Real Estate Formulas for Investors

There is more to real estate investment than the property itself. A few decisions need to be made before you purchase the property. You will need to know certain calculations to make the right decision.

The Question you should ask yourself first; Are you holding the property as a rental or are you going to rehab it and flip the property?

Remember, your profit is usually determined when you buy the property, not when it sells. This means, if you buy the property for the right price, you will receive the profit margins predicted.

Using a Realtor, you can get help with some of the information you will need to complete the formulas or double check the numbers. Websites like Zillow and other public sites offer FREE VALUATION but can provide inaccurate information.

Gross Scheduled Income

The Gross Scheduled Income Formula presents the amount of income your property will generate if all units within it are rented and if there are no defaults in rent payments. This can be a useful measure to compare against actual income.

Talk with your Realtor to view comparable rentals in the area. Many investors guess the rental amount or set the amount catered towards a return on investment. However, rental comps are as crucial as sales comps for marketing the property, You want to be conservative in your calculations while testing the cap in the market of your property’s location.

Real Estate Formula:

Gross Scheduled Income = Rental Income + Lost Rental Income from Vacant Units

Gross Operating Income

Gross Operating Income reflects the total income generated by an asset including additional sources of income from your rental property. A few examples would be revenue generated from parking spaces, laundry, and vending machines

Real Estate Formula:

Gross Operating Income = (GSI – Lost Rental Income from Vacant Units) + Other Income

Net Operating Income

To use the Net Operating Income formula, you first need to figure out your gross operating income. Once you have that figure, you subtract operating expenses from costs like insurance and maintenance fees.

Please note, amounts like property depreciation and interest payments do not factor into operating costs. 

Real Estate Formula:

Net Operating Income = Gross Operating Income – Total Operating Expenses

Capitalization Rate

An important formula for an investor to know is the Cap Rate. The cap rate formula compares an investment property’s net operating income against the market value, allowing investors to quickly compare property profitability.

Real Estate Formula:

Cap Rate = Net Operating Income / Market Value of Property

Cash on Cash Return

Determining your Cash on Cash Return is crucial in real estate investing. It’s widely utilized since it allows investors to compare investments and evaluate profitability. A spreadsheet is a great way to view side-by-side comparisons between properties that are similar. By setting up a spreadsheet with formulas, you can quickly calculate income and expenses to estimate returns.

To use the cash on cash return formula, you simply divide the net operating income by your total cash investment. Typically, your total cash investment will include the down payment, closing costs, renovation costs, and any other up-front fees you paid to acquire the investment property.

Real Estate Formula:

Cash on Cash Return = Net Operating Income / Total Cash Investment

Equity Build-Up Rate

Smart real estate investments do not always come in the form of immediate income. Some properties are sought after due to their potential to build equity, therefore becoming more valuable assets in the future. This simple real estate formula can help in measuring these gains.

Consulting with a Realtor is a good way to see how quickly an area is growing in value.

Real Estate Formula:

Equity Build-Up Rate = Mortgage Principal Paid (Year 1) / Initial Cash Invested (Year 1)

Price to Rent Ratio 

This figure shows projected rental income, versus the price a property was purchased for. This is useful when comparing residential real estate investments. Like other calculations, a spreadsheet with formulas can assist with quicker decisions.

Real Estate Formula:

Price to Rent Ratio = Purchase Price of Property / Annual Rental Revenue

Price Per Square Foot

The price per square foot formula proves useful when quickly comparing multiple properties. Savvy investors can use this calculation to evaluate if a rental property is overpriced before it is purchased. Your Realtor can help you evaluate this in depth by pulling both rental and sales comps, which list the price per square foot (as-is, not post-rehab).

Real Estate Formula:

Price Per Square Foot = Market Value of Property / Property Square Footage

Return on Investment

The return on investment formula allows you to calculate how much of your initial investment can be recovered annually.

Real Estate Formula:

Return on Investment = Annual Returns / Cost of Investment

Cash Flow From Operations

Successful real estate investments should require more money coming in than going out. You need to subtract your capital expenditures (roughly defined as large expenses that do not reoccur) from your net operating income to determine cash flow from operations.

