4 Ways to Ensure Your Pet Is a Good Rental Resident

Yapping, chewing, howling, scratching … not in this home!

Nobody likes living next to a yappy dog — or even a howling cat. And while a growing number of rental properties specialize in pet-friendly apartments and homes, it’s understandable why both property owners and their leasing agents are skeptical about pets.

Here are some quick tips to help your pet be a neighborly renter.

1. Get them certified

To really show your future landlord that your dog is a good resident, consider getting a Canine Good Citizen (CGC) certificate. Offered by the American Kennel Association (AKC), this certification proves that a dog has received basic training and is well socialized around both people and other dogs — thus, less likely to cause disturbances.

If your dog is currently working with a trainer, ask about this certification, as many trainers are also CGC certified. The AKC provides details about groups in various states that also offer this certification.

Additionally, get a letter of recommendation from a previous landlord about your pet’s behavior. It can put you in a strong position to look at a wider variety of pet-friendly properties.

2. Keep them busy

Take your dog for a long walk or run before you go to work to leave them tired and happy — and content to snooze instead of scratching the front door or annoying the neighbors by howling nonstop.

Separation anxiety and stress often lead to bad behavior in your absence. Give your pets distraction toys to keep them busy, or leave on a TV or radio for a sense of companionship.

Consider employing a dog walker to come once a day, or send your pup to day care. Even if it’s only one day a week, it’s one day less of them being stressed because they’re home alone.

A variety of calming products — such as plug-in pheromone diffusers and anxiety wraps like the ThunderShirt — may help reduce your pet’s anxiety levels and prevent nonstop barking throughout the day.

3. Mind the felines

If you have a cat, get a large litter box and scoop it daily. Cats will go outside the litter box and pee on carpets if their box is dirty.

Similarly, keep a variety of scratchers around the home. Cats usually like to scratch soon after they wake up from a nap, so place scratching posts close to a favorite sleeping spot. This will deter them from permanently damaging your woodwork and carpets.

4. Prevent pests

Summer is the height of flea and tick season. Make sure your pet has the necessary protection so they don’t bring fleas indoors to infest your home.

Interestingly, fleas only spend 20 percent of their life span on a pet. They spend the rest of their time in your carpeting and furnishings — and they can be difficult to eradicate quickly. Plus, landlords will charge for this kind of pest control.

Like with so many other things in life, prevention is key.

Looking for more information about renting? Check out our Renters Guide

Related:

Originally published July 13, 2016.

Source: zillow.com

Five Reasons Home Prices Are Rising Like Crazy

Last updated on February 2nd, 2018

If you’ve listened to the news lately, you’ve probably heard that home prices are on the mend, big time.

The latest piece of good news comes courtesy of S&P Dow Jones Indices, which released its S&P/Case-Shiller Home Price Indices report yesterday.

It revealed that average home prices increased 8.6% and 9.3% for the 10- and 20-City Composite during the past 12 months ending in February.

Both Composites recorded their highest annual gains since May 2006, back when home prices were reaching their peak during the previous boom.

Phoenix, San Francisco, Vegas and Atlanta saw the largest year-over-year price increases, while Atlanta and Dallas exhibited the highest annual growth rates in the history of the indices, which date back to 1992 (10-City Composite) and 2001 (20-City Composite).

There were a handful of metros that saw month-to-month declines in prices, but 10 metros continued to report double-digit year-over-year gains, including Phoenix (+23%), San Francisco (18.9%), and Las Vegas (17.6%).

And the Composites are now back to their late-2003 levels. So why are home prices surging?

S&P

Fewer Distressed Sales

Perhaps the biggest driver of higher home prices is the lack of distressed sales, or the shift from distressed to traditional sales.

It seemed 2012 was the year of the short sale, and before short sales were all the rage, it was all about foreclosures.

Now you’d be hard pressed to find either of those on the market. Because home prices have recovered tremendously over the past year or so, many would-be short sales are now conventional sales.

And foreclosure sales have plummeted as more homeowners have managed to hold onto their homes thanks to a loan mod or refinance, or simply because inventory hasn’t been unloaded by banks (waiting for higher prices).

Regardless, with traditional sales making up a greater share of overall home sales, prices are inevitably higher.

No Inventory

In this same vein, there is not enough inventory to satisfy the growing demand of fanatical would-be home buyers.

If we could go back in time, chances are 90% of the individuals looking to buy a home today likely had little interest to do so a year ago. They were probably still worried about home prices slipping lower.

But the floodgates have opened, and now everyone wants in, with serious fear of missing out on the greatest opportunity of all time…

Unfortunately, this is a bubble mentality, and often leads to negative outcomes.

At the same time, existing homeowners have caught on and realize that if they hold on a little bit longer, they too can take advantage of this rise in prices.  Some may even be able to snag enough home equity to get back above water.

Bidding Wars

That brings us to bidding wars, what with supply and demand so out of whack at the moment. You just can’t make a reasonable offer on a house anymore.

Nowadays, your offer will be rivaled by a dozen others, all within a week of the home being listed on the market.

[See: Why it’s a bad time to buy a house for more on that.]

This frenzied mentality has pushed home prices higher and higher, beyond rational levels.

Of course, there’s a reason home prices have been allowed to climb higher without shutting too many people out.

[Tips for a seller’s market.]

Record Low Rates

I’m talking about the ridiculously low mortgage rates on offer at the moment. From a mortgage payment standpoint, it makes a lot of sense to buy a home today.

After all, you’ll pay next to nothing to finance your home purchase if you lock in a fixed-rate mortgage at today’s rates.

You see, Americans are spending a lot less of their monthly income on mortgage payments, but many U.S. metros now have home price-to-income ratios above historic norms.

So if you remove the low mortgage rates from the equation, the affordability picture changes considerably.

[Mortgage vs. income]

Wall St. Investors

Still, that hasn’t stopped Wall Street investors from scooping up oodles and oodles of properties on the cheap.

These cash buyers, including private equity firm Blackstone, have been squeezing everyday buyers and first-time home buyers, making it extremely difficult for the latter to land an accepted offer.

Their determination to get their hands on these properties in a certain timeframe at seemingly any cost is naturally causing home prices to rise.

The goal is to own clusters of single-family homes in neighborhoods throughout the nation, which they plan to renovate and rent out, and eventually flip once home prices move even higher.

This type of speculation is worrisome, and reminiscent of the previous housing boom that quickly went bust.

It also explains why the rate of homeownership has dropped to the lowest level since the mid-1990s.

These hedge funds and investor groups are reducing the housing stock by converting former homes into rental properties.

So now entire neighborhoods are really just sprawling apartment complexes, at least in the eyes of the investors.

The bad news is they’ll eventually unload them to everyday Joes at a premium, seeing that they’ll be able to control prices with all that inventory at their fingertips.

