After Rich Engels’ mother died earlier this year, Engels decided to sell her condo unit in Sunrise Lakes Phase 4.
He lined up a buyer, but he said the deal fell apart after the lender learned that the condo building had no wind insurance.
Lenders won’t approve mortgage loans on buildings that are not insured with full replacement coverage.
It’s a growing problem as South Florida condominiums face a perfect storm of rapidly increasing insurance costs, tougher requirements to maintain reserves to cover repairs, and heightened scrutiny of inspections by lenders who rely on Fannie Mae and Freddie Mac, the federally-created guarantors of most U.S. home loans.
Engels eventually sold the condo to a buyer who could pay cash. But he says he settled for $40,000 less than what he was offered by the customer seeking the mortgage loan.
“We were planning to put some of the money away for each of the grandkids and give some to our kids,” Engels said. “I had to break my promise. It hurt a lot.”
an analysis of the new guidelines by the Massachusetts law firm Moriarty Bielan & Malloy LLC.
A list of ineligible properties are available to lenders and real estate agents, but they are not allowed to share it publicly.
“Prior to September, the mortgage companies would ask about the condition of the building and a general response was good enough,” says Ryan Papy, president of Keyes Insurance, an affiliate of Capital Partners Mortgage Services. “Now they want the full inspection and they go through it item by item. A large population of condos in our area do not pass this test and will only be suitable for cash buyers.”
Property managers and associations are still becoming familiar with the process, he said, adding, “Right now, it is chaotic to say the least.”
Reserve study requirement adds pressure on associations
And it comes as associations are figuring out how to comply with new legal requirements for condo buildings three stories or taller to complete Structural Integrity Reserve Studies no later than Dec. 31, 2024.
The study, currently required only in Miami-Dade and Broward counties, must include evaluations of specific structural elements, including the roof, load-bearing walls, foundation, floor, plumbing, waterproofing and fireproofing, windows, electrical systems, and any other item with a repair or replacement cost of more than $10,000 that would negatively affect the structure of a building if not corrected.
The studies will have to identify the remaining useful life of the common areas being inspected and recommend annual reserves that associations must raise to repair or replace the elements.
Effective Dec. 31, 2024, associations will no longer be permitted to waive or reduce funding for the reserve items in their annual budgets, or use reserve funds earmarked for the required structural items for any other purpose.
The studies will reveal more roofs that have reached the ends of their useful lives, along with other damage requiring immediate repairs to keep buildings insurable.
The costs associated with the required studies, along with costs to make required repairs and the rising cost of insurance threaten to make Florida condo life unaffordable for a growing number of retirees, Abramowitz said.
“Obviously something has got to give at some point,” he said.
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].
Embarking on the journey of purchasing a home in the Badger State is an adventure filled with anticipation and, often, a measure of uncertainty. Central to this process is the pivotal step of a Wisconsin home inspection—an essential safeguard that delves beneath the property’s surface, ensuring that your future haven is as sound in structure as it is inviting in appearance. This Redfin article will explore the ins and outs of Wisconsin home inspections, covering everything from their importance to specialized inspections, requirements, and costs. So whether you’re buying a home in Madison or a home in Green Bay, keep reading to learn everything you need to know about getting a home inspection in Wisconsin.
Why should you get a home inspection in Wisconsin?
Buying a home is a big investment, and getting a home inspection is a crucial step in protecting that investment. A professional home inspector will thoroughly assess the property, identifying any hidden issues, structural concerns, electrical and plumbing problems, and other potential red flags that may be missed during a casual walkthrough. This complete examination provides you with valuable insights, negotiation leverage, and peace of mind, ensuring you make an informed and confident decision about your new home.
“In Wisconsin, a home inspection is a smart step for buyers and sellers alike,” says Patrik Neuwirth of Inspect Karma, a Milwaukee-based home inspector. “It serves as a critical safeguard, uncovering potential issues from seasonal wear due to the state’s harsh winters and humid summers, to more hidden and costly problems. An inspection provides transparency and confidence, ensuring that one of life’s biggest investments is sound and secure.”
Are there any specialized inspections that Wisconsin buyers should consider?
While a standard home inspection covers the fundamentals, Wisconsin buyers should be aware of specialized inspections tailored to specific concerns. These include radon testing, especially in areas with elevated radon levels, mold inspections for properties prone to mold growth, lead paint assessments in older homes, and well and septic inspections in rural areas with these systems. These specialized inspections are key for ensuring your home is safe and free from potential hazards.
1st Choice Inspection in Milwaukee emphasizes the importance of sewer drain scoping, especially for houses built before the 1970s because tree roots can cause issues.
Are home inspections required in Wisconsin?
In Wisconsin, home inspections are not mandatory, but they come highly recommended for all homebuyers. While not required by law, certain lenders may impose inspection requirements as part of the mortgage approval process, such as pest inspections or appraisals. It’s important to note that despite the lack of mandatory inspections, opting for a home inspection is a wise and cost-effective choice.
Donn Anderson of Anderson Home Inspections advises that although inspections aren’t required in the state, they are more than worth the cost. It’s not uncommon for homebuyers to incur thousands of dollars in surprise expenses because they decided against getting a home inspection.
How much does a home inspection cost in Wisconsin?
The cost of a home inspection in Wisconsin can vary based on several factors, including the property’s size, age, location, and the scope of the inspection. On average, you can expect to pay between $300 and $500, with specialized inspections incurring additional expenses. While it may seem like just another added cost, the investment is well worth the peace of mind and potential long-term savings it provides.
Can you sell a house in Wisconsin without an inspection?
Wisconsin does not require sellers to conduct a pre-listing inspection, but many opt for this proactive approach. A pre-listing inspection can help find and address issues upfront, making the selling process smoother and more attractive to potential buyers. While not mandatory, it’s a strategic move for sellers looking to increase their home’s market appeal.
Wisconsin home inspection: the bottom line
In the world of real estate, knowledge is power. A home inspection in Wisconsin is your key to making an informed decision when purchasing a property. It provides you with insights into the home’s condition, negotiation power, and peace of mind, ensuring that you are investing in a safe and sound property. Regardless of where in the state you’re looking to move, a home inspection is a wise investment in your future.
Many people consider homeownership a rite of passage, a part of the American Dream, and a key way to build wealth. But recently, as home prices and mortgage interest rates have risen, some may wonder, “Is buying a home a good investment, no matter what?”