Real Estate Formula:

Cash Flow From Operations = Net Operating Income – Capital Expenditures

Cash Flow After Financing

Considering that most real estate investors have borrowed money in order to purchase their investment, this cash flow formula can provide a better idea of what your cash flow is like after financing

Real Estate Formula:

Cash Flow After Financing = Cash Flow From Operations – Financing Costs

Occupancy Rate

Occupancy Rate reflects the time that an investment property is rented out or vacant over a period of time. Your occupancy rate is an important indicator of success, and a low occupancy rate can let you know that action is needed from your end.

Low occupancy can occur when properties are in need of repair. People tend to seek alternative housing if a landlord is not maintaining the property or did not complete some repairs required previously. Landlords can “promise” to fix things to get people to move in, while in turn causing them to move out as fast.

Real Estate Formula:

Occupancy Rate = Number of Days Occupied / Total Number of Days in One Year

Break Even Ratio

This figure is often used to evaluate risk when purchasing a real estate investment. Too high of a ration can indicate an up-hill battle to break even with an investment property and recoup debts.

Real Estate Formula:

Break Even Ratio = (Debt Servicing Costs + Operating Expenses) / Gross Operating Income

Gross Rent Multiplier

The Gross Rent Multiplier real estate formula allows investors to figure out the market value of a rental property. This is especially useful when selling a rental property, as it helps set the right price without wasting days on market.

You will want to compare notes with a Realtor. This calculation can help set the value based on the numbers, but it is always good to have a second pair of eyes.

Real Estate Formula:

Gross Rent Multiplier = Market Value / Gross Scheduled Income

Debt Service Coverage Ratio

This real estate formula can be used to figure out the current cash flow you have available to recoup the debt which financed your investment.

Real Estate Formula:

Debt Service Coverage Ratio = Net Operating Income – Annual Debt Service

 

Real Estate Formulas for Investors

Joseph Walter Realty

 

If you have a question about buying or selling your home, please reach out to Joseph Walter Realty at 248-294-7849 or via email at info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

 

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Real Estate Listing Myths 

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Large Agencies Sell Homes Faster – False.

10 years ago, this statement may have been true, but today there is no Data that shows that Large agencies sell homes any faster than smaller agencies, or even faster than For Sale By Owners, all, when on the MLS provide the exact same information to buyers.

Large Agencies have more buyers – False.

Less than 5% of all homes sales were purchased through the company which listed the home. This is a misconception held over from before Real Estate hit the Internet.

If an Agent tells you that they have buyers, simply invite them to bring you one and offer to pay them a buyer Agent Commission.

Real Estate Teams are more productive sellers – False.

Real Estate teams are very common today.  Fact most do not work as a team, they are simply groups of realtors who work under a common “Associate” Broker within an office, they do not work in the traditional definition of a “TEAM” to buy or sell homes.

Real Estate agencies will not show discounted/flat fee listings – False.

Buyer Agents don’t know if the listing side is discounted, the only commission information which is displayed in the listing, is for the buyer agent, which is based on the commission you chose.

Discounted Commission listings receive inferior service – False.

A full-service listing requires the discount listing agent to provide the same full service that any other Full Fee (6%) realtor provides, such as: Arrange Appointments, Accept/Present Offers, Advise on Offers, Assist with counter offers, Negotiate for seller.

Discounted Commission Real Estate Offices cannot survive – False.

Companies that manage expenses and keep overhead low, can significantly reduce commissions and still be profitable.  Large Real Estate companies are burdened with high overhead, such as Expensive Rent, office staff, and utilities, and therefore must charge higher commissions to pay the bills and keep the doors open, they rely on you to pay their expenses and bills.

Zillow is a Home Buying Site – False.

Zillow is a marketing site, less than 5% of the viewers of homes on Zillow are qualified buyers, approximately 80% of the homes you see listed on Zillow were initiated by an MLS listing and were automatically pushed out to Zillow.

Real Estate Listing Myths

Joseph Walter Realty

If you have a question about buying or selling your home, please reach out to Joseph Walter Realty at 248-294-7849 or via email: info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

 

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Pre-Qualification and Pre-Approval

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Lender Letters

When you are selling your home For Sale by Owner or even with an agent, you’ll need to understand what kind of approval is provided with an offer. Many people get pre-qualification and pre-approval mixed up but they are entirely different as to how secure their financing is.

Always inspect lender letters carefully

The mortgage industry often times provide relaxed letters of qualification or approval for clients who may or may not be able to close on the house. 

We will look at pre-qualifications and pre-approvals further below.