Source: thetruthaboutmortgage.com

Everything You Need to Know About Taxes on Investment Income

Taxes on investment income can be confusing, especially since there are several ways investment income is taxed. An investor may be familiar with capital gains taxes—the taxes imposed when one sells an asset that has grown—but less clear on the implications of dividends, interest, and other ways in which investments have tax implications.

Certain types of investment vehicles—529 plans, retirement plans like 401(k)s and IRAs—are either not taxed until money is taken out of the account, or may not ever be taxed, depending on the reason and timing for taking money from the account. But general investing accounts come with tax liabilities.

Being well aware of all the tax liabilities your investments hold can minimize headaches and help you avoid a surprise bill from the IRS. Working with a professional can be helpful as an investor’s portfolio grows, or as they find themselves selling assets to fund a purchase, like the down payment on a home. But for all investors, it makes sense to familiarize yourself with the different types of taxes on investment income and some potential strategies investors use to limit taxes.

Types of Investment Income Tax

There are several types of taxes on investments. These include:

•  Dividends
•  Capital Gains
•  Interest Income
•  Interest income
•  Net Investment Income Tax (NIIT)

Taking a deeper look at each category can help you assess whether—and what—you may owe.

Tax on Dividends

Dividends are distributions that are sometimes paid to investors who hold a stock or otherwise have an interest in a partnership, trust, S-corp, or other entity taxable as a corporation. Dividends are generally paid in cash, out of profits and earnings from a corporation.

Some dividends are ordinary dividends, and are taxed at the investor’s income tax rate. Others, called qualified dividends, are typically taxed at a lower capital gains rate (more on that in the next section). Briefly, the distinction between the two is that stocks that are held for a short period of time are typically subject to a higher tax rate, while stocks held for a longer period of time are typically subject to the lower tax rate. For the full details, the IRS offers information on qualified and non-qualified dividends .

Generally, an investor should expect to receive form 1099-DIV from the corporation that paid them dividends, if the dividends amounted to more than $10 in a given tax year.

More About Capital Gains Tax

Capital gains are the profit an investor makes between the price of an asset when purchased, versus the price of an asset when sold. Capital gains taxes are the taxes levied on the net gain between purchase price and sell price.

There are two types of capital gains taxes: Long-term capital gains and short-term capital gains. Short-term capital gains apply to investments held less than a year, and are taxed as ordinary income; long-term capital gains are held for longer than a year and are taxed at the capital-gains rate (for 2021, the
IRS rates are no higher than 15% for most individuals, $0 if your taxable income is less than $80,0000)

The opposite of capital gains are capital losses—when an asset loses value between purchase and sale. Sometimes, investors use losses as a way to offset tax implications of capital gains. Capital losses can also be “carried forward” to future years, which is another strategy that can help lower an overall capital gains tax.

Capital gains and capital losses only become taxable once an investor has actually sold an asset. Until you actually trigger a sale, movement in your portfolio is called unrealized gains and losses. Seeing unrealized gains in your portfolio may lead you to question when the right time is to sell, and what tax implications that sale might have. Talking through scenarios with a tax advisor may help spotlight potential avenues to mitigate tax burdens.

Taxable Interest Income

Interest income on investments are taxable at an investor’s ordinary income level. This may be money generated as interest in brokerage accounts, or interest from assets such as bonds or mutual funds. The only exception are investments in municipal (muni) bonds, which are exempted from federal taxes and may be exempt from state taxes if they are issued within the state you reside.

Interest income (including interest from your bank accounts) is reported on form 1099-INT from the IRS. Tax-exempt accounts, such as a Roth IRA or 529 plan, and tax-deferred accounts, such as a 401(k) or traditional IRA, are not subject to interest taxes.

Net Investment Income Tax (NIIT)

The Net Investment Income Tax (NIIT), now more commonly known as the “Medicare tax”, is a 3.8% flat tax rate on investment income for taxpayers whose adjusted gross income (AGI) is above a certain level—$200,000 for single filers; $250,000 for filers filing jointly. As per the IRS, this tax applies to investment income including, but not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading of financial instruments or commodities.

For taxpayers with an AGI above the required thresholds, the tax is paid on the lesser of the taxpayer’s net investment income or the amount the taxpayer’s AGI exceeds the AGI threshold.

For example, if a taxpayer makes $150,000 in wages and earns $100,000 in investment income, including income from rental properties, their AGI would be $250,000. This is $50,000 above the threshold, which means they would owe NIIT on $50,000. To calculate the exact amount the taxpayer would owe, one would take 3.8% of $50,000, or $1,900.

Tax-Efficient Investing

One way to mitigate the effects of investment income is to create a set of tax efficient investing strategies. These are strategies that can minimize the tax hit that you may experience from investments and allow you to grow your wealth. These strategies can include:

•  Diversifying investments to include investments in both tax-deferred and tax-exempt accounts. An example of a tax-deferred account is a 401(k); an example of a tax-exempt account is a Roth IRA. Investing in these vehicles may be a strategy for long-term growth as well as a way to ensure that money is earmarked for certain purposes. While these are commonly thought of as retirement vehicles, there are other times when they may be tapped. For example, funds in a Roth can be used for qualified education expenses.
•  Exploring tax-efficient investments. Some examples are municipal bonds, exchange-traded funds (ETFs), treasury bonds, and stocks that do not pay dividends.
•  Considering tax implications of investment decisions. When selling assets, it can be helpful to keep tax in mind. Some investors may choose to work with a tax professional to help offset taxes in the case of major capital gains or to assess different strategies that may have a lower tax hit.

The Takeaway

SoFi Invest®, our dedicated team of financial planners is available to help members map out their financial goals. What’s more, investors can choose to take full charge of their investments—whether stocks, crypto, retirement accounts, and more—or use automated investing for a more hands-off approach.

Find out how to get started with SoFi Invest.


SoFi Invest®
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Source: sofi.com

10 Ways a Side Gig or Business Can Impact Your Taxes

The gig economy is big and getting bigger. According to a 2018 Gallup poll, 36% of American workers participate in the gig economy. And that’s just the tip of the iceberg.

Between income diversification, less dependence on an employer, flexibility, and the chance to develop new and marketable skills, it’s no wonder the gig economy has grown so quickly. But many ignore another critical point: the impact of gig work on income taxes.

Here’s what you need to know about how a side gig changes your tax situation, often for the better.

How a Side Business Affects Your Taxes

Yes, you have to pay taxes on your side gig earnings. If you don’t, you can expect a nasty notice from the IRS, along with penalties and fines on top of any back taxes owed.

However, as a self-employed person or business owner, you get access to tax deductions and benefits not available to most employees. In many cases, these are above-the-line deductions, meaning they come off your adjusted gross income (AGI) before you have to choose between the standard deduction and itemizing. That means you still get the deduction even if you take the standard deduction.

