Provided By Trulia.com
Humans have a natural tendency to portray themselves in the best possible light. When the neighborhood kid who mows the lawn wants more money, he says his rate is lower than what the other kids are charging. When he gets together with the other kids, he brags about getting paid 20 percent more for the same amount of work.
Consumer credit companies, including mortgage lenders, are no different. When they're lending you money, they like to talk about their low APR, which stands for Annual Percentage Rate. When they're "borrowing" your money (by selling you a CD at the bank, for instance) they advertise their generous APY, which stands for Average Percentage Yield.
APR is the term relevant to mortgage borrowers. But it's useful to understand both, as well as a third concept—compounding.
When you're paying a simple interest loan at a rate of, say, 12 percent per year, it's easy to calculate its effect per month. It's 1 percent. At that rate, a $10,000 debt balance increases by $100 each month or $1,200 each year.
Enter the "magic" of compounding. Einstein called it "the most powerful force in the universe."
For the lender, the magic works this way. After one month, your new balance is $10,100. At that point, the lender starts charging interest not on $10,000 but on the new balance of $10,100. After a year (if you've made no payments) your balance is $12,268. Your simple interest rate was 12 percent but your APR worked out to 12.68 percent.
In fact, for the borrower, it's worse than that. Lenders don't compound monthly—most do it daily. That's the significance of the "daily periodic rate" you see listed at the bottom of your statement. The above 12.68 percent APR becomes something like 12.74 percent. (In a periodic rate, more "periods" means more interest.)
There is more you should know about APR. InvestorWords.com defines it as "the yearly cost of a mortgage, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage."
The add-ons are man-made, not mathematical constructs. But clearly, they're of interest to borrowers when cross-shopping loan rates between banks. Just be sure the same number of points is factored into both figures, or you're comparing an apple to an orange.
Hey, what about APY? Again, that's more relevant when you're the lender. Buy a 12-month CD and the bank will advertise its great Annual Percentage Yield of 1.4 percent - which sounds a little better to you than the APR, which is 1.3-something. Hence, the magic works in your favor for once.
A related note comes from the Lessons for Life Department. Given a choice, be a lender, not a borrower. Better yet, be a bank.
If you would like to learn more about borrowing, give us a call at 972-772-7000 or email us at frontdesk552@kw.com.
Showing posts with label mortgage. Show all posts
Showing posts with label mortgage. Show all posts
Monday, June 20, 2011
Monday, January 24, 2011
Buying a Home for Your Child
Provided By Realty Times
It used to be big deal if Dad bought you a car when you were old enough to drive – but now some parents are buying homes for their kids. It's a great investment and saves them from paying rent, whether they are attending college or university or are striking out into the working world.
A recent poll by TD Canada Trust says that 10 per cent of Canadians would consider buying a condo for their adult children. For the parents it offers some peace of mind, since the investment may help their children into better housing than they could afford if paying rent. For the kids, it's a way to learn about the pros and cons of looking after their own homes, and perhaps even get some experience at becoming a landlord.
The trend is growing in cities across the country. In Montreal, developers have offered incentives specifically geared to families who are buying a condo for a young adult. In Toronto and Vancouver, where Asian investors are buying up many of the new condos, it's not uncommon for a family to buy a unit for their child to live in while attending school. Sometimes they have long-range plans to move to Canada themselves, so they buy now and have their child live in the unit, or rent it out.
For students heading to a new city to attend college or university, buying a house or condo eliminates the need to search for sometimes pricey student accommodation. Some of these students live in the homes and rent out a basement apartment or have roommates to help offset costs.
As with any real estate investment, there are a number of financial, tax planning and social aspects to consider before buying a home for your child. The usual rules of real estate apply: location, location, location. Buyers must ensure that the property will be in demand for renters, because the child may not want to live there for long. If the unit is sold in a couple of years, will the buyer be able to recoup his investment?