It can be challenging to gather enough funds for a down payment, qualify for a mortgage, and then afford all of the costs that go along with homeownership, such as property taxes, maintenance expenditures, and utilities. But to live in a place you love while building equity can be a win-win.
So if you’re wondering “Is buying a house a good investment?” vs. say, investing your money, you’ll have to take a closer look at how homeownership relates to your personal financial situation. Read on to learn how to evaluate what will be the right decision for you, starting with important questions to contemplate.
Is It a Good Investment to Buy a House?
In order to determine if buying a home is a good investment for you, you’ll need to estimate the amount of time you plan to own the house and the real estate marketplace dynamics.
• If you don’t plan to own the house for at least five years, you may not break even when you sell the home. When you buy a home, you pay for more than just the house and those costs can add up. You’re often paying for appraisals, mortgage application fees, inspections, movers, real estate agent fees, and that can add up to thousands of dollars.
In order to recoup all those fees, conventional wisdom says you need to wait at least five years for your home to appreciate before selling it. If you plan to live somewhere for less than five years, it could make the most financial sense just to rent property.
• You may also want to consider other aspects of whether it’s a good time to buy a house. For example, is it a hot or cool market? Are you likely to wind up in a bidding war (and possibly overpay) because there isn’t enough supply to meet demand? Are interest rates likely to fall over the next year? These dynamics can impact whether now is the right time to jump into the housing market.
💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.
Do You Have Sufficient Savings to Buy a House?
In order to buy a home, you’ll generally have to take out a mortgage to finance your home purchase. Before that’s not the only expense. These costs must also be covered:
• Before you even get to the mortgage stage, you’ll have to save for a down payment (which is often anywhere between 3% and 20% of the property’s purchase price) and closing costs, which are typically 3% to 6% of the loan amount. This can mean a significant chunk of change.
• There are continuing costs you’ll have to account for, such as home insurance, property taxes, general maintenance, and emergency home repairs.
When you are renting, if the kitchen sink springs a leak, your landlord will take care of it. But when you own a home, those repairs will be entirely your responsibility. Having an emergency fund saved up will help you deal with unexpected costs associated with homeownership.
Also, if you are purchasing a house as an investment vs. using it as a primary residence, can you afford to buy a house while still renting? That is a situation in which you will want to map out your cash flow and make sure you are prepared if you can’t flip or rent the property as quickly as anticipated. An emergency fund could also be invaluable in that scenario.
Are You Confident in the Housing Market?
The housing market rises and falls; take a close look to evaluate current trends. Home prices skyrocketed during the Covid pandemic and have continued to rise recently. This can make it difficult for first-time homebuyers to find a suitable home that is in their price range. It’s important to be prepared as you start to look at homes. Understand your budget and make sure you have saved enough money to make a down payment on the property.
Also be sure that you understand how mortgage rates can impact the affordability of housing and what your home shopping budget looks like. 💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.
Are You Ready for the Responsibility?
When you own your own home, you have a lot of freedom to make the space completely your own. With all of this flexibility comes a lot of responsibility. If the house has a yard, you’ll be responsible for regular maintenance and upkeep.
Will you need to pay for a new roof soon? Buy a lawn mower? If you live in an area with harsh winters, will you need to get a snow blower or hire someone to clear the driveway after each snow storm? These costs can add up.
So make sure you are ready for the financial responsibility that comes with owning a home before you make the purchase. You’ll have to account for repairs, improvements, general upkeep, insurance, and taxes. Not only does all of this cost money, it will take your time and attention as well, which isn’t necessarily the case when you rent. If you’re not ready to always be “on call” for your property’s needs, it could be a homebuying mistake to purchase.
Recommended: Should I Sell My House?
Are You Willing to Live with a Long-Term Loan?
Buying a home can mean you’re taking on a loan for perhaps 15 or 30 years. That’s a major undertaking. Part of the process of learning how to buy a house is educating yourself on how mortgages work and the different types available. Generally, there are two types: fixed rate and adjustable-rate mortgages.
• A fixed-rate mortgage keeps your payment level over time, typically 15 or 30 years, because the interest rate remains stable.
• The interest rate on an adjustable-rate mortgage loan fluctuates over time. They usually start out lower than a fixed-rate loan but often rise in later years.
To see what a mortgage could mean for your finances, take a look at an online mortgage calculator to compare different types of loans and see what your costs might look like. If a loan could be part of your life for three decades, you want to make sure you’re comfortable with it.
Remember that while it may seem daunting to take on a 30-year obligation, a mortgage helps you build equity in an asset that generally increases in value as time passes. Is a house a good investment? Historically, yes, if you take the long view.
Over the years, homeowners build up equity in the house as they methodically pay off more and more principal with less monthly payments on each loan payment. Many smart borrowers pay extra each month toward the principal to pay off the mortgage sooner.
Recommended: Quiz: Should You Buy or Rent a Home?
Pros and Cons of Buying a Home as an Investment
Before a major financial move, it’s important to consider the benefits and downsides. You’ll want to know what are the pros and cons of buying a starter home or a subsequent property. Consider these points.
Pros of Buying a House
Here are some of the upsides of buying and owning a home:
• You will build equity in your home over time, which can help you grow your wealth. Your home value may appreciate as well.
• There may be tax advantages to homeownership, such as deducting mortgage interest.
• Paying your mortgage payments on time can help build your credit.
• You can renovate the property as you see fit, unlike the case with rental units.
• You likely have a good idea of your monthly housing costs for the long term. If you are renting, you could face significant fluctuations.
• There’s a feeling of security for many people when they know they own their home.
Cons of Buying a House
Next, it’s wise to consider the disadvantages of buying a home:
• You typically need to pay for the down payment and closing costs, which can be a significant financial hurdle.
• You are likely locking into long-term debt, and it can take a while to build equity.
• There is no guarantee that your home’s value will grow over time.
• The costs related to owning a home can be significant. This includes expenses like property taxes and insurance, as well as home repairs.
• You will have less flexibility if you need to move for a job, say, or want to relocate to be closer to friends and family. Selling a house can involve time, energy, and money.
Ready to Buy? Consider a SoFi Mortgage
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is it wise to buy a house as an investment?
Whether it’s wise to buy a house as an investment will depend on many factors, such as your personal finances and current economic and real estate trends, as well as whether the property is a place that’s a good home for you to live in for at least several years.
Is buying a house worth it in 2023?
Buying a house in 2023 can be challenging because home prices and mortgage rates have been rising. However, if you can afford the monthly mortgage payments, plus the down payment and ongoing costs of homeownership, it may still be the right move for you.
