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Things to Consider

3 houses on growing stacks of coins

Should you invest in real estate?

Financial experts don't agree on everything, but one thing they share common ground on is the reliability of real estate as an investment.

Since 2012, home prices have risen with each passing month, according to the National Association of Realtors. Within days of hitting the market, for-sale properties across the country are snatched up in short order, as demand continues to far outpace supply. Depending on your available resources and financial goals, investment properties can help supplement your income or become a full-time occupation.

If real estate is something that you've always found interesting, you may be wondering where you begin. In other words, how do you start investing in real estate or go about buying your first investment property. You may also be curious about what you should know before you fully enter the real estate market and the extent to which you'd like to be involved. This should help you answer some of these questions.

What do real estate investors do?

As their title implies, residential real estate investors use financial resources in order to build, optimize, maintain or otherwise manage property that people use for dwelling purposes. Everyone needs a place to put their things and kick back from life’s daily stresses, and polls show buying a home is something the vast majority of Americans hope to do. The ongoing desirability of homeownership has led more people to start investing in various types of real estate. Fun fact: According to NAR data, 23 percent of the home sales in February 2019, the most recent month for which data is available, were cash sales.

Just how involved real estate investors become in the process is for them to decide. For example, those who wish to supplement their income, may opt to buy shares in a real estate investment trust, or REIT.

Similar to mutual funds, REITs function as organizations that maintain various types of real estate, whether it be commercial (like offices in high rise buildings, residential (townhomes, single-family units) or those used for accommodation purposes (like hotels). REITs can be a good starting point for buying real estate because there's usually less responsibility involved, particularly if the REIT is a public one.

A much more involved form of real estate investing is buying houses to resell them, typically after implementing necessary renovations. Better known as house flipping, this can be a potentially lucrative way to turn a profit and is something that an increasing number of properties have been the product of. For example, in 2018, more than 207,950 single-family homes and condominiums were flipped, according to ATTOM Data Solutions. They accounted for roughly 5 percent of all real estate transaction over the 12-month period.

Getting a higher price on a flipped home is made possible by renovating properties, which can increase their resale value. However, it’s important to do your homework before investing in a fixer-upper so you know how much it will cost to make the necessary improvements. Whether you do the repairs yourself or hire someone to do them, you want to avoid spending more on the renovations than the potential increase in appraised value. 

The labor-intensive elements of home flipping - both in research and physical work - is part of the reason why experts recommend it only for those who have the amount of time and available resources to make the commitment.

Is it a good time to invest in real estate?

Former Speaker of the House of Representatives Tip O'Neill used to say that all politics is local. In other words, goings-on in terms of activities, events or circumstances are subject to change, depending on the place you're talking about. The same can be said for real estate. Asking prices, home buying interest and inventory in one portion of the country might be different from the next.

Generally speaking, though, few can deny that it's a great time to be buying real estate, if for no other reason than climbing home values and the pace at which people enter the marketplace. Indeed, in February, existing-home sales rose 12 percent from the previous month, based on the latest NAR data. Additionally, the median price among all housing types - single-family, townhome and condo - rose 3.6 percent on a year-over-year basis to $249,500. February 2019 was the 84th month in a row that home values rose from the same period a year earlier.

What's more, in a separate NAR study, more than 50 percent of those surveyed said they considered the current real estate market to be worthy of entering in order to buy a home. This was due, in part, to a strong economy, 53 percent of whom thought it was continuing to improve through
the first three months of 2019.

But just because there's ongoing consumer interest in buying homes doesn't necessarily mean it's a no-brainer investment. Here are a few key considerations before you make the decision:

Do your homework

Whether you buy property as an investment vehicle is a determination you should only make after doing your research. There are lots of online resources you can go to that provide tips on cost-benefit analysis, but things you can do on your own time include actually visiting the property that's up for sale, what other homes in the area sell for and your financial capabilities.

You may want to meet with a financial advisor or mortgage provider who can go over some of the numbers with you to give you an idea of whether or not you're a good candidate and have the necessary cash flow or ability to make a down payment on an investor mortgage (usually 20 percent of the purchase price).

Start out small

At the outset, avoid buying a house that will require a lot of renovation if you plan on rehabbing it yourself. Starting small will allow you to get your feet wet and determine if investment property work is something you wish to pursue long-term.

Pay off debt

Debt is always something you should try to avoid, but if you require an investment loan, you may be required to be free of any outstanding debt, such as medical bills or unpaid tuition bills. Prioritizing your finances and credit score can improve your odds of mortgage approval.

