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6 Reasons to Buy a Home

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Homebuying 2018

6 reasons to buy a home

 

Given that the past 10 years, since the recession, we’ve been accustomed to a strong demand for housing with historically low rates, one can’t help but question home values and interest rates now that we’ve entered a Seller’s Market.  Here are 6 reasons Homebuying still makes sense, especially for Millennials.

1) Lending guidelines have changed since 2008, creating a stable housing market (lengthy, but stay with me)

The main reason we had a housing bubble was because banks, in the years leading up to 2008, allowed consumers to borrower more than they could realistically afford and on loan terms considered today as predatory lending.  The class of home loans issued to these consumers were sub-prime mortgage loans.  This 4-mintue video by history.com helps explain.  These loans allowed borrowers with poor credit, and nearly no down payment, to borrower loans by stating their income on the application and not being required to support it with documentation.

Fast forward to 2018, lending rules have changed to prevent these kinds of loans and practices ever happening again.  You must show the ability-to-repay your mortgage loan to a bank where the Loan Officer and Underwriter assess your loan approval.  Basically, the sub-prime days are over so that people can realistically afford their homes.  See my recent post on Self-Employed Income and ways to qualify showing the ability-to-repay.

It’s important to note that home valuation practices have also been revised to ensure prices are not over inflated due to under-the-table handshakes and side deals.  Appraisers were hit heavily with regulations to ensure home values are represented with integrity based on local market trends and sales data.  Buying a home today and selling it tomorrow for 50% – 100% markup is behind us.  You only see this now with homes that have undergone extensive remodeling or upgrading, and it’s considered an acceptable practice because the market demands a modern home.

2) Build Equity, Growing your Money

This is probably my favorite reason to own a home because I’ve used my home’s equity to pay off debt and start a business.  Equity is the additional value something gains after it’s purchased.  Stock in a company builds and gains equity.  Your home is similar.  Waiting to buy means you lose the compound effect of your equity gain.  You can see your cost of waiting by scrolling the page in the link.  Be sure to complete the form.

While there are many uses for equity from your home, it’s a good idea to leverage that equity for the future.  Please do not use your equity to buy a boat or an RV (unless selling your home to travel the country).  Think of your equity as an aspect of your financial planning.  You do not want to rely solely on your home’s equity, but it makes for a chuck of your potential savings or retirement in the future.

3) Don’t pay taxes on your equity gains

When you own a home as your primary residence and turn around to sell it later, you do not pay taxes on the equity gains from the sale up to $250,000 if filing single or $500,000 if filing a joint return – IRS Site.  For this to work, the home must have been your primary residence and not have converted into a rental property.

4) Fix your monthly expenses

When you purchase a home with a fixed-rate mortgage, you lock your monthly principle and interest payments for a specified term of 15 or 30 years.  Property taxes and homeowner’s insurance may fluctuate, but the bulk of your housing payment is fixed.  Imagine when you want to renew your lease and the landlord charges an additional $200 to renew.  Over several years, that increase adds up and will eventually force you to move, beginning the cycle all over again of moving.

Moving is a silent expense that you don’t realize until it’s too late.  I’ve seen someone’s hard earned savings, that adds up to be a down payment on a home, get depleted when moving from one rental to another.  Request a Rent vs Buy review by scrolling the page in the link.  Be sure to complete the form.

5) Convert your home for cash flow

One objection I’ve heard a lot of lately is uncertainty about where someone wants to live.  This may be because of lifestyle or employment opportunities.  If you have a relatively stable income and don’t plan on moving for 3 years or so, buy a home.  You will thank me later because you will have the option of selling it and taking that equity or converting the home into a rental property.

The demand for housing (rentals and purchases) is only getting stronger.  You can have someone else pay the mortgage every month while you realize the equity gains.  It’s like someone buying you stock every month in your home.  See the chart below: Household Growth and Housing Completions.