Is owning a home an asset?
In general, a home is considered an asset. Yes, you typically have a mortgage, which is a liability, but on the plus side, you are building equity while having a place you enjoy living.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Do you want to learn how to make money with a drone? Drones have become more and more popular recently. People use them not just for fun but also for jobs that need pictures and videos from up high. This means there’s a growing opportunity for people to start small businesses to make money with…
Do you want to learn how to make money with a drone?
Drones have become more and more popular recently. People use them not just for fun but also for jobs that need pictures and videos from up high. This means there’s a growing opportunity for people to start small businesses to make money with their drones.
I have had a drone for several years now, and it is so great to be able to take pictures from a different perspective with it. We’ve also used our drone for many purposes – such as inspecting a roof, looking at the top of our mast on our boat (at 68 feet tall, it’s nice to have a drone to check things!), for family pictures, and more.
Whether you fly drones for fun or as a pro, earning money with them can be straightforward. If you have the right knowledge and tools, you can make your hobby pay off and make income.
Below, I will be talking about how to make money with a drone, how to get started, the best drone to make money with, and more.
How To Make Money With A Drone
What is a drone?
A drone, also called an unmanned aerial vehicle (UAV), is a flying machine operated from a distance by a pilot (like you or me) with a remote control (such as your cell phone). Whereas before, helicopters were needed for pictures from high up in the air, drones have made it much easier for the average person to take photos and videos.
Drones are used for many things, like taking amazing pictures from the sky, delivering packages, and inspecting the top of buildings that are high off the ground.
Some popular drone brands like DJI have really good cameras and special features that make them easy to use too.
How much money can you make flying drones?
How much you can earn as a drone pilot depends on how much experience you have, what kind of services you sell, and how much demand there is for those services where you live.
According to Glassdoor, a drone pilot can make around $65,000 a year, with some making well over $100,000 each year.
Recommended reading: 18 Ways You Can Get Paid To Take Pictures
13 Ways To Make Money With A Drone
Below are 13 ways to make money with a drone. Whether you want to learn how to make money with drone videos or drone pictures, there are many ideas that you could try.
1. Stock photos
One great way to get started making money with your drone is by selling your drone photos on stock photo sites.
You can make passive income with a drone by taking aerial photos (such as of cities, the outdoors, and so much more) and selling them on stock photo websites such as Shutterstock, Getty Images, and DepositPhotos.
Customers buy stock photos for many different uses, such as on websites, in TV shows, in books, on social media, and in other places.
I buy stock photos all the time for my website and so do millions of other people. They are so nice and helpful to have!
You simply take drone photos, upload them onto a stock photo website (making sure to add relevant keywords), and then the stock photo site does the rest of the work to sell them to customers.
2. Real estate photos
As a drone pilot, you can sell real estate photography services to real estate agents which helps them show the properties that they are trying to sell.
By taking a picture of the property from different angles and heights, real estate agents can show a different view of the real estate that traditional photography can’t provide.
By selling property photography services with your drone, you’re selling a helpful service to real estate companies looking to stand out in a competitive housing market.
More and more homes are being sold with drone photos, and it makes sense – it can really show how great the surrounding area is around a home! Plus, a possible home buyer can see the whole home and property with a drone picture to get a better idea of what the home includes.
3. Building inspection services
Building and roof inspection services are always in high demand, as homeowners and building owners need to look for possible damages or maintenance issues.
Drone operators can inspect roofs and tall buildings safely and quickly with a drone. I personally know a few roof and building inspectors who regularly use drones to help them with their work. Instead of spending a ton of time climbing onto a roof (or going on one that may be dangerous to begin with), they can simply turn on their drone and take pictures in order to get a better idea of what is going on.
After all, drones can go where humans can’t, or at least where it’s risky, time-consuming, or expensive for humans to go.
This is what makes a drone so helpful when it comes to inspecting a building. Drones are so easy to use, and they can take a picture of a hard-to-reach location in just minutes.
Drones are used by others for inspection purposes as well, such as to inspect solar panels by solar installation companies, inspect bridges and wind turbines, as well as inspecting farmlands. A service related to this is that many times utility companies will use drones to inspect their power lines too!
4. Aerial photography and videography
Aerial photography and videography are popular for many different events, such as sports and concerts.
Sporting events and concerts typically pay for drone photos because it helps give them more images of the full picture of the event they are hosting as well as a different perspective. This can help them to sell more tickets in the future and gain more publicity.
5. Instagram
I follow quite a few Instagram accounts that mainly post amazing drone photos from around the world. These content creators are able to make money by building a following and partnering with companies for advertising.
6. YouTube videos
Starting a YouTube channel that shares your drone footage can also earn you income. As you gain subscribers and views, you can earn advertising income and sponsorship deals or paid collaborations.
On your YouTube channel, you may publish videos that include drone videos such as from your travels. Or, you may be teaching others how to use their drone. There are many different avenues you could try.
Recommended reading: How Much Do Twitch Streamers Make?
7. Aerial mapping and surveying
Drones can be used for mapping and surveying tasks, such as creating topographic maps, assessing land for development, and for agricultural inspections.
This is because with a drone you can map out large areas extremely quickly.
I did a quick Google search for the job “aerial mapping drone pilot” and found a lot of different openings too!
8. Drone delivery services
Drone delivery services are a pretty new market, with companies such as Amazon starting to use drones for package delivery.
Sounds pretty crazy, but it is a real thing!
While regulations are still constantly changing, drone delivery services may have some big openings for drone pilots who want to be some of the first.
9. Filmmaking
Drones have completely changed the filmmaking industry by allowing for unique camera angles and movements that were once impossible to achieve (or could only be done before with a helicopter).
Drone pilots can sell services in filmmaking and work on movie sets, TV commercials, and music videos.
10. Hotel photos and ads
Drone photos of hotels and Airbnbs can help to sell more rooms better because customers can see the surrounding area and what the whole building looks like.
This may help a person to see that there is a beach or a mountain nearby, or perhaps that it is close to the center of a city.
11. Wedding photography
More and more couples are wanting drone photography of their wedding. You can sell wedding photography services with your drone, which allows couples to capture their wedding day from different angles.
This could be an add-on if you are already a wedding photographer, or perhaps you can reach out to wedding photographers in your area and sell your services to them as an add-on.
