest rate will give you a guaranteed rate within a specific time frame. Most lock in periods are for 15, 45 or 60 days. Keep in mind that the longer you lock in your rate the more it will cost you because a lender takes more of a risk to lock you in for a longer period of time.
Fees - since when have you ever bought anything that did not have some sort of fee associated with it? Well, a mortgage is no different. Some of the fees you can expect are: title fees, underwriting fees, land survey fees, appraisal fees etc. Each lender is different and will work your loan differently; some lenders will charge you lower fees but a higher interest rate.
So before you sign on the dotted line, make sure you do your homework and most definitely ask your realtor to let you know who they have had the best experiences with. Make sure there are no hidden fees and make sure that you fully understand what costs are involved and what your obligations are for the life of your loan.
Purchase Points - which are also known as a buy down or discount points. Points is a term used to define an amount of money given to the lender at closing to lower your interest rate for your mortgage loan. Every point is equal to one percent of the total amount of your loan. So if you have a mortgage that is $100,000 then one point would equal $1000. Every point you buy will lower your interest rate by a certain percentage. Just remember, the more points you buy, the more money you are going to have to come up with at closing.
The question is - is it smarter to buy points or to hold on to your money? Well, that depends on how long you plan on staying in that home and of course what you can afford to pay. If you are planning on staying in this home for more than five years then my advice is for you to buy as many points as you can. Because this will lower your monthly payments and will save you interest over the life of the loan.
Interest Rates - interest rates fluctuate daily, and when you apply for a loan it doesn't mean that the rate you were quoted that day is the same rate you will get at closing unless you "lock in" your interest rate. Locking in your interest rate will give you a guaranteed rate within a specific time frame. Most lock in periods are for 15, 45 or 60 days. Keep in mind that the longer you lock in your rate the more it will cost you because a lender takes more of a risk to lock you in for a longer period of time.
Fees - since when have you ever bought anything that did not have some sort of fee associated with it? Well, a mortgage is no different. Some of the fees you can expect are: title fees, underwriting fees, land survey fees, appraisal fees etc. Each lender is different and will work your loan differently; some lenders will charge you lower fees but a higher interest rate.
So before you sign on the dotted line, make sure you do your homework and most definitely ask your realtor to let you know who they have had the best experiences with. Make sure there are no hidden fees and make sure that you fully understand what costs are involved and what your obligations are for the life of your loan.
Wednesday, January 18, 2012
How To Avoid Buyer's Remorse
The excitement of buying a new home is indescribable. You spend all of your time going over all the details of each and every possible home that is suitable for you. Then you actually find a home that you just love. After spending a great amount of time thinking about your dream home, you make an offer. Then it happens, you get that call from your realtor - your offer has been accepted. All of a sudden the reality that you just bought a home hits you like a ton of bricks!
Buyers have different reactions the that "Oh My Gosh, I Just Bought A House" feeling and understandably so. Buying a home is a BIG decision. Many people begin to have second thoughts about their decision. Did I do the right thing? Can I afford this? What if something happens? How much money did I just spend? Can I come up with the down payment? How much are the closing costs going to be? Etc.
You feel like your life is going to be changed forever. You think that you will never again be able to live the life that you currently have - enjoying eating at a restaurant, going to the movies whenever you feel like it, having a shopping spree. You think your entertainment budget has been shot out the door! Then you get the dreaded truth in lending statement and you see just exactly how much your mortgage including the interest will be over 30 years and you are shocked and dismayed. You think "what have I done?"
Sit down and relax. Millions of people buy new homes every day and get through it with no problems. Don't worry, what you are feeling is normal and you will be glad to know that it is temporary. This too shall pass. You will adjust your lifestyle and things will be back to normal before you know it.
Try to replace all of those negative feelings with positive ones like - imagining yourself sitting in your new home, enjoying your new life. Picture how well your new home suits your family's needs. Think about all of the things that you will have in your new home that you don't have in your current home. Give it time, you will get the hang of it.
If you still have those "Buyers Blues" then call your realtor immediately. Your real estate agent has years of experience helping their clients through the home buying process from start to finish and they will be more than happy to help you with anything you need. So remember, these feelings are normal. Then go relax and enjoy yourself. Go and eat at your favorite restaurant or do a little shopping; whatever it takes to rid yourself of the buyers blues and before you know it you will be sitting in your new home wondering why you ever had any doubts!
Buyers have different reactions the that "Oh My Gosh, I Just Bought A House" feeling and understandably so. Buying a home is a BIG decision. Many people begin to have second thoughts about their decision. Did I do the right thing? Can I afford this? What if something happens? How much money did I just spend? Can I come up with the down payment? How much are the closing costs going to be? Etc.