Pre-Qualification

What is a pre-qualification Letter

Pre-Qualifications are lender letters based on estimates of a buyer’s overall financial situation.

Estimates on debt, income, and assets are provided to the bank or lender. The lender then reviews everything and gives a price range of how much the borrower can expect to receive.

These can be done online or directly with lender. Furthermore, they are typically free to complete.

How is it Different than a pre-approval?

Pre-qualification is quick, usually taking just one to three days to get a letter. Keep in mind that loan pre-qualification does not include an analysis of credit reports or an in-depth look at the borrower’s ability to purchase a home.

The lender in a pre-qualification usually does not receive any documentation. The potential borrower is verbally providing an idea of who they are financially.

A pre-qualified buyer does not carry the same weight as a pre-approved buyer. As a Realtor, I tend to stay away from pre-qualified letters for offers and request that the borrower go back and get a full pre-approval.

Pre-Approval

What Is a Pre-Approval Letter? 

A pre-approval is an offer (but not a commitment) to lend a specific amount, valid for 90 days.

Getting a pre-approval involves extra steps for the buyer, but it further ensures a borrower can close a deal.

This type of letter is usually based on firm financial records. Bank statements, W-2, 1099, tax returns, investment accounts or credit scores are generally used.

The borrower must complete an official mortgage application to get pre-approved, and supply the lender with all the necessary documentation to perform an extensive credit and financial background check.

The lender will then offer a pre-approval up to a specified amount.

Lenders will provide a conditional commitment in writing for an exact loan amount, allowing borrowers to look for homes at or below that price level.

This puts borrowers at an advantage when dealing with a seller because they are one step closer to getting an actual mortgage.

Side note

Remember there are still conditions to be met on the mortgage side, even with a pre-approved letter.

You should always call the lender and have a brief discussion about the pre-approval letter.

Find out if there is anything major lacking from the file that could cause the loan to pause or be denied at later date.

Make sure they have reviewed credit, all documents and ask if they owe the lender anything.

Sellers

DO NOT BE AFRAID TO ASK QUESTIONS TO THE LENDER OR BUYERS AGENT!

Pre-Qualification and Pre-Approval

Service Coverage

If you have a question about buying or selling your home, please reach out to Joseph Walter Realtyat 248-294-7849 or via email: info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.


How to Get On the MLS

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What is a Real Estate Appraisal?

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What is an Appraisal?

If you have bought or sold your own personal residence, investment, or commercial property; you have probably dealt with the appraisal process.

Real estate appraisal, property valuation or land valuation is the process of developing an opinion of property value based on market statistics and property data

Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and so on.

As the seller or selling agent, even with the most up to date information, appraisals can come in with unexpected values.

Buyers cannot chose the appraisal company or the appraiser they use (I will not say that this is 100% of the time, but in most cases where a loan is involved, the buyer will be hands off and should remain hands off).

An appraisal is a safety net for the bank and the buyer. The bank needs to protect its loan with a piece of real estate at a specific loan to value.

Value

The location also plays a key role in valuation. However, since property cannot change location, it is often the upgrades or improvements to the home that can change its value.

Renegotiating the deal after the appraisal can be a struggle. Even through it was offered, the bank will not accept something lower and most of the time the buyer is not willing to come to the table with more money than the home is currently worth.

Buyers and their agents should also do their homework to make sure the offer they are submitting matches the value of homes in the area.

Sellers and listing agents should have comps ready to go in case the appraisal comes back lower than offer price.

You can submit these comps to the appraisal company to fight the appraisal. The more comparables shared, the higher the chance of an appraisal adjustment.

Although in my opinion there is a better chance at winning the lottery, than getting appraisers to adjust their report.

 

If you have a question about buying or selling your home, please reach out to Joseph Walter Realtyat 248-294-7849 or via email: info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

Michigan Licensed Broker 6505431020
Ohio Licensed Broker 2020008974
Florida Licensed Broker BK3491231
Texas Licensed Broker 9010704
Arkansas Licensed Broker PB00090741
Georgia Licensed Broker 79028

More states 2021


3275 Martin Parkway, Ste. 125, Walled Lake, MI 48390

what is an appraisal

 

 

 

Home Valuation

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Establishing a Value For Your Real Estate

As a For Sale by Owner, how are you establishing the sale price of your home? Are you using Zillow? Listening to Uncle Joe? What process are you using to determine the value your home?