12. Freelance jobs
Drone photographers can use freelance platforms such as Upwork, Fiverr, Droners.io, and PrecisionHawk to sell drone services to clients. By promoting your drone photography portfolio on these sites through creating a profile, you can find freelance jobs and make money.
I did a quick search and you can see examples of drone photographers selling their services on Upwork here to get an idea.
13. Renting drones
If you own multiple drones, you can possibly start renting them out to other drone pilots or people who simply want to take some drone photos.
There are many ways you can rent out your drone, such as to recreational users who want to try out flying a drone, content creators, photographers, researchers, for search and rescue operations, disaster relief, and so many more.
Getting Started With A Drone Business
Starting a drone business can be a great way to make money, especially if you enjoy playing around with drones.
As you read above, drones have been so helpful in many different areas, from real estate to movies, farming, and more.
Starting a drone business is probably simpler than you would think too.
What drone should you buy?
If you want to learn how to make money with a drone, then getting the right drone is helpful. Before buying a drone, think about your budget, the drone’s flight time (how long the drone can fly in the air on a battery charge), your skill level, and the type of services you want to sell.
Some of the best drones to make money with include:
Do you need a license for a drone business?
Yes, if you plan to operate a drone for commercial purposes, you should have a Remote Pilot Certificate from the Federal Aviation Administration (FAA). To get this certificate, you must:
Be at least 16 years old
Be able to read, speak, write, and understand English
Pass an aeronautical knowledge test
Be physically and mentally fit to operate a drone
Complete the FAA’s online application
Once you get your Remote Pilot Certificate, you are required to register your drone with the FAA and you will then get a unique identification number.
You can learn more about how to become a drone pilot on the FAA’s website here.
Do you need insurance to run a drone business?
Having insurance isn’t required by the law, but it’s a good idea to get it for your drone business.
Insurance helps protect you and your clients in case something goes wrong, such as if there is an accident or problems with the drone. Drones can be expensive, so insuring them can help to pay for them in case something happens (for example, you could crash them into a building or lose them in the water).
I have personally lost a drone in the water, and insurance gave me a new one right away, which was very nice.
How much does it cost to start a drone business?
The costs for starting a drone business include:
Drone – $300 to $10,000+
Laptop to edit your photos – $500 to $2,000+
Remote pilot certificate – $175
Drone insurance – $1,000 per year
Other expenses that you may have include a business license, advertising costs, office space, and more.
The amount that you spend to start your drone business will be higher or lower depending on your budget, what kind of drone business you plan on running, and more.
How To Improve Your Drone Skills And Training
Below is how you can become a better drone pilot and get good pictures and videos. Whether you’re a beginner or if you’ve been flying drones for years, the below can help you to improve your business.
Become a skilled pilot
To get really good at flying drones, you need to spend time learning and practicing. Flying a drone is not as simple as it looks – I know because I have had a drone for years, and I have a lot to learn yet. And, I still get nervous when flying it!
If you want to start a drone business, then I recommend taking a drone training course that will teach you everything from basics to advanced skills. There are a lot of features on a drone and it can be overwhelming to learn. A course can speed things up for you.
Also, practicing as much as you can is very helpful, which will help you get better at controlling it. Finding an open space can help you get more comfortable with flying it as well because you won’t be as worried about hitting something with your drone.
This will then help you with the next step – taking photos and videos with your drone.
Video and photography training
Once you’ve learned how to use your drone, the next step is to get better and better at taking pictures and videos with your drone.
You will want to learn as much as you can about your drone’s camera and the different settings that come with it. You should learn how to set up good shots, how to figure out what kind of lighting you need, how to frame pictures and videos, and more.
Here are some tips to improve your video and photography skills with your drone:
Take a course – Sign up for a photography or videography course to improve your knowledge of drone camera settings as well as framing and editing techniques. You can easily find a drone photography course online, such as on Udemy.
Practice regularly – The more you take videos and photographs with your drone, the better you will be.
Learn from others – I recommend joining online forums or drone pilot Facebook groups to talk with other drone photographers. This can help you to learn new tips that you may not have thought of.
If you get better at flying and taking good pictures or videos with your drone, you can start earning money. Of course, it will take time and lots of practice, though!
Frequently Asked Questions About How To Make Money With A Drone
Below are answers to common questions about how to make money with a drone.
Can I sell my drone photos?
Yes, you can sell your drone photos either part-time or even full-time. Many drone photographers earn money by selling their drone photos to people such as real estate agents, advertising companies, and more.
Are drone pilots in demand?
Drone pilots are in demand as drone technology has become easier to use and more affordable. Industries such as agriculture, construction, marketing, and even emergency response use drones for many different purposes.
Can you make good money with a drone? Is a drone business profitable?
Yes, you can make good money with a drone! You can make up to $200 an hour, and the average pay is around $65,000 per year. Profitability depends on factors such as your target customer and the services you sell.
What are the best drone pilot jobs for earning money?
Some of the best drone pilot jobs for making money include aerial footage, real estate photography, mapping and surveying, building inspection, and selling drone photos as a content creator (such as Instagram).
What freelance opportunities are available for drone pilots?
Some freelance jobs for drone pilots include aerial photography, land surveying, and inspecting buildings. You can sell your services through your website, social media, and online job marketplaces such as Upwork, Zeitview (formally known as DroneBase), and FlyGuys.
Is obtaining a Part 107 drone license necessary to earn with a drone? Can you make money with a drone without a license?
If you want to use your drone for a job in the United States, you’ll need a Part 107 license (this is informally known as the commercial drone license). It shows you know how to use your drone safely and follow the rules. Plus, some clients might ask you to have this license before they hire you too. If you are caught selling drone photography without a license, then you could face a fine of $1,100 from the FAA.
What DJI drones are recommended for making money?
Some DJI drones to look into include DJI Air 2S, DJI Mavic 3 Pro, and the DJI Mini 3.
What are the opportunities in drone training and consultation?
As more people use drones, there will be more need for drone training and advice. If you know a lot about drones, you can teach others or help businesses use drones in their work. This can be a good way to make money as well.
How To Make Money With A Drone – Summary
I hope you enjoyed this article on how to make money with a drone.
As you can see, there are many different ways to make money with a drone, such as:
Stock photos
Real estate photos
Building inspection services
Aerial photography
Instagram content
YouTube videos
Aerial mapping and surveying
Drone delivery services
Filmmaking
Hotel photos and ads
Wedding photography
Freelance jobs
Renting drones
Do you want to learn how to make money with a drone?