6) A place to call home

Financial benefits aside, owning a home gives a sense of pride and fulfillment for our families.  Watching our children grow up in a neighborhood and making friends or meeting new people and becoming active in a community are just some of the things that come with owning a home.  Last year I helped run a charity picnic with a cornhole tournament.  My family and I got to meet some great people and we supported a great cause.  It was fun creating memories in the community we call home.

Conclusion

Owning a home is a responsibility and should be taken seriously.  The reasons to buy a home in today’s market give consumers financial opportunities for the future.  If you’re on the fence about buying a home, it’s worth a call to explore what it means for you.  A good lender will give you all the options around the idea and help you decide if it’s a good fit.

 

Chris Gonzalez
(480) 442-4494
info@azmortgageprofessional.com
www.azmortgageprofessional.com

Facebook: Chris Gonzalez – Your Neighborhood Lender

 

 



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Self Employed Borrowers – Income Qualifying

Income Qualifying
Self Employed Borrowers

Self Employed or Variable income? Here is what you need to know for home loans

Picture this scenario: You decide it is time to buy a home. Your income comes from your small business and you file your taxes every year. You speak with a lender and they say, “I’m sorry but you do not have enough income to qualify.”

“Wait a second? I’m self-employed and had my best year yet!”

This is not uncommon for self-employed or variable income borrowers to experience. To qualify for traditional financing; such as FHA, VA, USDA, or Conventional mortgage loans, lenders will always require your most recent two-year tax returns to determine your income and ability-to-repay your mortgage loan. Remember, that FHA, VA, USDA and Conventional loan programs underwrite with criteria sponsored or set by government entities. If it is not filed income, it cannot be used or may result in unsustainable income.

Fortunately, there are ways to help you qualify without you losing a great deal on a home!

Getting income qualified: Self-Employed

A Lender determines your income with the last two-year’s tax returns, personal & business. If you have several businesses and are 25% owner or more of each business, submit all returns for the last two-years. One of my clients had a total of 7 businesses. We had 16 tax returns in all for their loan.

A two-year average of your net gain on the business is taken as your income. Lenders can add back items such a depreciation, depletion, and mileage for certain types of businesses such as transportation or sales oriented businesses (there are many examples).

In addition, one-time business expenses that can be documented such as a remodel of a store front or big purchase of equipment, can be added back if it is not a recurring expense. Where a self-employed borrower can run into trouble with qualifying is showing a loss in the last two-years on their business. This can result in negative income.

One Year Average on income

If you are a small business owner who has been in business more than 5 years, there is hope! Freddie Mac allows a one-year average for self-employed borrowers using Conventional financing regardless of the down payment. The lender must review the other qualifying factors such as credit and assets just to be sure. But, this may save some borrowers time and taxes in the long run.

Alternative Income review

Many lenders are now coming out with alternative loan programs to traditional financing and offering alternative ways to document self-employed or variable income. Many of these programs will call the program a “bank-statement” program. In this scenario, the last 24-36 months of business and personal bank statements will be requested, and an average deposit balance or total of deposits will be taken to determine your income. Some expenses can factor into this calculation.

This method allows banks to document and determine your ability-to-repay your mortgage without the use of tax returns. The catch is you may pay more in fees for this type of loan and have a higher interest rate than what the market is offering. It works well for business owners who have a lot of necessary deductions and expenses on their taxes and in most cases, is a tax advantage to originate a loan with a higher fee and interest rate vs paying more income taxes.

Conclusion

The process of buying a home with mortgage financing should always include a Lender in the very beginning of your decision. Having a discussion with the Lender will help you understand your qualifying parameters and work with your Real Estate agent. The Lender’s responsibility is to prepare and package your home loan pre-qualification ahead of any offers you submit on a home. The earlier you speak with a Lender in the homebuying process, the easier it will be to find a home and close without any headaches.

Chris Gonzalez
(480) 442-4494
info@azmortgageprofessional.com
www.azmortgageprofessional.com

Facebook: Chris Gonzalez – Your Neighborhood Lender

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