Establishing the sales price of your home is especially important to getting your home sold.

Valuation Tools

Free Valuation Sites

There are many FREE online tools and websites that offer “guestimates” on value, but many times they are not completely accurate.

Web estimates often times present comps that are outside the specific market. There are many factors at play when establishing a homes value.

Professional Valuation

Realtors

Most Realtors offer a home valuation. It is good to note that the majority of realtors are not licensed appraisers. Realtors give a generally close estimate to the market value of the home. 

Real estate professionals access active, pending and sold data from the MLS to refine property value. Finding comparable homes in the area and analyzing the differences between them.

Appraisers

An appraiser typical uses the MLS in the same way Realtors do for home valuation. The difference being, an appraiser is licensed for the sole purpose of valuation. They find more data and will inspect the home for maximum detail.

An appraisal is usually ordered by the buyer’s lender and has the power to cap your sales price.

Home Valuation Tips

Avoid Overpricing

Overpriced homes generally receive little to no showings and waste days on market, along with seller continued holding costs. Keep in mind that buyers will have full, detailed access to market activity through their agent.

Sell Quickly

Yes, days on market can negatively affect the value of the offers, Realtors know that high days on market is an indication to offer low. High Days on market can then produce offers that are “low-ball” since they see that you have been on the market for a while.

Get Help

As a For Sale by Owner we would suggest you call a Realtor or Broker. Pay them to run a report for you, do a full Comparative Market Analysis, or Broker Price Opinion. This could run you as little as $100 to as much as $300, but it is worth it.

For Sale by Owner can be a formidable task and there are many more moving pieces than expected. It can be frustrating and exciting at the same time. The goal may be to save hard-earned equity, but do not hesitate to seek a real estate professional’s assistance.

Property Updates

If you have recently updated your home, the full value of the improvements may not be returned in equity. Many upgrades you perform on a home increase the desirability, but not the value. Desirability may differentiate you from comparable properties in person, but on paper they hold little weight. 

Be especially careful about hiring Family members or friends to sell your home, your home is one of your largest assets, go with a proven professional not a part time agent.

 

List Your Property

Service Coverage

 

Home Valuation

If you have a question about buying or selling your home, please reach out to Joseph Walter Realty at 248-294-7849 or via email: info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

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For Sale by Owner and the Buyers Agent

Being a For Sale by Owner or FSBO, you will most likely still be dealing with a buyer’s agent. Many times, these buyer’s agent will seem as though they are there to help you, but THEY DO NOT REPRESENT YOU – THEY REPRESENT THE BUYER.

When you are selling a property or business on your own, be aware of the overly helpful buyer’s agent who has NO AGENCY AGREEMENT with you. They will present the offers on their forms and make all sorts of suggestions which will “HELP THE PROCESS ALONG” – most likely in their clients’ favor.

Read the purchase agreements all the way through and look for some of the following items:

  • OTHER ITEMS SECTION:
    • This is a section in almost all purchase agreements where custom requests are done, such as:
      • Seller to Pay XXX in Concessions
      • Seller to make all repairs from inspection
      • No EMD
      • EMD to be returned to buyer under all circumstances
    • Property Description Section:
      • Lists Appliances
      • Does it list other items you did not want to include
    • Taxes – make sure you are only paying for taxes on the days you are responsible.
    • Repairs – some purchase agreements have a section for inspection and municipal repairs and who pays them.

 

The buyer’s agent may also want to suggest you work with their title company. If your state allows, choose to do a split closing where you have a title company separate from theirs. Some states the seller picks the title company and other states the buyer does. There are also some states where an attorney is involved in all closings. You may want to reach out to a title company in your area to find out how your state does closings – you can call Inked Title who works nationally and someone can help provide information at 248-617-0004 or email info@inkedtitle.com

Do not feel pressured to use any services offered by the buyer’s agent.

(title company, home warranty, repair company, etc.)

 

Selling your home on your own has many moving pieces. Stay in control of your deal and stay in contact with the people you choose to provide services. A lawyer is always a good idea or a transaction coordinator to help review documents and get you to the closing with the greatest of ease.

A transaction coordinator is a licensed real estate professional who will charge a small fee or percentage of the sales price (much lower than the full service Realtor) to review docs, may help negotiate, and handle the process from offer to close to you getting paid.