The cost to replace a chimney ranges from $1,000 to $15,000, depending on the type and size of the chimney. You can install a smaller or prefabricated chimney for $1,000 to $5,000, but a full masonry chimney replacement cost can reach $15,000.
Below, we’ll explain new chimney cost factors, break down labor and materials expenses, discuss financing options, and help you determine if you might be able to replace the chimney yourself.
Chimney Replacement Costs: An Overview
How much does a chimney replacement cost? Anywhere from $1,000 to $15,000. A full chimney replacement is on the higher end of that range while a partial replacement — or a basic prefab chimney installation — is on the lower end.
In some cases, it might be possible to repair the chimney instead of replacing it. Chimney repair costs typically range between $1,000 and $3,000, though it varies depending on the extent of the damage.
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Full Chimney Replacement
A full chimney replacement costs between $5,000 and $10,000 — or up to $15,000 in some cases. Prefabricated chimneys are the lowest-cost option. You’ll pay moderate prices for a metal chimney and the highest prices for a brick chimney.
Partial Chimney Replacement (Rebuild)
You may only need to replace part of a chimney, like the stack, which extends above the roof. In other cases, you may need to pay for the repair of specific elements, like collapsing mortar, a damaged chimney crown, or a cracked flue.
Partial chimney replacement costs may top out at $5,000 while repair typically ranges between $1,000 and $3,000 per job.
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Chimney Installation Labor Cost
Labor makes up a large portion of the cost to replace a chimney. Depending on your geographic location, if you can reach the chimney by ladder or you need scaffolding, and the type of chimney being installed, labor rates may range from $50 to $150 an hour for an experienced mason.
You will usually need to hire a structural engineer before the mason can begin their work, which adds to your overall labor costs. Depending on where you live, that can cost around $500.
Chimney Installation Material Costs
Material costs vary depending on the type of chimney being replaced, rebuilt, or repaired. Prefab chimneys have lower material costs while masonry chimneys require more expensive materials like bricks and mortar.
Chimney Installation Cost Financing
Paying for a new chimney — or even a more basic chimney repair — can be difficult on a tight budget. If you don’t have the money in emergency savings, you can explore other options like:
• A payment plan with the contractor: Ask the contractor if they can set you up with a payment plan over a set number of months, rather than requiring the full payment all at once. Costs may be higher if you go this route.
• A credit card: Some contractors will let you pay with a credit card but be careful. Your credit card may have a high APR, and if you can’t afford to pay the full bill at the end of the month, you could end up paying a lot of interest, which will make the new chimney even more expensive.
• A home improvement loan: Home improvement loans are a low-cost option for homeowners. These personal loans typically have a lower interest rate than your credit card, and you can choose repayment terms — often three to five years — that make sense for your budget. A personal loan can be a cost-effective way to pay for common home repair costs.
• Home equity loans: Homeowners can also tap into their home equity with a home equity loan or home equity line of credit (HELOC).
Before you decide on the best financing option, you will want to compare the difference between home equity loans vs. home improvement loans.
Can I Replace the Chimney Myself?
A chimney replacement requires special skills and training. A lot can go wrong if you install or repair a chimney incorrectly. It could become a fire hazard or potentially collapse. No matter your DIY skills, we highly recommend hiring a qualified mason to tackle all repairs and replacements.
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What Factors Impact a Chimney Replacement Price?
Several factors can impact your overall chimney replacement cost, including:
• Permits needed: You’ll almost always need to get a permit for larger chimney replacement projects. Permit costs vary depending on your state and municipality.
• Level of work required: Wholesale chimney replacements cost significantly more than minor work. For example, chimneys may just require some repointing or tuckpointing to keep them in good shape, or you may need to replace the crown or cap or only rebuild the stack. If you have to replace the whole chimney, it may require demolition, which can be expensive. Talk with your contractor about the extent of the work to get a better idea of the total chimney installation cost.
• Type of chimney: Prefab chimneys are the most affordable to install. You’ll spend more to replace a metal chimney, but the most expensive type of chimney to replace is a brick one.
• Size and location: Larger chimneys will cost more to replace than small ones. Chimneys that are easy to access (by ladder, for example) are also more affordable to repair or replace. If the positioning of the chimney makes it harder for the contractor to access, labor costs will be higher.
Signs Your Chimney Needs to Be Replaced
How do you know when it’s time to replace your chimney? Here are a few signs to watch for:
1. Crumbling brick: If the brick is visibly crumbling or deteriorating, call a mason quickly to determine the extent of the damage and begin the repair or replacement work.
2. Leaks: If your chimney is the source of leaks (look for water damage to the surrounding walls and ceiling), it’s time to call a contractor to look at it.
3. Cracks: It’s good practice to have your chimney inspected each year. During the inspection, the contractor will look for large cracks. These could be a sign that it’s time to repair or replace the chimney.
The Takeaway
Chimney replacement costs can range from $1,000 to $15,000 — it’s not a cheap project, but luckily, it’s also not a common one. Get your chimney inspected every year, and keep up with regular maintenance and cleaning. Unless there’s unexpected storm damage or the chimney is old, you may not have to replace the chimney the entire time you live in your home.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
Replace your chimney asap with a home improvement loan from SoFi.
FAQ
How long does it take to replace a chimney?
Basic chimney repairs can be quick: A professional should be able to repair a partially damaged chimney in one to four days. Significant damage may lead to longer timelines — in some cases, it might take weeks or even months to repair and rebuild a chimney.
Can I replace my chimney myself, or do I need to hire a professional?
Replacing and repairing a chimney requires specialized knowledge, skills, and equipment, not to mention physical strength. If you make even a small mistake when replacing your chimney, you might accidentally cause a leak, inadvertently create a fire hazard, or build a structurally unsound chimney that could collapse. Always hire a professional for this work.
What qualifications should I look for in a chimney replacement contractor?
When looking for a contractor to work on your chimney, always confirm that they are licensed and insured. You should also verify that they’re certified by the Chimney Safety Institute of America.
Ask the contractors if they offer warranties or guarantees for their work and read reviews online to make sure they provide quality services. You can also ask them for references.
How do I compare quotes from different chimney replacement contractors?
Before getting quotes from any chimney replacement contractors, read online reviews and ask the contractors about their licenses, insurance, and certifications. Only get quotes from qualified contractors.
When comparing quotes, look not just at the overall cost but also the timeline to ensure they can replace your chimney quickly, if needed. Also verify what is and isn’t covered in the quote. For example, has the contractor included the necessary permits, or is that a separate cost not part of the estimate?