Real estate is a road worth traveling that's paved with endless possibilities. Through planning, research and smart money management, it just may be the super highway to a future of wealth and prosperity.


Helpful Tips

Fireworks in red, white and blue

Use caution handling fireworks this Independence Day!

According to the National Fire Protection Association, fireworks start an average of 18,500 fires per year and cause an average of $43 million in property damages. Make sure your Fourth of July is both fun and safe with these firework safety tips!

  • Homemade fireworks are illegal, so never try to make your own.
  • Sparklers are not safe for small children to use, they burn very hot (hot enough to melt some types of metals) and can set clothes on fire.
  • Make sure fireworks are ignited in a clearing without nearby structures, power lines, homes, bushes and dry leaves.
  • Have a bucket of water and a hose nearby when setting off fireworks in case there is an accident.
  • Pets should be kept securely indoors to keep them from running away or getting injured if the loud noises spook them.
  • Always wear eye protection when lighting fireworks.
  • Never shoot fireworks off from inside a container.
  • Never hold fireworks in your hand when lighting them.
  • Never put any part of your body over fireworks when you ignite them.
  • Do not try to relight a firework.
  • Do not carry fireworks in pockets.
  • Soak all fireworks before throwing them away.
  • Remember, fireworks are not legal everywhere. Check your local ordinances first.

Be safe and smart this Fourth of July and Enjoy your holiday!


Things to Consider

Woman holding a multi-gas testing device

Why it is important to test for radon, lead and carbon monoxide:

Radon, lead, and carbon monoxide are silent dangers that could be in your home. Test for each of them to ensure that you and your family are not exposed to these hazards.

Radon:

Illustration of how radon gets into a homeIt is important to test for radon because it is a cancer causing, radioactive gas. According to the Surgeon General, radon is the second leading cause of lung cancer in America. Although radon is a very dangerous gas that could be in your home, you are not able to smell, taste, or see radon.

The only way to know if your home has a problem with radon is to test for it. You can buy your own testing kit from a hardware store, or you can hire a qualified radon tester to do it for you.

EPA recommends that you take steps to reduce your radon levels if your test results are 4 pCi/L or higher. Even if your home has high levels of radon, it is possible to fix the problem and reduce your radon to an acceptable level with the help of a professional.

Lead:

If you have any children in your home, lead can cause health and behavioral problems for them, especially if they are under the age of six years old. Lead can also be harmful to pregnant women and their unborn children. You should consider testing for lead if your home was built before 1978.

Workers in full body suits removing lead paint with tape in the foreground that says LEAD HAZARD Work Area Keep OutYou are able to test for lead by sending a paint and soil sample to a lab, or you can hire a certified assessor to do it for you.

If you do find hazardous levels of lead in your paint or soil, make sure your children under the age of six are tested for lead poisoning by your family doctor. You should also hire a state certified lead contractor who can help you reduce the lead hazards in your house and soil.

Carbon Monoxide:

Illustration of CO2 with a blue cloudCarbon monoxide is another colorless, odorless gas. It can cause flu-like symptoms so you wouldn’t know you had a carbon monoxide problem unless you have a working carbon monoxide detector properly installed in your home.

Carbon monoxide detectors should be installed in EVERY sleeping room in the house, every hallway, and every additional level of your home including the basement. Carbon monoxide detectors should be ideally at knee level, but they can be installed at chest level if you have children. Make sure carbon monoxide detectors are not blocked by furniture or curtains.

Simple tests for radon, lead, and carbon monoxide can ensure that you and your family are safe from these invisible threats.


Helpful Tips

A person in red boots pressure washing a walkway

Simple Solutions to Enhance Summer Curb Appeal

Keeping up with regular home maintenance can add curb appeal and help you maintain the investment in your home. Read on for a checklist of chores you should complete this summer to make sure your home is in tip-top shape.

 Check your lawn irrigation system to make sure it’s functioning properly

 Clean out your gutters

 Power wash your driveway, sidewalks and concrete porches

 Patch any holes and cracks in your driveway

 Inspect your porch for loose boards or nails and repair as needed

 Clean/ inspect siding of your home and repair as needed

 Prune all shrubs, bushes and trees that are growing close to your home, especially around any AC units

 Clean your chimney

 Wash your windows and window screens

 Check for leaks in outdoor faucets and hoses

 Clean and repair your grill

Summer days are long, so take advantage of the extra sunlight to tackle the exterior maintenance on your home!