If you have a question about buying or selling your home, please reach out to Joseph Walter Realty at 248-294-7849 or via email at info@josephwalterrealty.com

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

 

 

 

 

 

What is a VA Loan?

A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA).

The basic intention of the VA home loan program is to supply home financing to eligible veterans. They also help veterans purchase properties with no down payment. A VA loan may be issued by qualified lenders.

Veteran Affairs (VA) does not originate loans, but sets the rules for who may qualify. They issue minimum guidelines and requirements for which mortgages may be offered while financially guaranteeing loans that qualify.

When you are selling your home, whether it is For Sale by Owner or traditionally with a real estate agent/Realtor, you will have to understand the offers presented to you and the financing they have been approved for.

Each type of financing can be different, and each have their pros and cons.

Who Can Get a VA Loan?

The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction.

VA Loan Benefits

The VA loan allows veterans 103.3 percent financing without private mortgage insurance (PMI) or a 20 percent second mortgage and up to $6,000 for energy efficient improvements.

A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA; this fee may also be financed, and some may qualify for an exemption.

In a purchase, veterans may borrow up to 103.3% of the sales price or reasonable value of the home, whichever is less.

Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment.

In a refinance, where a new VA loan is created, veterans may borrow up to 100% of a property’s reasonable value, where allowed by state laws.

VA loans allow veterans to qualify for loan amounts larger than traditional Fannie Mae / conforming loans.

Standard VA guidelines state that the VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills, although there is no hard limit to the DTI for a VA home loan.

Veterans have been known to be approved with a DTI of up to 80%, if there are other factors that strengthen their loan application. These factors include a low Loan-To-Value (LTV), sufficient residual income, additional income received but not used to qualify for the loan, good credit, etc.

Let me break down the pros and cons of this type of loan. This will allow you to get some insight on how the borrower was approved and what guidelines they will be facing.

VA Loan Pros and Cons

Pros

No down payment

This is the most significant benefit. Qualified borrowers can borrow as much as a lender is willing to lend, all without needing a down payment.

FHA loans typically require a 3.5 percent minimum down payment, and for many conventional loans it is a 5 percent minimum.

On a $175,000 home purchase, that is a $6,125 down payment for FHA and a $8,750 for conventional.

No private mortgage insurance (PMI)

Usually required for conventional borrowers who cannot put down at least 20 percent. FHA borrowers have mortgage insurance that is at the time of purchase and another that is paid monthly.

PMI typically disappears once you have about 20 percent equity in your home. There is no PMI on a VA loan.

Higher allowable DTI ratio

Lenders will look at the ratio of your total monthly income to your total monthly expenses. The VA typically wants to see a debt-to-income ratio of 41 percent or less. That benchmark is higher than what you would see on conventional and even FHA loans.

It is possible for qualified borrowers with a DTI ratio greater than 41 percent to still secure VA financing.

No prepayment penalty

VA loans can be paid off early with no prepayment penalties.

Refinance options

The VA home loan program has a pair of refinance loans that can help qualified buyers lower their monthly payments or get cash back from their equity.

The Streamline refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), is for homeowners with existing VA loans.

The VA Cash-Out Refinance allows VA and non-VA homeowners to refinance and get cash at closing to pay down debt or take care of other needs.

Refinancing may result in higher finance charges over the life of the loan.

Flexibility with bankruptcy and foreclosure

Some borrowers who qualify can be eligible for a VA home loan two years after a bankruptcy or foreclosure. The wait can be much longer for different loan types.

Cons

not for everyone

The VA loan program is a benefit you must earn, which makes it relatively rare to obtain compared to other loan products. VA home loans are only available to eligible service members who have served their country in the United States military. Spouses of veterans who have died in the line of duty or because of a service-related disability may also be eligible.

VA Funding Fee

All VA loans come with a mandatory VA Funding Fee charged by the VA. This fee goes directly to the agency and helps keep the VA home loan program running for future generations.

It is a cost you can finance into the loan, and borrowers with service-connected disabilities are exempt from paying the fee. But this is not something you will pay on a conventional loan or FHA loan.

You can learn more about how much the VA Funding Fee is, who pays what and who is eligible for a refund.

VA Loans are provided For primary residences

This is not a loan program you can use to purchase a second home or an investment property.

Sellers are not always on board

Some home sellers are not open to receiving offers from VA borrowers. A lot of this undoubtedly has to do with some of the myths and misconceptions surrounding VA loans.