You’ll also want to ask about their payment schedule and how they prefer to be paid (cash, check, or credit card, for example).
Are there permits or inspections required for chimney replacement, and how much do they cost?
When replacing a chimney, you almost always will need to get a permit and an inspection. The costs will vary depending on where you live, but you might pay up to $500 for an inspection by a structural engineer, and permits can reach $150.
How often should I replace my chimney, and what factors affect its lifespan?
A well-built chimney should last several generations of homeowners. In theory, you may never need to replace your chimney (but regular inspections are a good idea). If you do replace your chimney, you likely won’t need to replace it again as long as you’re in that house.
That said, certain elements may need to be repaired or replaced more frequently. Chimney liners, for instance, last 15 to 20 years, and mortar lasts 25 to 30 years.
Extreme weather, like high and low temperatures, hail, and earthquakes, may shorten a chimney’s lifespan, as can exposure to water. As your home settles over time, it may also lead to premature cracks in your chimney.
What are the risks of not replacing a chimney that is in disrepair?
If you ignore the signs that it’s time to replace or repair your chimney, you’re exposing your home to a lot of risk. Water could more easily get into your home, leading to mold and mildew. Walls, ceilings, and floors could deteriorate over time, and the inner workings of your chimney would be exposed to rust. Eventually, your chimney might collapse, leading to much more expensive and extensive structural damage to your home.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Before you buy a homeowners policy, your insurer might require a home insurance inspection. This inspection isn’t the same as the one you had when you bought your house. Instead, it’s a way for insurance companies to see the condition of your home, evaluate your coverage needs and decide whether they’re willing to insure you. Keeping your home in good shape can help this process go smoothly and ensure you get the coverage you need.
What is a home insurance inspection?
A home insurance inspection helps insurers understand the risks of covering your house. It allows your insurer to figure out how much it would cost to rebuild your house and to spot any issues, like fire hazards or weak structures, that might lead to insurance claims in the future. This information helps the insurance company decide if your home is in good enough shape to insure, and if so, how much your premium should cost.
Not all homes will undergo these inspections. Your insurer might require an inspection if:
You have a high-value or older home.
You live in an area at risk of tornadoes, hurricanes, wildfires or other hazards.
What can you expect during a home insurance inspection?
You might not need to be present for an exterior inspection, but you will if the inspector is checking the interior of your home for things like wiring, plumbing and safety features. The inspection could take up to a few hours, depending on how detailed it is.
For an external inspection, the inspector may look at things like your roof, windows, doors and chimney. They may also check for hazards like overhanging trees or cracks in the walkways.
An interior inspection may involve examining walls, ceilings and floors for signs of water damage or pests. The inspector may also assess the state of your plumbing, electrical, and heating and cooling systems. They’ll often check safety features like smoke detectors, carbon monoxide detectors and security systems, too.
🤓Nerdy Tip
Your insurer may use your home insurance inspection to verify that you qualify for certain home insurance discounts. For example, many companies offer savings for having a home security system.
How to prepare for a home insurance inspection
Before your home insurance inspection, do your own thorough check to avoid being caught off guard by any problems. (You may want to hire a professional for some of these tasks.)
If you spot any potential issues, fix what you can or reach out to a contractor who can help. Here are a few key places to focus on.
Exterior of the house
Roof: Have a roofer check for damaged or missing shingles.
Gutters: Clear debris and ensure your gutters are secure.
Chimney: Look for cracks or loose bricks; consider a professional cleaning.
Trees: Trim branches away from the house.
Siding, doors and windows: Check for cracks, leaks and damage.
Walkways: Ensure there are no tripping hazards.
Yard: Remove loose debris and get rid of pools of water near your home that could lead to pests.
Interior of the house
Detectors: Ensure smoke and carbon monoxide detectors work.
Fire extinguisher: Check to make sure it’s operational.
Fireplace: Clean it out if you have one.
Windows, walls, doors and plumbing: Check for signs of leaks, cracks and pest issues.
Attic and basement: Look for signs of water or pest damage.
HVAC system: Have a professional clean and test your system.
What if you fail a home insurance inspection?
If your home doesn’t pass the insurance inspection, don’t worry — you have options. Make sure to act quickly. Being uninsured, even for a short time, is risky. A lapse in coverage can make it harder and more expensive to get a policy in the future. And if something happens while you’re not insured, you’ll be financially responsible.
Fix the issues
Your inspector may point out problems like a leaky roof or electrical issues. If your insurance company denies you coverage for fixable reasons like these, address them if you can.
Find a different insurer
If you were denied coverage because you live in an area at high risk for crime or severe weather, ask your neighbors who they use for home insurance. You can also ask the previous homeowners or reach out to a local independent insurance agent.
Not all companies have the same rules. Some insurers are pickier than others about the age of your roof, for instance. So if you can’t afford to get a new roof or make other major repairs, try another company. If one insurer says no, another might say yes.
Dispute the decision
If your insurer drops you due to a failed home insurance inspection and you don’t agree with the decision, you can dispute it. Be prepared to provide evidence to support your case, such as receipts for work you’ve had done on the house or a property assessment from an independent inspector.
You can also file a complaint with your state’s insurance department. It can conduct its own research into your claim and work with your insurance company to resolve the issue.
Look into state-run insurers
Many states have programs to help homeowners who struggle to get insurance. For example, Fair Access to Insurance Requirements (FAIR) plans are designed for high-risk homes that private companies won’t insure. An independent insurance agent can help you find programs like this in your area.
In the age of Airbnb, listing your home, property or apartment for temporary and long-term renting is a unique way to generate income while stepping into property management shoes. Listing your property, which may initially sound simple, requires meticulous management, organization skills and a general understanding of landlord-tenant law. The worthy feat of generating income through property rental is gaining popularity, particularly in areas where housing is in high demand.
Explore the comprehensive guide below to understand the process of renting your house and assist in developing an efficient property management strategy. These step-by-step instructions are tailored to assist both novice and seasoned property owners in maximizing the benefits of the significant endeavor that is the rental game.
Renting out your house: a step-by-step guide
Follow these steps to ensure you and your potential renters gain the most from the renting experience. In addition to optimizing your earnings, acquire the know-how to increase your visibility, ensure compliance with legal regulations and cultivate essential management abilities.
1. Understand local laws and regulations
Before you embark on your property management journey, it’s imperative to research and familiarize yourself with local laws and regulations around renting. Here are some rules, regulations and definitions to understand concerning renting out your house while playing by the rules.