Buyers must ensure that a property being purchased with a rental suite complies with local zoning bylaws, fire codes and electrical safety standards, and that the proper insurance is in place. Some municipalities have tried to clamp down on student housing in new developments because of complaints from the neighbours.
If the adult child is going to rent out part of the house or have roommates, even if they are moving in with friends, it's important that the living arrangements are spelled out in advance in a businesslike manner. Each renter should sign a written tenancy agreement that covers how much rent will be paid, what additional costs (such as utilities) will be paid by the renter, what facilities will be shared, and house rules such as whether pets are allowed, smoking policies and provisions for parking and laundry facilities if applicable.
In some provinces, if the kitchen and bathrooms are being shared, the provincial tenancies act may not apply. That gives the landlord the ability to evict a renter without going through a formal eviction process if they find out they can't get along with the roommate.
Kathy Monro and Caryn Watt of PricewatershouseCoopers recently wrote a paper (Wealth and Tax Matters, Winter 2011) about the tax implications of buying a home for your adult child, setting out four options.
The first is purchasing a condo in your own name. The downside to this is that when the condo is sold, it will be subject to capital gains tax because it isn't your principal residence. Under Canada's tax law, you and your spouse (including common-law partners) and any unmarried children under the age of 18 are entitled to designate just one property as your principal residence for each year.
The advantage is that it may protect your investment if your adult child is married or gets married and then gets a divorce. In provinces like Ontario, the matrimonial home is included in calculating "equalization payments" even if the home was a gift or inheritance and even if it was owned by one of the spouses before the marriage. So, the other spouse is entitled to an equal share of the value of the condo. If the condo is in your name, it would not be subject to this rule.
Munro and Watt say the second option is giving a cash gift to your child to cover the cost of the condo. The child holds the condo in their own name, and as a principal residence it does not incur capital gains taxes when sold. It does not protect the condo from equalization in the event of a divorce.
Option three is lending the money to the child by way of a mortgage. The mortgage should be interest-free to avoid taxable income. "Because the child owns the condo subject to a mortgage, we understand that this plan could provide better protection to you and your child under family law legislation should the child divorce while owning the condo," say Munro and Watt.
The fourth option is setting up a family trust, which would then own the condo. "Family trusts are popular vehicles for sharing wealth with family members because they offer the trustees the flexibility to accommodate the changing and competing needs of the beneficiaries," say the authors.
If you have more questions or want to know more about buying a home for your child, call us at 972-772-7000 or email us at rockwall@kw.com.
It used to be big deal if Dad bought you a car when you were old enough to drive – but now some parents are buying homes for their kids. It's a great investment and saves them from paying rent, whether they are attending college or university or are striking out into the working world.
A recent poll by TD Canada Trust says that 10 per cent of Canadians would consider buying a condo for their adult children. For the parents it offers some peace of mind, since the investment may help their children into better housing than they could afford if paying rent. For the kids, it's a way to learn about the pros and cons of looking after their own homes, and perhaps even get some experience at becoming a landlord.
The trend is growing in cities across the country. In Montreal, developers have offered incentives specifically geared to families who are buying a condo for a young adult. In Toronto and Vancouver, where Asian investors are buying up many of the new condos, it's not uncommon for a family to buy a unit for their child to live in while attending school. Sometimes they have long-range plans to move to Canada themselves, so they buy now and have their child live in the unit, or rent it out.
For students heading to a new city to attend college or university, buying a house or condo eliminates the need to search for sometimes pricey student accommodation. Some of these students live in the homes and rent out a basement apartment or have roommates to help offset costs.
As with any real estate investment, there are a number of financial, tax planning and social aspects to consider before buying a home for your child. The usual rules of real estate apply: location, location, location. Buyers must ensure that the property will be in demand for renters, because the child may not want to live there for long. If the unit is sold in a couple of years, will the buyer be able to recoup his investment?