Not all of the tax implications are for the better, but most are, and on balance, the advantages outweigh the disadvantages.

1. You (Probably) Qualify for the 20% Pass-Through Deduction

Tax Deduction Letters Block Scrabble Cup

If you operate using a pass-through legal entity, such as an LLC or S corporation, you’re likely eligible to take the 20% pass-through deduction introduced by the Tax Cuts and Jobs Act of 2017 (TCJA).

As a freelancer or small-business owner, you almost certainly structured your legal entity as a pass-through entity, which means profits “pass through” to you as an individual taxpayer.

The short version of the 20% pass-through deduction is that many businesses can deduct 20% of their qualified business income before adding it to their tax bill. So, if you earned $10,000 in net profit from your side business, you may only have to pay taxes on $8,000 of it.

The long version gets complicated, and fast. To put it simply, if your taxable income is under $157,500 for a single taxpayer ($315,000 for a married couple), you can likely take the full 20% deduction off your qualified business income.

If you earned more than $157,500 ($315,000 for a married couple), then the pass-through deduction becomes subject to a series of restrictions.

Word of Warning

Talk to an accountant, because wading through the minutiae of the IRS tax rules on the pass-through deduction may induce the worst headache of your life.

Pro tip: H&R Block has CPAs and EAs that you can chat with online. They can help answer all of your questions about the pass-through deduction.


2. You Can Deduct More Expenses

Receipts Expenses Cluttered Pile

As a small-business owner or self-employed person, you can deduct expenses that most employees can’t. For example, you can deduct part of your housing expenses for home office expenses, even after the TCJA added limitations for employees.

Bought a new laptop? Mobile phone? Talk and data plan? Printer? Paper? You may be able to partially deduct those expenses, if you use them primarily for business purposes, under Section 179 of IRS rules.

Business-related travel is another popular tax deduction for small-business owners.

Words of Warning

First, keep every single receipt for business-related expenses, and file them where you can easily find them if the IRS questions you.

Second, be extremely careful not to abuse these deductions. If you take a two-week vacation and have one “dinner meeting with a potential client” who happens to be a friend of yours, don’t expect the IRS to let you write off the vacation as a business travel expense.

Again, talk to your accountant about what they think you can make a defensible case for and what you can’t. The line is sometimes blurry, so tax preparation is often about creating a defensible argument for why you’re justified in deducting this or that expense.


3. You Can Contribute to a SEP IRA

Sep Ira Piggy Bank Cash

The self-employed have access to a unique type of IRA for retirement planning in the SEP IRA. These can be set up through a broker like E*Trade.

Unlike the normal IRA contribution limit of $6,000 ($7,000 for taxpayers over 50) in the tax year 2021, the SEP IRA has a far higher contribution limit of $58,000. It comes with a catch, though: an additional limit of 25% of your self-employment income.

A taxpayer who earned $30,000 in net income from their self-employed activities can, therefore, contribute $7,500. Their other earnings, such as those from their full-time job, don’t count when calculating the 25% cap on SEP IRA contributions.

If you’re organized as a business, you can also create your own 401(k). But that requires hiring a 401(k) administrator, which comes with fees that leave it unattractive to most side gig business owners.


4. You Probably Need to File Estimated Quarterly Taxes

Quarterly Tax Return Form

When you work for someone else, they pull estimated taxes out of your paycheck and pay them to the IRS throughout the year on your behalf.

But when you work for yourself, you have to do that on your own if you’re slated to owe more than $1,000 in total taxes on your self-employment income. You prepay this year’s taxes throughout the year, every quarter, and when you file your return early next year, you either get a refund or owe taxes based on how much you’ve paid, just like a normal employee.

Failure to prepay taxes on your self-employment income means penalties and fines from Uncle Sam.

Here’s a quick guide on how to make estimated quarterly tax payments to the IRS, plus the quarterly tax due date calendar.


5. You Need to Send 1099s to People You Paid (And You May Receive 1099s Yourself)

1099 Misc Tax Forms

If you paid someone more than $600 last year, and they’re not an employee of yours, you need to send them a 1099 form.

Your accountant can do this for you, but if you’re handling it on your own, beware that it’s not as simple as downloading a form and mailing it. You must buy original hard copies of 1099 forms issued by the IRS. You then have to send a copy to the payee and a copy to the IRS, which you can do electronically.

The due date for sending 1099s is typically January 31. Failure to do so results in – you guessed it – fines from the IRS. It’s one of the more common tax mistakes made by entrepreneurs and employees alike.

As a self-employed person, you may also receive 1099s from people who paid you. Don’t even think about trying to get away with not declaring self-employment income. The IRS is watching, with a copy of all your 1099s in hand.


6. You Have More Options for Deducting Health Insurance

Health Insurance Medicine Healthcare

While traditional employees can deduct health care costs, the costs have to be at least 7.5% of the taxpayer’s AGI, and the taxpayer has to itemize their deductions.

But with the standard deduction so much higher after the TCJA – $12,400 for individuals in the tax year 2020 ($24,800 for married couples) and $12,550 ($25,100 for married couples) in 2021 – far fewer Americans are itemizing, which makes this deduction even less useful.

Self-employed people who own their own businesses have more options.

If you set up your health insurance under your business, you can deduct the cost of coverage for yourself, your spouse, your dependents, and even adult children under 27. The best part? The costs come off your net business earnings, so you can still take the standard deduction.

Your business must show a net profit for the year; you can’t use health insurance to create losses. You can take the deduction if you’re an LLC owner, a partner, more than a 2% shareholder of an S-corp, or if you show self-employment income on Schedule SE.

It’s definitely a perk to keep in mind as you browse health insurance options as a self-employed person.


7. You Can Still Deduct Accounting & Tax Prep Costs

Accounting Calculator Coins Stacked Cash Bills

The TCJA removed the deduction for tax preparation and accounting expenses – at least for individuals. For businesses, these expenses are still deductible, and they’re subtracted from taxable net revenue.

Once again, that means self-employed people can still take the standard deduction and deduct their accounting costs from their business revenue.

Talk to your accountant about how much of your total accounting and tax preparation costs you can classify as business accounting costs, rather than personal costs, to legally maximize your deduction.


8. Prepare to Pay Self-Employment Tax

Self Employment Tax Dollars Bills Stacked

One of the downsides of being self-employed is having to pay double FICA taxes, also known as self-employment taxes.

Employees pay 7.65% in Social Security and Medicare taxes, known as FICA taxes, which is only half of the total tax bill they owe. What many employees don’t realize is that their employer covers the other half, for a total FICA tax bill of 15.3% per employee.

Self-employed people pay both halves.