Fair Housing Act: This federal law prohibits discrimination against housing applicants on the basis of race, color, religion, national origin, disability, sex, age or familial status (e.g., women who are pregnant, families with small children or teenagers, etc.).
Fair Credit Reporting Act (FCRA): Credit and criminal background checks are subject to federal regulation known as the Fair Credit Reporting Act (FCRA). Its many provisions include the following requirements:
You must notify applicants in writing and get their written permission before running any check on them.
If you decide to reject an applicant based on the findings of a credit report or background check, you must notify the applicant of your intent in writing, furnish them a copy of the report and give them a reasonable amount of time (a week suffices) to respond with a correction or explanation of the report’s findings.
After that period, upon consideration of any response you get from the applicant, you may notify them in writing of your final decision.
“Fair chance” laws: This isn’t a federal law, but a growing number of states and cities have enacted these measures to prevent discrimination against persons with prison records. Specifics vary by jurisdiction, but most of these laws forbid asking about past criminal convictions or incarceration on housing applications.
Protect yourself by consulting your legal advisor to see whether any fair chance laws apply to you, and how they might affect your tenant-screening process. Avoid exposing yourself to legal liability as well by utilizing professional background-check companies or consulting legal advice further.
2. Prepare your property
Staging your property and making it suitable for renters is the next step. Ensure any broken appliances are fixed, messes tended to and any recommended enhancements are made. Completing some market research to see similar rental properties to yours (properties that have similar offerings like bedroom and bathroom numbers or properties in the same location) can be helpful in terms of improvements or enhancements to make to your rental property.
Secure landlord insurance as a part of your preparation step. Landlord insurance is a specialized policy that safeguards property owners from potential financial losses and liabilities when renting out their residential properties to tenants. It typically covers property damage, liability protection and loss of rental income due to covered events.
3. Set a competitive rental price with our rent estimator tool
Continue your market research in this step to determine the ideal price range for renting out your property to temporary tenants. Utilize this rent estimator tool to assist you in valuing your property for rent price.
4. Draw up a lease agreement
Draft a comprehensive lease agreement that clearly outlines the terms and conditions of the rental, including rent amount, security deposit, lease duration and any rules or policies for the property. Ensure that it complies with local and state laws.
5. Create your listing
Once you know what you’re charging for rent, you’re ready to get to the heart of marketing the property online: putting together a listing that will entice tenants into renting out your home.
The key to a great listing is communicating the unique advantages of your property in a way that attracts the right kind of tenant. Namely, a tenant who will be dependable and take care of your property as if it were their own.
A Rent. survey found that most seekers of single-family rental (SFR) properties are married or in domestic partnerships (62 percent), have children (61 percent) and have pets (54 percent).
Regardless of who you are renting out your home to, it’s important to highlight what’s most likely to resonate with your ideal tenant. Here are some potential features to consider when renting out your home.
Schools: Each Rent. listing automatically displays GreatSchools.org ratings for schools closest to each property. If nearby schools get high marks, consider highlighting them in your property description and noting if any are within walking distance.
Parks or playgrounds: If there are parks or playgrounds nearby, mention them and how long it takes to walk or bike to them. If you pique any rental seekers’ curiosity, they can use the map embedded in the Rent.com listing to explore via Google Street View.
Pet-friendliness: If you plan to allow pets on the property, make sure you include this in the listing, along with any breed restrictions info. Call out relevant details that will be of interest to pet owners (e.g., nearby pet-friendly parks, fenced-in yards, doggy doors, etc.).
Neighborhood highlights: Call out nearby landmarks, much-loved hangouts or transportation conveniences like a train or subway stop and include a picture. Don’t forget to call out the distance from your property.
6. Market your property
Share your listing across ILS networks to cover a lot of the heavy lifting, but you can also share links to your Facebook and Instagram accounts. Try using Facebook Marketplace to limit the post geographically (and to reach potential tenants you aren’t friends with on Facebook).
Once you’ve posted one and shared it across multiple ILS sites and social media, you’ll likely be moving on to the next phase of the rental process: choosing the best tenant from among the applicants who are interested in your rental listing.
7. Screen and collect
Develop a tenant screening process that includes background checks, credit checks and references. This will help you select reliable tenants who are more likely to pay rent on time and take care of your property. Once you find a suitable tenant, collect a security deposit and the first month’s rent from your tenants before they move in. Make sure you follow local laws regarding the handling of security deposits.
Once tenants are inhabiting your rental property, it’s imperative to stay responsive to maintenance requests from your tenants. Timely repairs and maintenance will help keep your property in good condition and your tenants satisfied.
8. Maintain your rental property
Regular maintenance tasks include keeping the property in good repair, addressing maintenance requests promptly and conducting routine inspections to identify and address issues before they become major problems. Timely maintenance is important because it minimizes the risk of costly repairs down the road. Make sure to stay up to date with local regulations and safety standards as well to ensure that your rental property remains compliant and safe for renting out.
Renting our your house made easy
Renting out your home, in the age of Airbnb and VRBO, is an exciting time and journey to embark on. Once you estimate your home using our rent calculator tool, draw up your lease and prepare your property, the rest of the process involves meeting and vetting potential tenants. Sharing your home, community and amenities is a unique job that just about anyone can do, using this article.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
Wesley is a Charlotte-based writer with a degree in Mass Communication from the University of South Carolina. Her background includes 6 years in non-profit communication and 4 years in editorial writing. She’s passionate about traveling, volunteering, cooking and drinking her morning iced coffee. When she’s not writing, you can find her relaxing with family or exploring Charlotte with her friends.
There’s a lot to learn when you’re preparing to buy a home.
First, you’ll need to understand market values to avoid paying too much for your house. In addition, home inspections are vital to uncover any hidden issues before finalizing a purchase.
Furthermore, potential buyers must pay attention to closing costs, ensuring they have sufficient funds for the transaction. Lastly, perhaps the most critical aspect to keep in mind is being aware of current mortgage rates.
For those in the market for a house, even a minor adjustment in the interest rate can substantially change your financial picture and affect how much house you can afford.
This guide will shine a light on the intricacies of securing the best mortgage rate, which could translate into significant savings throughout the life of the loan. A lower rate may even allow you to afford a nicer home for your money.
Step 1: Boost Your Credit Score
A top-tier credit score be your VIP pass to securing the most enticing mortgage rates. But what factors make up your credit scores? And how can you boost yours in a hurry?