 

The information here is provided for informational purposes. The writer is not a mortgage or financing professional. It is always best to discuss financing matters with a mortgage or financing professional.

 

If you have a question about buying or selling your home, please reach out to Joseph Walter Realtyat 248-294-7849 or via email: info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

Michigan Licensed Broker 6505431020
Ohio Licensed Broker 2020008974
Florida Licensed Broker BK3491231
Texas Licensed Broker 9010704
Arkansas Licensed Broker PB00090741
Georgia Licensed Broker 79028

More states 2021


3275 Martin Parkway, Ste. 125, Walled Lake, MI 48390

What is an FHA Loan?

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An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan that is provided by an FHA-approved lender. FHA insured loans are a type of federal assistance.

These loans have historically allowed lower-income Americans to borrow money to purchase a home that they would not otherwise be able to afford.

Because this type of loan is more geared towards new house owners than real estate investors, FHA loans are different from conventional loans in the sense that the house must be owner-occupant for at least a year. 

When you are selling your home, whether it is For Sale by Owner or traditionally with a real estate agent/Realtor, you will have to understand the offers presented to you and the financing the buyers been approved for.

Each type of financing can be different, and each have their pros and cons

FHA Loan Benefits

FHA allows first time homebuyers to put down as little as 3.5% and receive up to 6% towards closing costs. However, some lenders will not allow a seller to contribute more than 3% toward allowable closing costs.

Since loans with lower down-payments usually involve more risk to the lender, the homebuyer must pay a two-part mortgage insurance that involves a one-time bulk payment and a monthly payment to compensate for the increased risk.

If little or no credit exists for the applicants, the FHA will allow a qualified non-occupant co-borrower to co-sign for the loan without requiring that person to reside in the home with the first-time homebuyer. The co-signer does not have to be a blood relative. This is called a Non-Occupying Co-Borrower.

FHA also allows gifts to be used for down payment from the following sources:

  • the borrower’s relative
  • the borrower’s employer or labor union
  • a close friend with a clearly defined and documented interest in the borrower
  • a charitable organization
  • a governmental agency or public entity that has a program providing home ownership assistance.

Pros and Cons of FHA Loans

Now we will look at the pros and cons of the FHA loan so you can further understand the buyer you will be working with. The pros and cons are directly about the loans themselves. By understands the good and the bad of the loan product, you can choose to accept the FHA offer or state in your MLS listing you will accept FHA loans.

One thing I would like to point out from a Realtor perspective, is that just because someone cannot afford 20% down, it does not make the offer less desirable. If the client is approved for the offer amount in purchase agreement, the offer has merit to consider.

Pros

Low down payment with low credit scores

FHA loans require a 3.5% down payment with a credit score of 580 or more, much lower than the 620-score required by conventional lenders.

Employers, close friends, family members or charitable organizations can contribute gift money towards your FHA down payment.

In contrast, some conventional loan programs do not allow gifts or restrict who can contribute gift funds for a down payment.

Lower credit score with a higher down payment

The lowest credit score for an FHA mortgage is 500 to 579 with a 10% percent down payment.

Applicants with credit problems, including bankruptcy or foreclosure in their recent financial history, may still qualify for an FHA loan.

Higher debt-to-income ratio (DTI) is allowed

Your debt-to-income (DTI) ratio is calculated by dividing your total monthly debt payments by your gross monthly income.

FHA loans allow for a DTI ratio up to 43%, although some lenders will accept a higher DTI under certain conditions. Meanwhile, a higher DTI may require a 740 score for minimum down payment conventional financing.

Housing options

An FHA loan can be applied to several housing types:

  • Single Family homes
  • Multi Family homes with up to four units
  • Condominiums
  • Manufactured homes on a permanent foundation.

Another perk: You can use an FHA loan to buy a multi family (two-to-four unit home) with a 3.5% down payment and qualify with rent on the other units as long as you live in the home for a year.

No income limits

Higher-income earners with credit problems can qualify for FHA financing with a minimum down payment. You cannot qualify for 3% down conventional loan programs, such as the Fannie Mae HomeReady® loan, if your household income is more than 80% of your area’s median income.

Cheaper monthly mortgage insurance for low credit scores

If you cannot swing a 20% down payment, lenders usually charge mortgage insurance to cover the risk of default if you fail to repay the loan. You’ll pay the same FHA mortgage insurance premium regardless of your credit score. On the other hand, conventional private mortgage insurance (PMI) premiums are much higher if you have bad credit.