When you complete your Schedule SE, expect a line for FICA taxes totaling 15.3% of your net self-employment revenue. All that 1099 income you earned is subject to these taxes, as is all net business income if it exceeds $400.

And, yes, you need to prepay this as part of your estimated quarterly tax payments.

As a final thought, the IRS does allow small-business owners to deduct half of their self-employment tax (7.65%) from their total taxable income.


9. You Have More Options for Avoiding FICA Taxes

Fica Tax Post It Keyboard

You have to pay double FICA taxes on self-employment income, but not all of your income has to fall under that category.

As a small-business owner, you can take some of your earnings as wages – and pay self-employment taxes on them – but you can also take some of your earnings as a dividend distribution. Owners of S-corps are not charged self-employment taxes on dividend distributions, only on wages.

With that said, the IRS requires that wages be “reasonable compensation” for your work, a term that leaves plenty of leeway.

Beyond dividend distributions, here are some other types of income you can pursue as a business owner that’s not subject to self-employment taxes:

  • Rental income
  • Bond income
  • Dividend income from equities
  • Income from crowdfunding websites and peer-to-peer loans
  • Venture debt income
  • Private equity income
  • Capital gains

In other words, income you earn from passive income sources you invest in to generate diversified, ongoing revenue is not subject to self-employment taxes. As a landlord, one of my side gigs is buying rental properties. I don’t have to pay self-employment taxes on the revenue, and I get plenty of real estate tax deductions into the bargain.


10. Your Tax Return Is More Complicated

Tax Textbooks Weight Burden Pile Ladder

When your only income is from a W-2 job, your income tax return tends to be pretty simple. But as you start adding side gigs and become self-employed, your tax filing gets more complicated quickly.

As mentioned above, you need to track every single business expense if you want to be able to deduct it – and defend it in an audit. You need to send 1099s, and you can expect to receive 1099s.

Your tax return gets longer. Sole proprietors must fill out Schedule C to document their business expenses. If you receive rental income, you must fill out Schedule E. If you have partners, you must fill out Schedule K-1s and Form 1065.

It’s lucky for you that accounting and tax preparation costs are still deductible for small-business owners, because you may well find yourself needing an accountant’s services for the first time in your life once you launch your own side business.


Final Word

There’s an admirable sense of independence in the rise of side gigs, side hustles, and side businesses. More Americans are discovering that they can start their own business while working a full-time job and create multiple streams of income. Some Americans are even turning their hobbies into money-making businesses.

Side gigs cost time, stress, and energy, and they complicate your tax return. But in return, side gigs generate extra income and offer access to tax deductions not available to regular employees.

As a parting word to the newly self-employed, it takes a different mindset to succeed as an entrepreneur than it does as an employee. It starts with full accountability over your own success and continually identifying the work most likely to produce revenue and results, rather than doing work handed to you by a boss.

Try these success tips for new entrepreneurs on for size, and best of luck with your side gig!

Source: moneycrashers.com

Buying a Rental Property vs. a Typical Mortgage or Second Home

If you’ve purchased a home or property at some point in your life, you might think you’re prepared for the process of buying a rental property. That may not be the case, though. The financing process for rental properties can be quite different than it is with other properties.

When you buy a rental property, don’t expect the loan steps to be like they were for a mortgage on your primary or vacation home. Banks treat these types of loans differently because you won’t be living in the house and will be treating it as an income source, which makes it a riskier move for them to finance. If a financial crisis occurs, it’s less likely that a rental mortgage would be paid than the mortgage on a primary residence, so it’s harder to get a loan for this type of property.

If you want to invest in a rental property, you need to know everything about the financing process before you take the leap. Whether it’s info on mortgage rates or insight into the down payment requirements, here’s what you need to know and what to expect before you get started.

In this article

What is a rental property?

A rental property is a property that you purchase with the intention of renting to someone else after you purchase it. This type of property is considered an investment property. The initial investment is the price of the property and any upkeep that’s necessary. The return on the investment is the rental income the owner brings in.

Rental properties can take many different forms. A rental property you purchase could be a single-family home or be in a multi-unit building. It could be a commercial building, a standalone house in the country or a condo in a metro area. There are also different forms of rentals. The property could be rented out to long-term tenants or used to make money through short-term rentals like Airbnb.

It’s also important to differentiate between residential and commercial rental properties. A residential property could be a house, duplex, apartment, townhouse or another type of property that someone might reside in. A commercial property is one where the units are rented out to businesses rather than individuals.

Rental properties are a consistently popular investment opportunity. In a 2019 Gallup poll, 35% of Americans listed real estate as the best long-term investment. Many people who invest in real estate choose to finance the property rather than paying for it in full. Doing so allows them to receive a monthly cash flow, some of which goes toward the mortgage payments.

Rental property mortgages are available through many of the same lenders you might use to get a regular home loan. But while the lenders overlap, these loans often come with different terms and retirements than home loans do.

[ Read: What I Wish I Knew Before Buying a Rental Property ]

How are mortgage rates different for rental properties?

Mortgage loans offer some of the lowest interest rates you can get on any type of loan. Before you start shopping for a rental property, though, keep in mind that interest rates on investment property mortgages are almost always higher than the typical market rate.

When lenders approve a mortgage for a rental property, they take on more risk than they do for a primary residence. This is due, in part, to the fact that landlords often use their rental income to cover the monthly mortgage payment. If the property is unoccupied for a period of time, the landlord isn’t bringing in rental income. For many property owners, a long-term vacancy would mean they can’t make their mortgage payment, which would cause issues for the lender. Therefore, lenders charge higher rates to shield themselves from this type of risk.

In most cases, rental property mortgage rates are roughly 0.50% to 0.75% higher than typical mortgage rates. Mortgage rates in early December fell to 2.92% for a 30-year fixed-rate mortgage on a primary home. As a result, you could expect the rate on a rental property to range from 3.42% to 3.67%.

The difference between these rates might seem minor, but it adds up over the life of a mortgage. Let’s say you borrow $300,000 in the form of a 30-year fixed-rate loan. If the mortgage loan was for your primary residence, you might get an interest rate as low as 2.92%. Over the 30-year life of the loan, you could expect to pay just over $150,000 in interest alone.

Now imagine that you took out the same mortgage for a rental property. You’ll be using the property as an investment, which means you’ll get an interest rate of 3.67%. Over the 30-year mortgage term, you would pay more than $195,000 in interest. That’s a full $45,000 more than you’d pay in interest at the lower residential mortgage rate.

[ Read: The Best Cities to Buy Rental Property ]

Down payment differences

In addition to the higher interest rate, rental property mortgages also typically require larger down payments. In most cases, the lender will require you to put at least 20% down when you buy a home.