Buyers must ensure that a property being purchased with a rental suite complies with local zoning bylaws, fire codes and electrical safety standards, and that the proper insurance is in place. Some municipalities have tried to clamp down on student housing in new developments because of complaints from the neighbours.
If the adult child is going to rent out part of the house or have roommates, even if they are moving in with friends, it's important that the living arrangements are spelled out in advance in a businesslike manner. Each renter should sign a written tenancy agreement that covers how much rent will be paid, what additional costs (such as utilities) will be paid by the renter, what facilities will be shared, and house rules such as whether pets are allowed, smoking policies and provisions for parking and laundry facilities if applicable.
In some provinces, if the kitchen and bathrooms are being shared, the provincial tenancies act may not apply. That gives the landlord the ability to evict a renter without going through a formal eviction process if they find out they can't get along with the roommate.
Kathy Monro and Caryn Watt of PricewatershouseCoopers recently wrote a paper (Wealth and Tax Matters, Winter 2011) about the tax implications of buying a home for your adult child, setting out four options.
The first is purchasing a condo in your own name. The downside to this is that when the condo is sold, it will be subject to capital gains tax because it isn't your principal residence. Under Canada's tax law, you and your spouse (including common-law partners) and any unmarried children under the age of 18 are entitled to designate just one property as your principal residence for each year.
The advantage is that it may protect your investment if your adult child is married or gets married and then gets a divorce. In provinces like Ontario, the matrimonial home is included in calculating "equalization payments" even if the home was a gift or inheritance and even if it was owned by one of the spouses before the marriage. So, the other spouse is entitled to an equal share of the value of the condo. If the condo is in your name, it would not be subject to this rule.
Munro and Watt say the second option is giving a cash gift to your child to cover the cost of the condo. The child holds the condo in their own name, and as a principal residence it does not incur capital gains taxes when sold. It does not protect the condo from equalization in the event of a divorce.
Option three is lending the money to the child by way of a mortgage. The mortgage should be interest-free to avoid taxable income. "Because the child owns the condo subject to a mortgage, we understand that this plan could provide better protection to you and your child under family law legislation should the child divorce while owning the condo," say Munro and Watt.
The fourth option is setting up a family trust, which would then own the condo. "Family trusts are popular vehicles for sharing wealth with family members because they offer the trustees the flexibility to accommodate the changing and competing needs of the beneficiaries," say the authors.
If you have more questions or want to know more about buying a home for your child, call us at 972-772-7000 or email us at rockwall@kw.com.
Friday, July 23, 2010
Choosing The Best Lender
Published By Yahoo! Real Estate
You're shopping for a mortgage and you've received four offers from four lenders. How do you choose? The first factor most people consider is the interest rate and other costs, but that's only the beginning. You'll also want to think about the lenders themselves, not simply the numbers they're tossing your way.
Here are five steps to follow when determining which lender is right for you:
1. Compare fees as well as interest rates
Comparing loans based on their annual percentage rate (APR) is a good place to start, but it's not enough. In the case of a mortgage, to get a more accurate breakdown of costs, ask the various lenders for a formal "good faith estimate" of all the fees you'll incur with your loan -- this is a standard form lenders must provide you that is more detailed than the overview you'll get with an offer. Also, ask about potential charges that may not appear on that list, such as prepayment penalties. You're not just comparing numbers here: determine how honest and upfront you feel the lender is being, and don't use a lender that you feel is evading your questions.
2. Consider your individual circumstances
Bigger lenders aren't necessarily better than smaller ones, especially if you have unusual circumstances. For example, some lenders specialize in loans for people with poor credit, while others may have more options for those with small down payments. If you have special borrowing needs, look for a lender with experience working with people in similar situations.
3. Look at the range of loan types available
There are more loan options available than ever before, so take advantage of all that choice. Look for a lender who offers a wide variety of loan types, from conventional fixed-rate and adjustable-rate to newer ones such as hybrid ARMs and option ARMs. Your lender should be able to match you with a mortgage that's right for your financial situation and risk tolerance.