You feel like your life is going to be changed forever. You think that you will never again be able to live the life that you currently have - enjoying eating at a restaurant, going to the movies whenever you feel like it, having a shopping spree. You think your entertainment budget has been shot out the door! Then you get the dreaded truth in lending statement and you see just exactly how much your mortgage including the interest will be over 30 years and you are shocked and dismayed. You think "what have I done?"
Sit down and relax. Millions of people buy new homes every day and get through it with no problems. Don't worry, what you are feeling is normal and you will be glad to know that it is temporary. This too shall pass. You will adjust your lifestyle and things will be back to normal before you know it.
Try to replace all of those negative feelings with positive ones like - imagining yourself sitting in your new home, enjoying your new life. Picture how well your new home suits your family's needs. Think about all of the things that you will have in your new home that you don't have in your current home. Give it time, you will get the hang of it.
If you still have those "Buyers Blues" then call your realtor immediately. Your real estate agent has years of experience helping their clients through the home buying process from start to finish and they will be more than happy to help you with anything you need. So remember, these feelings are normal. Then go relax and enjoy yourself. Go and eat at your favorite restaurant or do a little shopping; whatever it takes to rid yourself of the buyers blues and before you know it you will be sitting in your new home wondering why you ever had any doubts!
Thursday, January 12, 2012
Buying A Home At A Discount
Real estate is no exception when we talk about how inflation has affected each and every aspect of our life. At first, buying a home was only a matter of selecting your area, surveying places around it and making a decision. Times have changed now and the first thing that you bring under consideration is affordability. Not that you didn’t worry about finances back then, but you at least knew you weren’t over paying for your property. So the name of the game, when it comes to buying real estate today, is not only to get the best house of your liking but also to get the best financial deal for yourself.
Short Sales
So what do you do to get a discount while buying your dream home? The first step that you can take in order to find good financial deal on your next house is reviewing Short Sales.
A short sale means a sale that falls short of the amount owed on the mortgage. They happen only when the seller can't come up with the cash to pay off the difference. Most important, though, is that they can happen only when the lender agrees to accept the reduced payoff. However, it doesn’t mean the lender will agree to sell to you in all cases.
Lenders aren't in the business of accepting less than they are owed, so few short sales make it to the finish line. The best way to go about it is to hire an agent who has experience with short sales. He knows how to find people who are looking to sell. First, find out if the bank even has a clue that the seller is trying for such a deal; it would be a complete waste of time to try and bargain with the seller just to have the bank refuse the deal.
Foreclosures
Another way to look for a discounted deal is to look for foreclosures. Everyone has heard about foreclosures and the overwhelming inventory available. Situations like this usually give rise to discounted prices, especially in today’s times, because of the large inventory of homes sitting on bank books.
Buyer Beware; this process is lengthy and buying a foreclosed home can be full of pitfalls. If you have this picture in your mind of a well-maintained family home, surrounded by a white picket fence that is owned by an elderly woman who couldn’t keep up with mortgage payments, think again. Those types of foreclosures are few and far between. Unless you are a licensed general contractor, bring someone who is highly knowledgeable about construction with you.
Many foreclosed homes need repairs and most have been gutted by squatters looking to sell the best features of the home. Assuming that you’ve done all your homework and you still want to purchase that foreclosed property, your real estate agent will make an offer to the bank.
Best advice before getting to this point is while seeking that foreclosed home, get your financing complete with pre-approvals – the deal will go a lot smoother if the bank sees that all the foot work has been completed.
Short sales and foreclosures are just two options available to you. And, while they may be challenging deals to put together, they can be a great avenue towards home ownership.
Short Sales
So what do you do to get a discount while buying your dream home? The first step that you can take in order to find good financial deal on your next house is reviewing Short Sales.
A short sale means a sale that falls short of the amount owed on the mortgage. They happen only when the seller can't come up with the cash to pay off the difference. Most important, though, is that they can happen only when the lender agrees to accept the reduced payoff. However, it doesn’t mean the lender will agree to sell to you in all cases.
Lenders aren't in the business of accepting less than they are owed, so few short sales make it to the finish line. The best way to go about it is to hire an agent who has experience with short sales. He knows how to find people who are looking to sell. First, find out if the bank even has a clue that the seller is trying for such a deal; it would be a complete waste of time to try and bargain with the seller just to have the bank refuse the deal.
