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Buying Q&A
What are the advantages of owning a home?
Owning a home offers various advantages, including ownership control and potential tax savings. As a homeowner, you build equity over time, providing opportunities for investments like education, a second home, or property enhancements. The mortgage interest and property tax are tax-deductible. Opting for a fixed-rate mortgage ensures stable monthly payments, offering financial predictability compared to renting.
How do townhouses differ from condominiums?
Condominiums are typically apartments, while townhouses are attached to one or more houses, ranging from duplexes to large communities. Townhouse buyers own both the home and the land individually. In contrast, condominium unit owners collectively own the land, and this shared interest cannot be divided. Some townhouses, especially in large communities, may have shared amenities like pools, resembling condominiums.
How do I determine the value of a distressed property?
To determine the value of a property, obtain a comparable market analysis by researching past sale prices and current listings of similar properties. Assess the fixer-upper thoroughly, factoring in repair costs. If unable to access the property, consult neighbors for insights into its condition. Conduct a personal cost comparison using local county recorder's and assessor's records or online property record sites. For foreclosed properties, gather comprehensive information from the lender.
Is buying one a good idea in "bad" areas?
The decision to purchase a fixer-upper depends on your risk tolerance and personal preferences. Despite being labeled as "bad" areas, residentially unstable neighborhoods have provided affordable homeownership options for many, especially first-time buyers and low- to moderate-income families. Some run-down neighborhoods, particularly those near downtown, are experiencing a revival, attracting newcomers and transforming formerly stagnant or unsafe areas.
Financing
What is a mortgage and how does it work?
A mortgage makes homeownership possible for most people. In the simplest terms, it is a loan that is secured by real property. The lender holds title to the home until the loan is completely repaid. If you fail to pay up, the lender has a right to take the property, sell it, and recover the money that is owed. The amount of a mortgage will vary greatly depending on the down payment you make to reduce the amount of money that is needed to finance the home. You may put as much money down as you like, or you can sometimes pay as little as 3 to 5% of the purchase price, or sometimes nothing at all. The more you put down, the more you reduce the amount that is financed, thereby lowering your monthly payment. The monthly payment consists of both principal and interest but also typically includes additional amounts to cover property taxes and insurance-specifically hazard insurance and private mortgage insurance, the latter of which is required for down payments less than 20% of the purchase price. Home buyers in the U.S. have access to several different types of mortgage loans.
How does refinancing work?
With refinancing, you pay off an old loan on your home and take out a new one, usually at a lower mortgage interest rate. To refinance, you will generally need to have equity in your home, a good credit rating, and a steady income. You can borrow a percentage of the equity to cover remodeling costs, debt consolidation, and college tuition. When you refinance, you will incur all the closing costs of getting a new mortgage. So unless you are doing extensive renovations and can get a mortgage interest rate at least two points below your current loan rate, you may want to select another financing option.
When is the best time to refinance?
Many people flock to refinance while mortgage interest rates are low, particularly when rates are about two percentage points below their existing home loans. Other factors, like when to finance, will depend on how long you plan to hold on to your home and whether you have to pay considerable fees to refinance. It also will depend on how far along you are in paying off your current mortgage. If you expect to sell your home relatively soon, you are not likely to recoup the costs you incurred to refinance. And if you are more than halfway through paying your current mortgage, you probably will gain little by refinancing. However, if you are going to own your home for at least another five years, that is probably long enough to recoup any refinancing costs and realize real savings as a result of lowering your monthly payment. In fact, if it costs you nothing to refinance, you can gain even more. Many lenders will let you roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment. Plus, there are no-cost refinancing deals available. Contact your lender, and its competitors, before you refinance.
Selling Q&A
When is the best time to sell a home?
The ideal time to sell is when you're ready or compelled to do so, like when outgrowing your current space, downsizing, or experiencing life changes. Market conditions, influenced by demand and supply, play a crucial role. Selling in a seller's market tends to yield better returns than in a buyer's market. Economic factors, such as local layoffs, can impact selling decisions. Spring is generally considered the optimal time to sell, with the highest number of potential buyers in the market, although activity starts as early as February and slows down in July.
How do capital gains work when you sell your home?
When selling your primary residence, you may exclude up to $250,000 of gain ($500,000 for married couples) from your federal tax return. To qualify, the home must have been your main residence for at least two out of the five years preceding the sale. Special rules apply for certain groups, like members of the armed services. If you don't meet ownership and use tests, a reduced maximum exclusion amount may apply, but only in cases of health issues, change in employment, or unforeseen circumstances. If you can exclude all gain, no reporting is needed; otherwise, report the gain on Schedule D of Form 1040 and claim the applicable exclusion.
What are the benefits of seller financing?
Seller financing is a beneficial option when the seller doesn't require the entire cash equity upfront. It provides tax advantages for the seller, attracts a larger buyer pool, expedites the sale, and generates interest earnings. Buyers benefit from less strict qualifications and cost savings by eliminating most loan fees. Credit checks help address default concerns, and the mortgage allows the seller to foreclose if needed. The seller may also stipulate hazard insurance and a due-on-sale clause. Various financing, disclosure, and repayment-term requirements must be met, making it advisable to consult with an attorney for such transactions.
Is it true you never really stop fixing up a home?
From the day you move in to the day you sell your home, there will always be something that will need to be repaired or remodeled. You may want to undertake some changes simply to elevate your comfort level - like installing central air conditioning - or spruce up the home's aesthetics, such as adding a few stained-glass windows. But other work will need to be done to maintain the property and minimize problems later on. For example, replacing a hazardous roof, fixing broken windows, and repairing leaky pipes. These are all necessities. Left undone, they can lead to major problems and damages within the home. If you decide one day to sell, other improvements will likely be made to increase the home's value and appeal to potential buyers.
When is the best time to refinance?
Many people flock to refinance while mortgage interest rates are low, particularly when rates are two percentage points below their existing home loans. Other factors, like when to finance, will depend on how long you plan to hold on to your home and whether you have to pay considerable fees to refinance. It also will depend on how far along you are in paying off your current mortgage. If you expect to sell your home shortly, you are not likely to recoup the costs you incurred to refinance. And if you are more than halfway through paying your current mortgage, you probably will gain little by refinancing. However, if you are going to own your home for at least another five years, that is probably long enough to recoup any refinancing costs and realize real savings as a result of lowering your monthly payment. In fact, if it costs you nothing to refinance, you can gain even more. Many lenders will let you roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment. Plus, there are no-cost refinancing deals available.
Contact your lender, and its competitors, before you refinance.
How does an unsecured loan work?
The interest rates on these loans are often higher than on secured loans and you generally will not be able to get a tax deduction for the interest paid. However, the costs to obtain an unsecured loan are usually lower. And the relative ease of getting this type of loan makes it popular for small projects costing $10,000 or less. The lender evaluates applications based on credit history and income.