4. Evaluate the level of customer service
When you're comparing offers, ask each lender about their policy regarding locking in their quoted rates and see whether there is a fee. Also, ask them to amend one of the terms (such as a payment cap) and see how willingly they agree. You're looking for flexibility and responsiveness. And also note how well they listen to you. If you ask for a 30-year fixed-rate mortgage, they ought to present that as an option, not push you toward something different, such as an interest-only loan. If you're not getting good service from a lender who is competing for your business, you're not likely to get it after you've agreed to work with them.
5. Check out the lender's reputation
Word of mouth is important in every business, including the loan market. If you've never worked with a particular lender, you'll want to find out the opinion of people who have.
Do you need help with your home mortgage? Give us a call at 972-772-7000 or email us at rockwall@kw.com.
You're shopping for a mortgage and you've received four offers from four lenders. How do you choose? The first factor most people consider is the interest rate and other costs, but that's only the beginning. You'll also want to think about the lenders themselves, not simply the numbers they're tossing your way.
Here are five steps to follow when determining which lender is right for you:
1. Compare fees as well as interest rates
Comparing loans based on their annual percentage rate (APR) is a good place to start, but it's not enough. In the case of a mortgage, to get a more accurate breakdown of costs, ask the various lenders for a formal "good faith estimate" of all the fees you'll incur with your loan -- this is a standard form lenders must provide you that is more detailed than the overview you'll get with an offer. Also, ask about potential charges that may not appear on that list, such as prepayment penalties. You're not just comparing numbers here: determine how honest and upfront you feel the lender is being, and don't use a lender that you feel is evading your questions.
2. Consider your individual circumstances
Bigger lenders aren't necessarily better than smaller ones, especially if you have unusual circumstances. For example, some lenders specialize in loans for people with poor credit, while others may have more options for those with small down payments. If you have special borrowing needs, look for a lender with experience working with people in similar situations.
3. Look at the range of loan types available
There are more loan options available than ever before, so take advantage of all that choice. Look for a lender who offers a wide variety of loan types, from conventional fixed-rate and adjustable-rate to newer ones such as hybrid ARMs and option ARMs. Your lender should be able to match you with a mortgage that's right for your financial situation and risk tolerance.
4. Evaluate the level of customer service
When you're comparing offers, ask each lender about their policy regarding locking in their quoted rates and see whether there is a fee. Also, ask them to amend one of the terms (such as a payment cap) and see how willingly they agree. You're looking for flexibility and responsiveness. And also note how well they listen to you. If you ask for a 30-year fixed-rate mortgage, they ought to present that as an option, not push you toward something different, such as an interest-only loan. If you're not getting good service from a lender who is competing for your business, you're not likely to get it after you've agreed to work with them.
5. Check out the lender's reputation
Word of mouth is important in every business, including the loan market. If you've never worked with a particular lender, you'll want to find out the opinion of people who have.
Do you need help with your home mortgage? Give us a call at 972-772-7000 or email us at rockwall@kw.com.
Friday, June 18, 2010
Common Buyer Fears
Written By Carla L. Davis
Published By Realty Times
Whether you are a first time home buyer or someone who is looking to move up or down, getting into the market can be a fearful time.
Here are some of the most common buyer fears:
Do I have enough money to buy a home?
To first step to finding out how much home you can truly afford is to get pre-qualified for a mortgage.
Also, take a step back and look at your finances. Ideally, you should have around 20 percent of the purchase price to put down. You should also have less than a 36 percent debt to income ratio. Be sure to include all of your monthly obligations in that equation, including student loans, child support payments, alimony, car payments, credit cards, etc.