Cons

Higher total mortgage insurance costs

Borrowers pay a monthly FHA mortgage insurance premium (MIP) and upfront mortgage insurance premium (UFMIP) of 1.75% on every FHA loan, regardless of down payment. A 20% down payment eliminates the need for PMI on a conventional purchase loan. You can also cancel PMI once you build 20% equity in your home.

Restrictive housing standards

The government requires that all homes bought with FHA-backed loans are structurally sound and secure, and meet minimum health and safety standards. A picky appraiser can make it difficult for a house need renovations to be approved for an FHA loan.

Lower loan limits

Each year, the FHA sets FHA loan limits by county. This may impact how much home you can buy with an FHA loan, especially in high-cost areas. In general, FHA limits are 65% of an area’s conforming loan limits. For example, conforming loan limits in most parts of the country are $510,400, compared to $331,760 for FHA loan limits for 2020.

Limited to a primary residence only

You can only use an FHA loan to buy a home you plan to live in as a primary residence. To finance a vacation or investment property, you will need a conventional loan.

Lifetime mortgage insurance expense

If you opt for an FHA loan with a minimum down payment, you are stuck with the MIP for the life of the loan. The only way to get rid of it is to refinance into a different loan type, such as a conventional mortgage. 

 

The information here is provided for informational purposes. The writer is not a mortgage or financing professional. It is always best to discuss financing matters with a mortgage or financing professional.

If you have a question about buying or selling your home, please reach out to Joseph Walter Realtyat 248-294-7849 or via email: info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

Michigan Licensed Broker 6505431020
Ohio Licensed Broker 2020008974
Florida Licensed Broker BK3491231
Texas Licensed Broker 9010704
Arkansas Licensed Broker PB00090741
Georgia Licensed Broker 79028

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3275 Martin Parkway, Ste. 125, Walled Lake, MI 48390

Joseph Walter Realty

 

Preparing an Open House

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Purpose of an Open House

An open house is a great way to get more people in your home at one time. It can capture Realtors with their clients, independent buyers, and often times curious neighbors along with people driving by.

To hold an open house, even with the help of your Realtor, takes effort and planning. Carefully preparing for an open house can give you an edge in a competitive market. Keep in mind that the impression people get, is the impression they will keep. It is much harder to get a potential buyer to see a house twice.

The following points will cover everything sellers need to ensure a successful open house

Preparing For an Open House

Curb Appeal

 the landscaping Should be done before the open house

When preparing for an open house the yard should be mowed with no grass clippings, garden raked and cleaned up (fresh flowers are nice if they are in season),

Lawns can be especially important to some buyers. If you have bare spots you can throw down seed a couple weeks before home goes on market or first open house. Fill in holes where animals may have dug as well. Simple things can fix a problem before a buyer sees it.

Always try to fix anything that could catch the eye in a negative way

Fix any chipping paint, unclean gutters, remove excess items from yard, porch and driveways. 

Interior

The inside of the home should be extra clean

If you can hire a professional cleaner that can come in the morning of or day before, this will help get you to showroom perfection. If you have pets, this is even more important when preparing an open house. People with pets tend not to smell them, the smell is likely there, no matter how clean you are. Cleaning should include the appliances, cupboards and the closets. People open everything when they are looking at a house.

Remove excess clutter

Clutter distracts from the home and the buyers tend to also get distracted. Counter tops, floors, tables, dressers and closets should be free of clutter.

In fact, you should try to reduce the amount of stuff in the closets to show how bog they are. A packed walk in closet can seem small if jammed with stuff.

Remove personal items

This includes photos on the wall. Family and kids pictures included and kids’ artwork on the walls and fridge. It may have been the best Mona Lisa macaroni craft, but it should be stored away for the open house.

Buyers want to see themselves in the home. By taking away the personalization you have, they can start to visualize their stuff in the home.

Valuables

We all want to believe the best in people, but not all people, no matter what they seem like, are good people. People tend to get overly comfortable at open houses and open drawers and you do not want something of value to disappear.

Pets

We have discussed getting the home clean of the pet smell and hair, but pets should not be at an open house. It does not matter if it is the friendliest pet in the world, a pet can turn off some potential buyers.