According to a 2019 survey by the National Association of Realtors, the average down payment for all homebuyers is about 12%. When you look at just first-time buyers, the average down payment is just 6%. With a conventional loan, buyers can typically put down as little as 5%. With some government-backed loans and first-time homebuyer programs, minimum down payment requirements can be as little as nothing down to 3.5%.

For a rental property, the down payment requirements are a bit steeper. You’ll typically have to put down at least 15% on a single-family home. For multi-unit properties, the required down payment is likely to be at least 25%.

As with the higher interest rates, lenders ask for a larger down payment to account for the fact that investment property mortgages come with greater risk. Additionally, PMI isn’t attached to rental property loans with less than 20% down, meaning lenders can’t protect themselves in the same way they could on a mortgage for a primary residence.

Keep in mind that it may be in your best interest to put down an even larger down payment than is required by the lender. There’s often a correlation between the down payment and interest rate on a loan, and it will cut down on your monthly payment costs, too. As the size of the down payment increases, the interest rate often decreases, so putting more down on your rental property is always a good idea if you can afford to.

If you want to save money over the course of the loan, a larger down payment may help you to do so.

Source: thesimpledollar.com

What Can Real Estate Investor Association Clubs Teach You?

Last Updated on May 22, 2020 by Mark Ferguson

Real estate investor association clubs can be a great way to find amazing deals. The clubs offer numerous educational opportunities and networking opportunities as well. The groups can be free, or some have a membership fee. Like anything in life, you get what you put into it. If you are willing to go to meetups, talk to other investors, and ask for help, you will get much more out of it than if you sit in a corner and don’t say a word. I have been to a few clubs and even spoken at a few as well. REIA clubs are not magic and will not make you an investor, but they can be a useful tool. Some clubs can even get you discounts at stores like Home Depot.

What are real estate investor association clubs?

REIA clubs are for real estate investors to mingle and share ideas. Many REIA clubs have monthly meetings with guest speakers who are experts in their field. The meetings usually consist of a speaker, time to network, and food or drinks. I have spoken at a couple of REIA club meetings to discuss HUD homes and how investors can get a great deal on them. There will be lenders, real estate agents, and many other investors at REIA club meetings.

Some clubs have online sites, newsletters, and even coaching programs. Each club is different and runs a little differently than the next one.

What does an REI club cost?

Many clubs are free and open to anyone who wants to join or attend a meeting. Other clubs have monthly or yearly fees to join. Some clubs are very expensive, or their main focus is to sell very expensive coaching programs. Most of the clubs I have spoken at have been free and open to anyone.

We belong to one club that has a $200 a year membership fee. I don’t think I have been to any of there meetings in years, but because we are a member, we get a 2% discount on everything at Home Depot. It is well worth being a member for that perk, and while I have heard that Home Depot may be getting rid of this program, it is still active in my area.

What can you learn at a real estate club?

Many people go to REAI clubs to learn or they want to here people speak about certain topics. There are a number of things you can learn at the meetings, but as with anything, the quality of what you learn depends on the speakers and the people who run the club.

I have seen some clubs make some pretty outrageous claims and offer some less than stellar advice because they are trying to sell their own coaching programs. They are going for the shock and awe marketing technique to get attention without caring about the bad advice they are putting out there. Other clubs are very honest and offer a lot of great advice.

You can learn about a number of different subjects in a meeting or club:

  • Wholesaling
  • Rental properties
  • Flipping
  • Note buying
  • Real estate agents
  • Auctions
  • Foreclosures
  • Finding deals
  • Financing
  • Much more

I would advise to learn from more than one source and not get too excited about the outrageous claims that might come from some clubs, especially if they are trying to sell a very expensive coaching program.

Who can you network with at the meetings?

One of the big advantages of the REAI meetups is networking with people who may be able to help your business. I have met some cool people at the meetings, but again, be wary and don’t get too excited.

Wholesalers

There are many wholesalers at real estate investor clubs who could be very valuable to any investor. A wholesaler finds properties to buy but usually does not want to fix and flip the house or rent it out themselves. They want to flip the property quickly, and in some cases, without even buying the house. Wholesalers prefer to sell or assign their deals to investors, and many times, the houses are sold well below market value.

One of the main reasons I attended meetings was to meet wholesalers and to start building relationships. A key ingredient to any investor’s successful strategy is finding properties at below market value. I never met any wholesalers at an REAI meetup that sold me a deal. I met a lot of wholesalers, but I think most of them were very new. I have bought houses from many wholesalers, but I met them through many other means.

There will be many wholesalers at meetups but realize they may be very new and just learning the business. A lot of them have high expectations. which is great, but don’t expect a ton of deals to start flowing your way from every wholesaler you meet. I would estimate 1 out of 10 people who call themselves a wholesaler will ever do a deal.

Lenders

There are usually a few hard-money lenders at the meetings, or they may even sponsor or put on the meeting. Hard-money lenders specialize in financing house flips, but the loans can work for rental properties as well in some cases. I have used hard money a few times but prefer private or bank money.

You will usually see local hard-money lenders at the meetups. I have learned to be very cautious of the local lenders. I have had deals fall apart because a local hard-money lender turned out not to have any money to lend! The local lenders can also be much more expensive than the bigger, national hard-money lenders.

Investors

Many people think other real estate investors are their competition and to be wary of them. That is true, but they can also help your business. Many successful investors are willing to share their experiences to help others, and they may be able to help your business as well. They may be a buyer for your wholesale deals, or they may have too many deals themselves and look to sell some occasionally.

I would meet all the local investors you can and make friends with as many as you can. You do not have to give away all your secrets, but having those connections can be a huge help.

Real estate agents

There may be investor-friendly real estate agents at the meetups as well. Some agents at these meetings are great and others not so much. It does not hurt to network and consider using them if you need a real estate agent. I would take your search seriously and not just work with the first agent you find.

How do you find real estate meetups?

It can be tough to find meetups, especially if you are in a small area. There are not any local consistent meetups by me. I have to travel about an hour to find one. I found those meetups through networking. Other investors I knew told me about them. You can also find meetups through sites like Bigger Pockets, local Facebook investing groups, Meetup.com, or online searches.

Conclusion

REIA meetups and clubs can be a great resource for networking and learning. However, I would not rely on them solely to provide you with everyone and everything you need to know. I would also curb your enthusiasm if you are expecting to meet 20 people who will constantly bring you deals from the clubs. Most meetings are full of new investors looking to learn.

Source: investfourmore.com

What Remodel Projects Add the Most Value to a House?

Last Updated on June 13, 2020 by Mark Ferguson

I have flipped more than 190 houses in my career, remodeled rental properties, and even fixed up properties for banks when I was an REO broker. Over the years, I have learned a lot about what repairs or remodel projects add the most value to a home. It can be easy to miss simple things that will add value or spend way too much on home renovations. The type of house, price range, and location can also impact what the most cost-effective home repairs will be. In general, there are definitely some repairs that will add more value than others.