Once you've looked at your savings, make sure that apart from your down payment, you'll have enough left over to pay closing costs, which include such things as attorney fees and transfer fees. The National Association of Realtors (NAR) reports that this amount averages between 2 and 7 percent of the home price. You also need to have money left as a cushion. What if unexpected repairs, either to your house or car, come up? What if you or a family member needs medical attention? Be sure that you have enough money leftover after the purchase to keep your life running smoothly.
Will I have buyer's remorse?
There is no such thing as the perfect house, so you should prepare yourself for some mild feelings of "what if". You may have to give up a few "wants" to get a few "needs" when you buy your next home. Or if this is your first purchase, you may have to buy something a little short of your dream house, and build equity in order to move up at a later date. Try not to lose sight of the big picture. This is a home that you own. You now get the benefits of tax breaks. You are building equity as you pay off the loan. And, hopefully, your home will appreciate in value over the coming years.
How can an unhandy owner handle repairs?
Before you swear off doing some of your own projects or repairs, know that everyone starts somewhere. Take a class at your local home improvement store, invest is a handyman's guide, or ask a friend that has already tiled their bathroom or fixed a leaky sink to come and give you some pointers.
Be prepared for repairs, maintenance, and updates. Even with a new home, there will be projects. Plan accordingly financially. And if all else fails, hire a professional.
What if I need to move?
Experts recommends that to build equity, you need to have owned your home for at least 3 to 5 years. The NAR recommends, "Look at your annual mortgage statement or call your lender to find out. Usually, you don't build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you've owned your home for five or more years, you may have significant, unrealized gains." If the time is less than five years, then you should be prepared to not make any money on the sale of your home, and even, to "lose" some -- in the form of closing costs.
With the right agent, buying a home can be fearless. If you are in the market for a new home, give us a call at 972-772-7000 or email us at rockwall@kw.com.
Published By Realty Times
Whether you are a first time home buyer or someone who is looking to move up or down, getting into the market can be a fearful time.
Here are some of the most common buyer fears:
Do I have enough money to buy a home?
To first step to finding out how much home you can truly afford is to get pre-qualified for a mortgage.
Also, take a step back and look at your finances. Ideally, you should have around 20 percent of the purchase price to put down. You should also have less than a 36 percent debt to income ratio. Be sure to include all of your monthly obligations in that equation, including student loans, child support payments, alimony, car payments, credit cards, etc.
Once you've looked at your savings, make sure that apart from your down payment, you'll have enough left over to pay closing costs, which include such things as attorney fees and transfer fees. The National Association of Realtors (NAR) reports that this amount averages between 2 and 7 percent of the home price. You also need to have money left as a cushion. What if unexpected repairs, either to your house or car, come up? What if you or a family member needs medical attention? Be sure that you have enough money leftover after the purchase to keep your life running smoothly.
Will I have buyer's remorse?
There is no such thing as the perfect house, so you should prepare yourself for some mild feelings of "what if". You may have to give up a few "wants" to get a few "needs" when you buy your next home. Or if this is your first purchase, you may have to buy something a little short of your dream house, and build equity in order to move up at a later date. Try not to lose sight of the big picture. This is a home that you own. You now get the benefits of tax breaks. You are building equity as you pay off the loan. And, hopefully, your home will appreciate in value over the coming years.
How can an unhandy owner handle repairs?
Before you swear off doing some of your own projects or repairs, know that everyone starts somewhere. Take a class at your local home improvement store, invest is a handyman's guide, or ask a friend that has already tiled their bathroom or fixed a leaky sink to come and give you some pointers.
Be prepared for repairs, maintenance, and updates. Even with a new home, there will be projects. Plan accordingly financially. And if all else fails, hire a professional.
What if I need to move?
Experts recommends that to build equity, you need to have owned your home for at least 3 to 5 years. The NAR recommends, "Look at your annual mortgage statement or call your lender to find out. Usually, you don't build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you've owned your home for five or more years, you may have significant, unrealized gains." If the time is less than five years, then you should be prepared to not make any money on the sale of your home, and even, to "lose" some -- in the form of closing costs.
