Click here to view online with images.
 

2020

When looking to buy or sell a home here are some useful financial tips, ideas and advice.

Berkshire Hathaway HomeServices North Properties
www.northproperties.com/

 

FINANCIAL ADVICE

Prequalify, Preapprove - What’s the Difference?

Some mortgage terms can be confusing, none more so than the similarities and differences between prequalification and preapproval. The two terms are often used interchangeably, but they mean very different things to lenders, real estate professionals and home sellers.

Prequalifying is a rough-idea process that tells you how much money you’ll likely be able to borrow to buy a home. You can prequalify yourself on any banking or real estate-related website simply by putting your salary, type of loan you want, down payment amount and a ballpark home price into a mortgage calculator. You can talk with a lender, who will also give you a ballpark amount without a credit check.

When you apply for a mortgage loan, you’ll share your income records, the source and amount of your down payment, and your social security number so the lender can pull your credit. This is the key difference between prequalification and preapproval – when the lender is able to review your application and verify your credit standing to make a lending decision.

The lender will get back to you within three days or less with a preapproval letter stating the maximum amount of money you’re approved to borrow.

Preapproval gives you the real numbers so you know exactly how much you can spend on a home. It lends you credibility with real estate professionals and with sellers who will take you seriously as a buyer.

Prequalification becomes preapproval once you have a purchase contract on a home. Then, the preapproval is real.

FINANCIAL ADVICE

Build Wealth with a Less Expensive Home

Here’s a case for buying a less expensive home than you secretly want.

According to the U.S. Bureau of Labor Statistics, the average American spends approximately 37% of his or her income on housing. Notably, the top 20 percentile earners spend only 29.9% of their income, while the bottom 20% pay 39.9%. So what do high earners know that you don’t know?

If you have a little less money invested in housing, you’ll have more money to do other things, like: 

  • Invest more in your 401K or Roth IRAs.
  • Pay extra on your mortgage so one day you’ll be mortgage-free.
  • Save money to buy another property. Rent out the first home for passive income as renters make your mortgage payment for you.
  • Build or add to an emergency fund.
  • Make improvements without adding more debt or tapping into equity.
  • Reduce debt.

Conventional loan guidelines from Hud.gov suggest that the average homebuyer spend no more than 29% of his or her monthly gross income on housing. If your gross monthly income is $4,167, spend no more than $1,208, which should include property taxes and home insurance.

What if you have current debts? The Consumer Financial Protection Bureau recommends that your debt-to-income (DTI) ratio be no larger than 43% to secure a qualified mortgage - one the lender has done the due diligence on your ability to repay the loan according to government standards. However, many lenders aren’t comfortable with more than 36% DTI and may charge you higher interest rates accordingly.

FINANCIAL ADVICE

Be Ready for Unexpected Expenses

Congratulations, new homeowner! You’ve overcome the biggest hurdle – buying your first home - and now it’s time to switch your attention to maintaining and protecting your investment. Your electrical, water, gas and A/C systems may be working fine for now, but sooner or later, you can expect a major repair or replacement expense. All you need to do is be prepared.

Plan ahead. The International Association of Certified Home Inspectors offers a handy reference called The Standard Estimated Life Expectancy Chart for Homes. Compare the chart to your inspection report and you’ll be able to gauge how much life is left in your appliances and systems. If you know that your A/C unit is 10 years old and the life expectancy is seven to 15 years, you have the heads up to prepare for a major repair or replacement soon.

Review your homeowner’s insurance. How much is your deductible? That’s the amount you’re responsible for when you use your insurance for an expense like a hail-damaged roof. The higher the deductible, the more money you should set aside, just in case.

Build reserves. Many repairs or replacement costs won’t be covered by hazard insurance, so reserves are your rainy day fund. This money you’ve saved or set aside should be quickly and easily accessible through a savings account or a short-term certificate of deposit.

Set aside an emergency-only credit card. Keep one credit card at zero or a low balance so you’ll have a back-up source for payments.

FINANCIAL ADVICE

Should You Manage Your Own Rentals?

The nice part about being a landlord/lady is the passive income stream, meaning you don’t have to be present to make money, but that doesn’t mean there isn’t plenty of work to be done. You can do all the work, or hire a property manager if you’re willing to pay someone else to do all or part of what you don’t want to do.

 So which makes the most sense for you? You should manage your own rental property if you are:

  • residing reasonably close to your rental
  • financially able to carry the costs of your rental while vacant
  • prepared to run your rental as a real business
  • able to market your rental
  • able to meet potential renters to show the home and negotiate leases
  • willing to do background and credit checks on potential renters
  • willing to collect the rent and enforce late notices and fees
  • willing to address tenants’ complaints in a timely manner
  • willing to deal with problems at any hour, day or night
  • handy with tools or have a good reliable handyperson on call
  • unafraid to deal with and evict bad renters legally
  • willing to abide by court decisions in any tenant-landlord dispute

​​​​​​​Depending on where you live, how many properties you own, and which services you require, you can expect to pay 5 to 15 percent of your monthly rental fee to a property manager.


9542 E. 16 Frontage Rd. Onalaska, WI 54650

©2020 BHH Affiliates, LLC. Real Estate Brokerage Services are offered through the network member franchisees of BHH Affiliates, LLC. Most franchisees are independently owned and operated. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of Columbia Insurance Company, a Berkshire Hathaway affiliate. Information not verified or guaranteed. If your property is currently listed with a Broker, this is not intended as a solicitation. Equal Housing Opportunity.