Is it worth it to make home renovations?

A lot of people who are thinking about making home renovations or repairs wonder if they are better off just selling the house for a lower price instead of making the repairs. If the home needs $20,000 in repairs, just lower the price of the home $20,000 or $25,000. In principle, that sounds great, but it is rarely the reality.

When a home needs repairs or updating, it often lowers the value of the home by much more than those repairs will cost if the repairs are done cost effectively (more on that later). If a home needs $20,000 in repairs, it might lower the value of the home by $40,000.

Home repairs can also impact the financing available on properties. If a home needs a new roof or the major systems need work, it might eliminate 80 percent of buyers because they won’t be able to get a loan on the home. $20,000 in work might decrease the price by $60,000 if it impacts the financing choices.

In other cases, it is possible to spend more money on renovations than it will to increase the price of the home. You can over-improve a home for the neighborhood. I have seen people spend $50,000 on a kitchen that added $20,000 or less in value. The homeowners could have spent $10,000 on the kitchen and still gotten $20,000 in value added. A $50,000 kitchen is usually not needed unless you are in a high-end neighborhood.

It is almost always worth it to remodel or repair a home before you sell it if you are smart about what you do and keep the budget reasonable.

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What are the most important things to fix?

When selling a house, the most important things to have in working order are the major systems because they will affect the ability to get a loan on the home. If the roof is bad, the electrical is bad, the plumbing is bad, the HVAC is bad, or the foundation has major issues, most buyers will not be able to get a loan on the home.

Not only will you be eliminating 80 percent or more of the buyers, but you will also have to discount the price of the home to make up for the needed repairs. The most-likely buyer will be an investor who wants to make money. The investor does not want to spend time and money fixing up a house just to break even.

Many investors will use the 70 percent rule to determine what to pay for a house that needs work. That rule states they should pay 70 percent of the value of the home minus any repairs needed. So, if a home is worth $200,000 after it is fixed up and needs $30,000 in work, the investor will want to pay $110,000 for it!

$200,000 x .7 = $140,000 minus $30,000 = $110,000

That may seem crazy for the investor to be so greedy, but they are not making $60,000 on that deal. They have many costs besides the repairs like carrying costs, financing costs, buying costs, and selling costs. The investor needs to buy the property that cheap to make the risk worth it.

As you can see, $30,000 in repairs cost the homeowner $90,000! The homeowner might be able to find a non-investor to buy the property, but they will want a good deal as well. Maybe they are able to sell it for $125,000 or $140,000, but the $30,000 in repairs costs them much more than $30,000.

If you have problems with the major systems that prevent financing, those are the most important items to fix before you sell. They are also most likely the most important items to fix if you do not plan to sell as well. Those problems cause issues with financing because they can cause problems with the house. If you ignore those problems, they could cause much more expensive issues like fires, floods, structural problems, or sickness.

A really good real estate agent can let you know what problems with the house will cause issues with financing.

How do home improvements add value?

Unfortunately, repairing the roof may not add value to the home. If the home is worth $200,000 and you repair the roof, it is still worth $200,000. The buyers expect the roof to be in working order. While the new roof won’t add value, a bad roof certainly will detract from the value.

Some home improvements will add value, like remodeling the kitchen, baths, adding a deck, or even adding an addition. The amount of money these improvements add can be very difficult to calculate because every house is different. Every house is in a different location, is in a different condition, and has different features. Each buyer also has different tastes. The house shows that tell us exactly how much each project adds in value drive me crazy because there is no way to calculate that. You have to look at the big picture. You can spend $100,000 remodeling a house, but if the foundation is bad, you may have just wasted a $100,000.

The way you value a home is by comparing a house to recently sold houses in the same neighborhood. No two houses are the same, so it is impossible to say one kitchen added $10,000 or another bath added $5,000. But, you can say that the house sold for $10,000 more and has an updated kitchen and baths. Those kitchens and baths had something to do with the value, but there could have been other things that detracted or added to the value as well.

People’s emotions also play a huge role in how much they will pay for a house or what house they will buy. A lot of people think our carpet is bad or the house needs paint, but those problems will not affect the financing. We will just offer an allowance or lower the price a little. Not doing simple repairs can drastically decrease the price as well because most people buy with emotion.

If a house smells, is dirty, the paint is worn, the carpet is old, or even is too cluttered, it will turn off most buyers, even though those are easy problems to fix. I am a house flipper and can easily imagine what the house will be like when I am done with, but most people cannot. Or they let how they feel about a house determine their decision making instead of the numbers or logic.

This article goes into more detail on how to value homes.

What are the best home improvements to make?

It is often said that kitchens and baths sell houses, and that is usually correct. Buyers care about the kitchens and baths because those are generally the most expensive to remodel and the most visually interesting part of the interior of a house. As I said earlier, paint and flooring make a huge difference as well.

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Paint and flooring

I put paint and flooring number 1 because they give the feel of the house. They can also contribute to the smell and aesthetics. Paint and flooring are also some of the easiest repairs to make and can be very affordable if done right. You can paint the interior of a 2,000-square-foot house for $3,000 to $5,000 depending on the painters and area. Although, many companies will prey on homeowners and charge much more if they can.

New paint and flooring can easily add $10,000 to $30,000 of the price of a $250,000 home. I always suggest neutral colors that will appeal to most people if you are looking to sell.

Kitchen

The kitchen is the first thing many buyers consider when buying a house. How much space is there? How functional is it? How updated is it? We remodel many of our kitchens but not all of them. We rarely, if ever, put in high-end kitchens into our projects. A lot of contractors will try to convince homeowners they need $50,000 kitchens when that is rarely the case. Sure, it is nice to have a Bentley instead of a Honda, but does that car make sense for your family and budget? The same goes for the house you live in. We buy cabinets, counters, and appliances from Home Depot, which makes most of the materials for our kitchens less than $5,000. Sometimes, we might spend another $1,500 on upgraded counters.

A new kitchen can add $5,000 to $15,000 to the price of a $250,000 home depending on how bad the old kitchen was. If the kitchen is not that bad, you might be able to get away with new appliances or new counters and save a ton of money.

Bathrooms

Bathrooms are another area of the house that can add a lot of value but also cost a lot of money! We can put in a simple bathroom with a new toilet, tub, surround, and vanity for $3,000 to $5,000. That assumes some plumbing and electrical work will be needed. If you have three bathrooms to remodel, your budget can increase very fast when redoing each bathroom.

It is also possible to get super fancy and spend $20,000 on a bathroom. Again, you will almost never get that money back unless you are in a very high-end home and the other homes around you have very high-end features that buyers expect.