With the right agent, buying a home can be fearless. If you are in the market for a new home, give us a call at 972-772-7000 or email us at rockwall@kw.com.
Wednesday, April 1, 2009
Step 6: Get Funding
10 Steps to Home Ownership
Often the cost of real estate financing is routinely greater than the original purchase price of a home (after including interest and closing costs). Because financing is so important, buyers should have as much information as possible regarding mortgage options and costs.
Realtor.com® provides consumers with extensive mortgage information as well as a variety of loan calculators. Local REALTORS® can provide mortgage information, discuss financing options and recommend loan sources. In addition, some REALTORS® also originate loans.
What kind of loan?
There are thousands of loans available out there from a variety of lenders, but in general, the mortgage you choose will likely be determined by at least several key factors:
How much down? Loans with 5 percent down or less are available -- in fact, loans from major lenders with no money down have appeared in recent years.
If you place less than 20 percent down, lenders will want the mortgage guaranteed by an outside third party such as the Veterans Administration (VA), the Federal Housing Administration (FHA) or a private mortgage insurer (PMI, or private mortgage insurance, is required by lender to protect against any mortgage defaults). Millions of VA, FHA and PMI loans are generated each year.
How's your credit?
The best rates and terms are only available to those with solid credit. To get the best loans, make a point of paying credit cards, installment payments, rent and mortgage bills in full and on time.
Are you a first-time buyer?
It might seem that "first-time buyer" means someone who has never owned property before, but under most state programs, the term refers to those who have not owned property within the past three years. State-backed first-timer programs often feature smaller downpayments and below-market interest rates. For details, speak with your local REALTOR®.
How do you get a loan?
To obtain a loan you must complete a written loan application and provide supporting documentation. Specific documents include recent pay stubs, rental checks and tax returns for the past two or three years if you are self-employed. During the prequalification procedure, the loan officer will describe the type of paperwork required.
Where do you get a loan?
Mortgage financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, credit unions, and insurance companies. A growing number of REALTORS® can also arrange financing.
From realtor.com
Often the cost of real estate financing is routinely greater than the original purchase price of a home (after including interest and closing costs). Because financing is so important, buyers should have as much information as possible regarding mortgage options and costs.
Realtor.com® provides consumers with extensive mortgage information as well as a variety of loan calculators. Local REALTORS® can provide mortgage information, discuss financing options and recommend loan sources. In addition, some REALTORS® also originate loans.
What kind of loan?
There are thousands of loans available out there from a variety of lenders, but in general, the mortgage you choose will likely be determined by at least several key factors:
How much down? Loans with 5 percent down or less are available -- in fact, loans from major lenders with no money down have appeared in recent years.
If you place less than 20 percent down, lenders will want the mortgage guaranteed by an outside third party such as the Veterans Administration (VA), the Federal Housing Administration (FHA) or a private mortgage insurer (PMI, or private mortgage insurance, is required by lender to protect against any mortgage defaults). Millions of VA, FHA and PMI loans are generated each year.
How's your credit?
The best rates and terms are only available to those with solid credit. To get the best loans, make a point of paying credit cards, installment payments, rent and mortgage bills in full and on time.
Are you a first-time buyer?
It might seem that "first-time buyer" means someone who has never owned property before, but under most state programs, the term refers to those who have not owned property within the past three years. State-backed first-timer programs often feature smaller downpayments and below-market interest rates. For details, speak with your local REALTOR®.
How do you get a loan?
To obtain a loan you must complete a written loan application and provide supporting documentation. Specific documents include recent pay stubs, rental checks and tax returns for the past two or three years if you are self-employed. During the prequalification procedure, the loan officer will describe the type of paperwork required.
Where do you get a loan?
Mortgage financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, credit unions, and insurance companies. A growing number of REALTORS® can also arrange financing.
From realtor.com
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