Foreclosures
Another way to look for a discounted deal is to look for foreclosures. Everyone has heard about foreclosures and the overwhelming inventory available. Situations like this usually give rise to discounted prices, especially in today’s times, because of the large inventory of homes sitting on bank books.
Buyer Beware; this process is lengthy and buying a foreclosed home can be full of pitfalls. If you have this picture in your mind of a well-maintained family home, surrounded by a white picket fence that is owned by an elderly woman who couldn’t keep up with mortgage payments, think again. Those types of foreclosures are few and far between. Unless you are a licensed general contractor, bring someone who is highly knowledgeable about construction with you.
Many foreclosed homes need repairs and most have been gutted by squatters looking to sell the best features of the home. Assuming that you’ve done all your homework and you still want to purchase that foreclosed property, your real estate agent will make an offer to the bank.
Best advice before getting to this point is while seeking that foreclosed home, get your financing complete with pre-approvals – the deal will go a lot smoother if the bank sees that all the foot work has been completed.
Short sales and foreclosures are just two options available to you. And, while they may be challenging deals to put together, they can be a great avenue towards home ownership.
Friday, January 6, 2012
6 Common Mistakes Homebuyers Still Make
Getting a new home is easy but tricky at times. Many buyers are encountering stumbling blocks en route to their chosen house. This is because they commit minor mistakes along the way that hinders smooth processing. This can be prevented only if you are familiar with these common mistakes.
1. Having no pre-arrangements with the bank for mortgages before making an offer is the most popular mistake. Communicate with a bank to know the price range you are capable of paying and other mortgage details that you need to know.
2. Knowing your exact budget is critical. Most people look around for houses even without the budget in mind. First thing you need to know before finding a home to purchase is how much you can pay for a new home. You can save much time if you trim down your list of houses based on its price; imagine finding that dream home only to find out you won’t be approved for the mortgage?
3. Getting unreliable and inexperienced real estate agents is a big no-no. Choose an agent that has the background to back him or her up. Also, consider the real estate companies you are dealing with. Make sure that they have a good standing in terms of the services they are providing.
4. Most people are shopping around within a limited market. You can find homes for sale anywhere such as internet, print ads, and even on TV. You may also want to ask for help from your agent to provide you a list of preferred houses. You can save time if you know what kind of house you are looking for.
5. Purchasing a home long distance without thorough inspection is a mortal mistake. After choosing a home, it is a must to visit it personally so that you can see it in a closer view. Some pictures only show the good angles of the house. It can be very deceiving at times. Check the structure and foundation to ensure safety. Also, look around the neighborhood and get comfortable with it.
6. Buyers tend not to compute the total cost of the house. Other expenses such as home insurance, association dues and even lawyer's fee for proper documentation of the purchase should be considered. We are not talking about coins here. These range from hundreds of dollars to even thousands. You need to prepare your pocket for it.
Buyers are usually not aware of all the details. It is your home and you are responsible for it. You need to know and understand everything about it, from home warranty to insurances and even the history of the house.
1. Having no pre-arrangements with the bank for mortgages before making an offer is the most popular mistake. Communicate with a bank to know the price range you are capable of paying and other mortgage details that you need to know.
2. Knowing your exact budget is critical. Most people look around for houses even without the budget in mind. First thing you need to know before finding a home to purchase is how much you can pay for a new home. You can save much time if you trim down your list of houses based on its price; imagine finding that dream home only to find out you won’t be approved for the mortgage?
3. Getting unreliable and inexperienced real estate agents is a big no-no. Choose an agent that has the background to back him or her up. Also, consider the real estate companies you are dealing with. Make sure that they have a good standing in terms of the services they are providing.
4. Most people are shopping around within a limited market. You can find homes for sale anywhere such as internet, print ads, and even on TV. You may also want to ask for help from your agent to provide you a list of preferred houses. You can save time if you know what kind of house you are looking for.
5. Purchasing a home long distance without thorough inspection is a mortal mistake. After choosing a home, it is a must to visit it personally so that you can see it in a closer view. Some pictures only show the good angles of the house. It can be very deceiving at times. Check the structure and foundation to ensure safety. Also, look around the neighborhood and get comfortable with it.
6. Buyers tend not to compute the total cost of the house. Other expenses such as home insurance, association dues and even lawyer's fee for proper documentation of the purchase should be considered. We are not talking about coins here. These range from hundreds of dollars to even thousands. You need to prepare your pocket for it.
Buyers are usually not aware of all the details. It is your home and you are responsible for it. You need to know and understand everything about it, from home warranty to insurances and even the history of the house.
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