Upgraded bathrooms will add value to houses, but it is hard to put a number on them. $5,000 to $20,000 can be added depending on how many bathrooms and how bad they were before. As with kitchens, if the bathrooms were not in bad shape before you might able to get away with new vanities and not mess with the tubs or shows, which can save a lot of money!

Fixtures

Light fixtures, door handles, and even plumbing fixtures can add value as well. If you are smart and do not break-the-bank buying fixtures at high-end specialty stores, it is usually worthwhile to put in new fixtures. If you put in new fixtures, you may be able to get away with not spending as much money in other areas as well. If you replace the old faucets, you might not have to replace the sink or the bathtub. If you replace the door handles, you might not have to replace the doors.

We usually spend $1,000 to $2,500 replacing the fixtures. Light fixtures and new paint make a huge difference in how a house feels and can add a lot of value without much expense. New fixtures can add $2,000 to $5,000 to the value of the house, and they can also make the house sell much faster.

Landscaping

We put in simple landscaping on some of our houses and do almost nothing on others. The thing about landscaping is that it can hurt the curb appeal, but many buyers feel they can fix the landscaping themselves. Far fewer buyers think they can replace the bathroom or kitchen. You can get away with less landscaping in some houses than you might think.

In some areas, a sprinkler system is very important and is a must, and in others, it is not as important. Again, what makes sense will depend on the area and other houses in the neighborhood. In some areas, a fence is a must, and in others, not important at all. It is usually not a good idea to spend tens of thousands of dollars on fancy landscaping if your concern is getting your money back out when you sell.

Windows and Doors

Windows and doors can add value to homes, but it is tough to say by how much. What they can also do is detract from the value and make a house hard to sell if they are old and outdated. Most buyers will expect a house to have newer windows, and old, plain doors can really detract from the look of a house.

The tricky part with windows is the cost. We can buy windows at Home Depot and have them installed for about $300 a window. That could be $1,500 to $5,000 on a house total. Those windows often add about as much value as they cost, but they make a house much easier to sell.

What can really cost homeowners a lot of money is high-efficiency, low-e windows. Window companies love to try to sell their windows at more than $1,000 each! You could spend $20,000 on the windows! While it is nice to save a few bucks a month on electric bills, (that is literally the difference between low-e and regular Home Depot windows) it will not come close to adding that much value to the house. 98% of buyers don’t care what kind of windows the house has as long as they are newer. Some reviews even show buyers are no more or less satisfied with the fancy windows than the cheap windows.

Doors will not add much value to a home either, but they can detract from the value if they are broken or old. You may be able to paint doors to make them look decent, but if you have to replace them, it can cost from $150 to $300 per door, which can add up quickly! The doors will usually not add as much value as they cost to put in.

Additions

A lot of people want to add additions to their homes, and rarely do they add as much value as they cost. In some cases, the wrong addition can detract from the value! Additions are tough to pull off because most houses are designed a certain way and an addition was not in the plans. You really have to be careful that you are not just adding a room that will cost $30,000 and be useless to 90% of the population.

In most markets, an addition will not be worth it after paying for all the permits, plans, and construction. You might have to do a lot of work to the existing house to make the addition work as well. If you are in a very expensive area where popping the top makes sense, you might be able to pull it off, but you need to be able to add much more value than you think the addition will cost.

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Contractors and getting the work done

Something else to consider is that when you have the work done by contractors or professional companies, the prices can vary greatly! Some contractors may charge $50,000 for a landscaping job while others may charge $10,000 for the same work. It is important to choose the right person to do the work and check them out beforehand as well. I have another article that goes into how to find contractors here.

Conclusion

Making repairs is usually a good idea when selling a house. Which repairs to make can be tricky to figure out because every area of the country is different, and every neighborhood is different. You also need to be careful how much you spend on the repairs and which contractors you use when making the repairs. If you are completely lost, a real estate agent can help you with the process, especially if you are thinking of selling soon. They often know which repairs bring the most value in their area and may have contacts for contractors as well.

Source: investfourmore.com

What Are the Traits of Successful Real Estate Investors?

Last Updated on May 22, 2020 by Mark Ferguson

traits of successful real estate investorsA lot of people want to be successful real estate investors, but not everyone is able to accomplish this feat. What is it that makes someone successful at real estate? Are they smarter? Do they work harder? Were they just lucky? I think there are many traits that make someone more likely to be a successful real estate investor, and I will talk about them in this article. I have many of these traits as well, and I have been flipping houses, buying rentals, and selling as an agent for almost 20 years!

Why is it difficult to be a real estate investor?

Real estate can provide some incredible opportunities, but it is not easy. Houses, apartments, commercial properties, and even land can be really expensive. Most people don’t have the cash to go out and buy a house. They need to borrow money, which can be a relatively simple process if you want to buy a house to live in, but it is not as easy if you want to buy an investment property.

When buying a house to live in, you may only need 3% down or even less with a VA or USDA loan. When you buy an investment property, you probably need 20% down. It can take $20k, $40k,, or more to buy one investment property. Most people just don’t have that money.

There is also the question of what type of investor you will be. You can flip houses, buy rentals, wholesale real estate, be an agent, or even invest in notes. There are different strategies and amounts of money needed for each type of investment. If you flip houses, you might be able to put less money down using a hard-money loan. If you wholesale, you can be successful without as much money, but you will need to put in a lot of effort and time.

What are the traits of a successful real estate investor?

I have been a real estate investor since 2002 and have met many other investors through my blog, YouTube channel, and other social media. Most successful investors tend to have these traits. These are not set in stone, and people who don’t have these traits can be successful in real estate, but in my experience, it helps to have these traits.

Good at math

Real estate is all about the numbers. If you are buying rental properties, you need to know how much a house makes each month based on the actual and possible expenses. You need to be able to estimate repair costs and how much cash you will need.

If you flip houses, you need to know all the costs involved—not just the repairs. The other costs like financing, carrying, and selling costs can be more than the repair costs. It is not as easy as they make it seem on TV!

If you want to be a wholesaler, you need to know what price will work for a flipper or landlord. You need to be able to calculate the costs and formulas that work.

You don’t have to take calculus, but you need to be able to do simple math well.

Willing to learn

We already talked about how much there is to know about real estate. You aren’t born knowing these things—you must learn them. Most people think they don’t have time to read or learn, so they don’t. They make excuses for why they don’t have time, and nothing changes in their lives.

Those who are successful make the time to read! They make time to look at houses and write out strategies!

Willing to take risks

I have bought a lot of properties in my career, including many I probably shouldn’t have bought. While I have had some house flips that did not turn out exactly how I hoped they would, I have had many more great deals that more than made up for the bad ones.