Understanding Mortgages

Women using a tablet in a park

How to get an FHA mortgage: A guide for homebuyers

Whether in the city, suburbs or perhaps someplace more rural, owning a home is something virtually everyone sees themselves doing at some point. But when you have a family to support, are on your own for the first time or simply don't have enough saved to use toward a down payment, circumstances of the moment can make homeownership seem like a pipe dream.

An FHA mortgage can help bridge the gap so you can live out your aspirations. Backed by the Federal Housing Administration, FHA loans are available through most mortgage providers and are ideal for individuals who have steady income, but may lack certain other financials that are asked for when filling out a loan application. For example, if your credit score is less than perfect or you can't afford a 20 percent down payment toward a property's purchase price, a loan from an FHA lender can make a lot of sense.

That said, there are a few key aspects that must be fleshed out in order to qualify for an FHA loan. Here, we'll address these elements, as well as a few other important considerations so you can qualify for an FHA on the first try.

How does an FHA mortgage compare to a conventional mortgage?

FHA loans are a lot like conventional loans, in that you can buy them with fixed-rate or adjustable-rate interest - typically in 15-year and 30-year increments - and require an initial down payment, among other similarities. However, the approval process isn't as stringent for an FHA mortgage versus a traditional loan product. For example, instead of a 20 percent down payment, you can put as little as 3 percent down, which is slightly less than what the average is these days (5 percent), according to the National Association of Realtors.

What you spend in interest is largely determined by your credit history, meaning how reliable you are at making your payment on time. Here as well, FHA loans have looser credit restrictions than conventional mortgages. Generally speaking, FHA loans require a minimum credit score to be close to 600.

However, should your down payment be larger - say 10 percent or 15 percent - you may be approved with a FICO® score that's a bit lower. It's worth noting that any down payment that's less than 20 percent requires the purchase of mortgage insurance, which we'll discuss a bit further later on.

Another key distinction FHA loans have versus conventional loans are interest rates. FHA rates are typically lower than conforming loans. But again, your creditworthiness - among other financial characteristics - will factor in to how much you can expect to spend in interest, which is also influenced by market dynamics that are almost constantly in flux.

Calculator with images indicating home, groceries, car and vacation

What should my debt-to-income ratio be?

You've probably heard about debt-to-income ratio, but if you're new to homeownership, you may not be exactly sure what it means. It's pretty straightforward: It basically is an assessment of how much of your gross income goes toward monthly payment expenses. You can calculate this through the use of mortgage calculators, but you can also do it on your own by simply dividing the totality of your monthly debt payments (i.e. installment and revolving, not including household utilities) by what you earn in the typical month, before taxes are taken out. Multiplying the answer by 100 will give you a percentage, which is your DTI.

In order to be approved for an FHA loan, the DTI should be no higher than 43 percent, which is an indication that less than half of your monthly earnings are put toward existing expenses. The lower your DTI, the more likely it is you'll be approved, with the ideal ratio being between 28 percent and 36 percent. However, it's important to emphasize that no single factor will be the deciding one as to whether you'll be given the green light. Lenders take into account the totality of your financial and employment situation.

What's the deal about mortgage insurance?

Although there are exceptions, such as with VA loans, mortgage insurance is typically required on any loan where the down payment is less than 20 percent of the purchase price. This rule applies to FHA loans, regardless of how much money you use toward the upfront cost. Mortgage insurance is included in your monthly mortgage payment. FHA requires mortgage insurance for the life of the loan unless you are able to refinance due to an increase in equity.

What else should I know about FHA loans?

Perhaps the best aspect of loans backed by the FHA is they offer a tremendous amount of flexibility. For example, say that you're able to put 3 to 5 percent toward the down payment of a home, but you'd like to put more money toward the cost so you can pay off your mortgage more quickly. If you've received gift money from a parent or, close friend or relative, you can use these funds so you can pay off a bigger chunk. These gift funds can be used in conjunction with what you spend or can cover the cost in its entirety.

Lastly, you may be wondering the maximum loan amount you can be approved for with an FHA mortgage. The amounts have changed from year to year, and in 2019, the ceiling rose to $726,525, HousingWire reported. That's up from $679,650 in 2018. With the median value for a property among all housing types nearing $250,000, according to the most recent estimates from the NAR, the new maximum loan amount is certainly sufficient to cover the cost of the majority of houses up for sale.

Homeownership is the American dream. The flexibility and payment options available with an FHA loan can help turn those dreams into reality. With the home buying season rapidly approaching, getting in touch with your favorite loan officer to learn more, and let the search begin!


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