You also do not want the chance of something happening, Potential buyers or  a Realtor while in the house getting bit or scratched will not do any favors. People enjoy lawsuits these days.

Pets in aquariums and cages that cannot be moved are fine. You may want to put a “DO NOT TOUCH” sign on them.

Promoting an Open House

Open House by Realtor

If you are using a Realtor, ask them how they are marketing the open house. The Realtor should be using the MLS to post open houses, which feeds to many thousands of sites. They also should be doing email blasts, social media posts and calling other brokers and Realtors. On the day of the open house, your Realtor should be putting directional signs from major roads to lead people to the open house.

Never be afraid to ask your Realtor how they are promoting. They do work for you, they are getting paid with your equity, so you should know. It will help you understand the process and reduce some of your stress.

Open House by Owner

As the homeowner, you should also use your social media, especially if you have a neighborhood or community page you are involved with. People in your neighborhood are great sources of buyers. They may know family or friends looking to move into the area.

The Day of  an Open House

Open House Checklist

Make it Lit

For the day of the open house, all windows in a home should have the blinds raised. The Realtor (or homeowner) should turn on all the lights in every room. The more light the better. 

open every door

During the times people are in, this reduces the amount of touching in your home.

Refreshments

With the permission of the homeowner, the Realtor should have cookies and water. People like to snack! You can get two birds with one stone if the oven is used to make the cookies. Allowing the aroma to fill the house. If not, there is always candles or plug-ins to do the job.

(DISCLOSURE – DUE TO THE COVID-19, COOKIES AND WATER MAY NOT BE ADVISED – BUT IT’S THE THOUGHT THAT COUNTS FOR NOW)

Where Should the Owner Be?

The homeowner should not be at the open house if possible. Let the Realtor be there to help guide the potential buyers or other Realtors. They know how to interact with them.

After the Open House

Your Realtor should have had a sign in sheet at the open house. The Realtor will follow up with everyone who signed in to get feedback and see if there is any interest.

The seller should keep an open mind. The feedback is not personal, it is about the house and the needs of the potential buyers.

Listen to the feedback. If there are changes that can be made to improve the home for other showings and open houses, the feedback is where these suggestions will come from.

In the end, the goal of all open houses is to get the home sold. These are some basic steps to making sure your open house is effective. We wish you luck on getting to the closing table.

Joseph Walter Realty

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If you have a question about buying or selling your home, please reach out to Joseph Walter Realty at 248-294-7849 or via email: info@josephwalterrealty.com 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

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When Should I Start Title Work?

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Title Work

Why Do I Need a Title Company?

A title company is more than just a place to close your property. The role of a title company is to verify that the title to the real estate is legitimately given to the home buyer. Each state has specific laws and regulations when it comes to how your property is closed and who is part of the process. You will want to call a local title company or real estate lawyer to find out specifics in your state.

When Should I Start Title Work?

The question of when to order title work is an easy one:

As soon as you decide to sell.

What to Expect During the Title Process

In the real estate industry, there are many moving pieces involved in every transaction.  plenty of paperwork,  many hands touching things associated with your property from the title company to the mortgage company to other city and state agencies. Mistakes will happen and these mistakes can cause delays or cause deals to fall apart.

Your title report is like the credit report for your property. You want it as clean as possible and only things you know and have permitted attached to it. CLEAN and MARKETABLE TITLE can save you time and make your home sale smooth and easy.

Common things to look for when you get your title ordered

  • Liens  if you have taken a mortgage or other financing on the property

  • Liens – are there any liens you do not recognize

  • Taxes – are there any past due taxes owed

  • If you have paid taxes, you can just provide proof to title company to clear this

  • Ownership – If the title is in the seller’s name

Closing

If there are errors on the closing package you will need to work with the title company in order to clear the title error.

Sometimes you will bring in the previous title company (whom you used to purchase originally) for flags that should have been cleared before.

If there are issues to clear, the title company will be able to guide you as to what is needed to clean up the issues.

The title company knows their business, so take their advice. Lawyers can be expensive, but a good team can help guide you, and save you money.

 

List Your Property

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Joseph Walter Realty

 

If you have a question about buying or selling your home, please reach out to Joseph Walter Realty at 248-294-7849 or via email: info@josephwalterrealty.com 

 

Thank you,

Scott Fader and Gary Brincat
Joseph Walter Realty

Joseph Walter Realty is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

When Should I Start Title Work?

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