To be a real estate investor, you must be willing to take some risks. Successful investors spend a lot of money buying properties and fixing them up. Sometimes you lose that money, and sometimes you make money. You cannot let the risk of losing money scare you away.

We are still buying during the pandemic! You can see the video below that shows I may be willing to take on more risk than the average person.

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Willing to spend time

People often want to become investors because they want freedom and more time. It takes time to be a successful investor. It is not something that is easy or happens overnight. Owning rentals can be mostly passive once you buy the property and have a good property manager, but you need to take the time to find the best properties and managers.

If you are investing out of state, it makes sense to visit where you want to invest. If you are flipping houses, it takes time to find contractors, lenders and deals, and you need to be overseeing everything constantly. You have to be willing to put time into the business if you want to be successful.

Persistence

Becoming a great real estate does not happen right away. It can take months or even years to buy a property. If you give up easily, real estate is probably not the best business for you. I did not buy my first rental until 2 years after I decided I wanted to invest in rentals. I was in the real estate business at the time!

You also may fail or lose money in the beginning. You have to chalk those up as learning experiences and be willing to keep trying. Some of the best investors I know lost money on their first deals, but they did not give up.

Savers

You almost always need money to be a real estate investor. There are ways to invest with little money and maybe no money, but it is a lot easier if you have money to start with. Most successful real estate investors save money before and after they become investors. Once you become successful, you need to keep putting money back into the investment to grow.

Entrepreneurs

You don’t have to have the entrepreneur mindset to be a successful investor, but it helps! Even being a real estate agent means you are running your own business. I personally have to be an entrepreneur. I cannot work for anyone else. Real estate is perfect for me.

If you need someone to tell you when to work and how to do everything, it could be rough trying to be an investor. You need to be decisive and willing to act fast without confirmation from a boss that you are doing the right thing.

What if you don’t have these traits?

Don’t give up if you don’t have all of these traits. There have been many successful investors who still made it even though they lacked math skills or the entrepreneurial spirit. They may have had a tougher time or may have had to work harder, but they still did it. If you can recognize your weaknesses, that can help you figure out where you need help. You could work on being stronger in those areas or find someone to help you or work with you that is strong in those areas.

I have written 8 books that go into more detail on how to actually invest in real estate and the exact steps to take. You can find them all on Amazon.

Conclusion

Real estate is an amazing business, and it can provide some amazing investments. It is not easy, and it does not happen overnight. I see these traits in many successful investors but I also see people who never graduated high school have real estate empires as well.

Source: investfourmore.com

FHA and VA Loans Might Put Ownership in Reach

Buying a home might be a pretty conventional act, but financing one doesn’t have to be. Loans backed by federal agencies can be a big help if you’re low on cash or your credit score isn’t where you or a conventional lender would like it to be. There’s even a loan that can help you buy a genuine fixer-upper that many lenders won’t touch. So who qualifies, and what are the benefits of these special programs? One thing to note is that the following mortgages are only for the purchase of owner-occupied homes, not investment or rental properties. Beyond that, the requirements vary depending upon the program. Here are some answers to non-conventional mortgage questions.

FHA loans

Despite the name, an FHA loan isn’t issued by the Federal Housing Authority, but it is backed by the federal government. Because your lender knows that the government is guaranteeing the loan, the credit requirements aren’t quite as strict as with a conventional loan. Rates are as good or better than with conventional loans, and you can get an FHA loan with as little as 3.5 percent down. Not every lender offers FHA loans, but you can find several on Zillow by simply getting a rate quote for a mortgage with less than 20 percent down. How much can you borrow with an FHA loan? That varies by state and county, but it’s easy to check the limit for your location.

So why doesn’t everyone get an FHA loan? Because there are some costs. You won’t have to pay for private mortgage insurance as you would with a conventional loan when you put less than 20 percent down, but you will be paying in other ways. FHA loans require an upfront mortgage insurance premium (MIP) of 1.75 percent of the loan. Despite the name, you can roll that into your monthly payments. In addition, your annual MIP is paid each month, and the rate for that varies.

If you pay less than 10 percent down, and your loan was originated on or after June 3, 2013, that monthly MIP never goes away. To stop paying it, you’ll have to refinance to a conventional loan. If you put more than 10 percent down, your are required to pay the MIP for 11 years. You can check out the schedule here.

VA loans

One way to get a zero-down mortgage is through a VA loan. So what is a VA loan? Like the FHA, the U.S. Department of Veterans Affairs doesn’t actually make loans, but it does guarantee them. To get a VA-backed loan, you need qualify for the benefit and to go to an approved lender. You can find a VA lender easily here.

Although eligibility is determined by the VA, you may qualify if you are an honorably discharged veteran or an active member of any branch of the U.S. armed service, or if you are the spouse of either a veteran killed in the line of duty or an active duty member who is listed as MIA or POW.

The service thresholds vary, particularly for those who served in the National Guard or Reserves. You can find them on the Zillow VA loan FAQ page. You will also need a Certificate of Eligibility. You can either ask your lender to obtain your COE or you can get it for yourself from the VA’s ebenefits portal online.

How much house can you buy with a VA loan? In most areas, the VA puts a limit of $417,000 on its loans. But in certain high-cost parts of the country the limit is higher. You can find the limit in your county here.

In addition to the zero-down option, VA loans do not require you to pay any kind of mortgage insurance, even when borrowing 100 percent of your home’s value. As with many things, there is a catch — but it’s relatively small. In addition to the closing costs associated with every home loan, there is a VA funding fee. However, that can be financed or rolled into your monthly payment, and some veterans may even be exempt.

FHA 203k (fixer-upper loans)

Buying a fixer-upper that’s seen better days and turning it into your dream home can become a nightmare if you don’t have a good chunk of cash for repairs stashed away. That’s where the FHA 203k loan can help. You have to meet the usual FHA requirements, but with this loan you can get extra cash upfront to finance everything from new floors to a new roof.

You can get a loan for either the as-is value of the property plus repair costs or 110 percent of the estimated value of the home once repairs are complete, whichever is less. If your fixer-upper needs more modest repairs, you can get a streamlined 203k. This loan will get you the purchase price plus up to $35,000 for things like new appliances or carpets. But don’t get too fancy. You can’t use it to add luxuries like a swimming pool.

The catch? Not all properties will qualify and the application process isn’t as easy as slapping on a fresh coat of paint. You can find more details on the HUD site.

USDA loans

The other zero-down option is a loan backed by the U.S. Department of Agriculture. These loans are for low- to moderate-income buyers looking to purchase a home in rural area. The applicant may not exceed income limits and the dwelling must be “modest, decent, safe and sanitary.”

Also, as always, you must demonstrate an adequate ability to repay the loan. The USDA website will help you determine if you or the area you want to purchase will qualify.

Source: zillow.com