There are so many things to think about when contemplating a home purchase (location, price, size, number of rooms, specific neighborhoods and schools, etc.) that your clients might forget to consider these four things:
- Home Buying Assistance Programs
- These programs are available in many cities and many states via their Housing Authority offices.
- Colorado, for example, offers first-time buyers down payment grants up to 3% of the mortgage AND Colorado does NOT have a repayment requirement for these programs.
- The nationwide Teacher Next Door Program offers teachers, administrators and school staff personnel down payment assistance in amounts up to $10,681.
- ccording to a 2018 report from the Society of Human Resource Management, 3% of employers offer mortgage assistance programs. It doesn’t hurt to ask.
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- Low Down Payment and Mortgage Programs
- FHA loans, backed by the federal government, require only 3.5% of the purchase price of the home as a down payment.
- Be cautious – there are several downsides…
- The lender may require the buyer to purchase private mortgage insurance (PMI) until the buyer has put in more that 20% in home equity.
- The cost of PMI may cost between 0.5%-1% of monthly mortgage payments each year that the lender requires such insurance.
- Depending upon mortgage rates, the buyer may end up paying more in PMI payments over the long run than in initially making a down payment of 20%.
- Renting Out Part of/All of the House
- Rental income may produce enough to offset some ongoing housing costs such as mortgage payments and maintenance costs.
- “Offsetting expenses is one thing, covering all costs and expenses for an entire month and/or year is another,” offered Erika Safran, founder of Safran Wealth Advisers.
- When renting out part of/all of the house, first familiarize yourself with local laws.
- Does the neighborhood, HOA, etc. allow short-term rentals?
- Research landlord-tenant rights and rules.
- Have the tenant sign a lease – Rocket Lawyer and NOLO are good sources for leases.
- Have a Budget for ALL Household-Related Expenses
- Property taxes
- Homeowners insurance
- Cost of PMI if putting down less than 20%
- 1% of the home’s purchase price to be set aside for repairs and maintenance
- Use a mortgage and housing cost calculator to help you determine if/when it makes sense to buy.
- If renting out part/all of house, immediately fix broken appliances, roofs, leaks, etc. so income is consistently incoming…there is no income when things need fixing/repairing/replacing.
Thanks to Allizah Salario with grow.acorns.com for source data.