Timely bill payments: The bedrock of a solid credit score, timely bill payments account for 35% of your FICO credit score. Paying your credit card bills and monthly debt payments on time, consistently, boosts your credit scores. On the other hand, missed or late payments reduce your score, and can remain on your credit report for up to seven years, making it harder to get a good interest rate.
Credit card balances: Having credit cards helps you build credit, which can increase your FICO score. But maintaining a balance lowers it. Aim to keep your utilization ratio, which is the balance in relation to your credit limit, below 30%. An even better practice is paying off the balance in full every month.
Avoid excessive inquiries: Every time you apply for credit, a ‘hard inquiry‘ is placed on your report. Multiple hard inquiries in a short period can indicate risk to potential mortgage lenders, slightly dropping your score with each one. There’s one caveat here: Inquiries for the same loan type (such as a mortgage or car loan) within a few weeks of each other are counted as one inquiry. The credit bureaus understand you are shopping around for the lowest rates.
Check your credit reports regularly: Make it a practice to review your credit report from all three bureaus annually. This can help you spot and rectify errors or discrepancies which, left unaddressed, could reduce your credit scores.
Remember, in the eyes of lenders, a higher credit score depicts financial responsibility. Achieving this can translate to potentially thousands saved in interest over the life of your mortgage loan.
Step 2: Increase Your Down Payment
The down payment is more than just the initial chunk of money you put toward your home; it’s a reflection of your commitment to the property. The amount you put down influences how mortgage lenders perceive your loan’s risk.
Take a look at some of the advantages of putting 20% or more down.
Less borrowing: The more you pay upfront, the less you’ll need to borrow. This reduces your loan-to-value ratio, which can make you a more attractive borrower to lenders.
Lower rates: Lenders often associate higher down payments with lower risk. A borrower who can afford a larger down payment is seen as more financially stable, thus possibly qualifying for a lower interest rate.
Avoid private mortgage insurance (PMI): Typically, if you put down less than 20% on a conventional loan, you’ll be required to pay PMI. This insurance protects the lender if you default on your loan. By increasing your down payment to 20% or more, you can bypass this additional cost.
Future financial flexibility: By paying more upfront, your monthly mortgage payments will be lower, offering you greater financial flexibility in the future. This can be particularly beneficial during unforeseen financial hardships.
While it may be tempting to jump into homeownership with a smaller down payment, putting at least 20% down can lead to substantial savings in the long run and a more favorable loan structure.
Step 3: Consider Buying Mortgage Points
The strategic purchase of mortgage points, also known as discount points, serves as an effective mechanism to lower your mortgage rate. Let’s explore how they work.
What are mortgage points?
A discount point is a form of prepaid interest. One point typically equates to 1% of your loan amount and can decrease your interest rate by a certain percentage, usually around 0.25%.
Should you buy points?
Points can be a costly upfront expense at closing time. It’s important to decide if the future benefits justify the investment. Ask yourself:
How long do you plan to live in the house?
How much will you save on your monthly payment?
How long will it take to break even on the cost of the points?
Your mortgage lender can help you calculate whether buying points makes sense for you. They can provide a breakdown of the costs and savings associated with purchasing points, offering a clearer picture of the potential benefits.
Step 4: Choose the Right Loan Term
Your loan term is more than just a deadline for repaying your mortgage; it determines your interest rate and monthly mortgage payment.
Generally, shorter-term loans, like a 15-year fixed rate mortgage, come with lower interest rates than longer-term ones, like a 30-year mortgage. The reason is simple: lenders face less risk when the borrowed amount is to be repaid over a shorter period.
However, with a shorter term, you’ll have higher monthly payments, since you’re dividing your total mortgage amount over fewer months. You’ll need to balance the allure of a lower rate against the practicality of larger monthly payments.
Before you choose a loan term, assess your current financial situation and your projected future income. Your comfort with the size of the monthly payment, your financial goals, and your age at the end of the term are all factors that should inform your decision.
By understanding these elements, you can select a loan term that best aligns with your financial plans, payment capability, and homeownership goals.
Step 5: Navigate Market Conditions
Understanding and responding to the broader economic landscape is pivotal in securing an affordable mortgage. The U.S. Federal Reserve sets the federal funds rate, which is the rate at which the central bank lends money. The funds rate determines the interest rate for credit cards, loans, and mortgages.
A flourishing economy often triggers an increase in interest rates. The U.S. Federal Reserve has raised rates in recent months to try to stem inflation. However, an economic downturn could cause the Fed to keep rates steady or even reduce rates to stimulate borrowing and spending.
Understanding these principles can offer insight into potential rate fluctuations as you decide whether you want to buy now or wait for rates to drop.
It’s important to research these factors to have an understanding of the market. But you can also seek the guidance of a financial advisor or a mortgage broker. They have expertise in market trends and can provide advice tailored to your circumstances.
Step 6: Leverage First-Time Homebuyer Programs
If you’re navigating the housing market for the first time, there are a plethora of programs tailored to assist you in securing a favorable interest rate. These programs, often government-supported or backed by financial institutions, are designed to make homeownership more accessible. They offer a variety of incentives such as competitive mortgage rates, lower down payment requirements, or even assistance with down payments.
To qualify, you usually need to meet certain criteria, including income limits, purchasing in a designated area, or completing a homebuyer education course. It’s crucial to investigate these opportunities, as eligibility can vary widely between programs and regions.
Tapping into these programs can significantly alleviate the financial strain of homeownership, reducing your mortgage rate, and making the dream of owning a home more achievable and affordable. Research and due diligence are key in identifying and securing these benefits.
Step 7: Compare Multiple Lenders
Actively seeking and comparing options from several lenders can help you secure the most favorable interest rate. Here are three steps to take in your search for the best mortgage rate.
Know what to compare: Each lender may have unique offerings in terms of mortgage loan options, closing costs, and interest rates. By getting quotes from a minimum of three lenders, you ensure that you have a broad spectrum for comparison, helping you make an informed decision.
Utilize financial tools: A mortgage calculator is an excellent tool for to evaluate lenders. By inputting the variables of different interest rates, loan terms, and down payment amounts, you can get a clearer understanding of the monthly payment and total cost associated with each loan option.
Take your time: Don’t rush this step. It’s important to thoroughly review and understand each offer. Remember, a mortgage is a long-term commitment, and the details matter. Choosing the right lender can save you thousands of dollars over the life of your loan.
Step 8: Negotiate Your Mortgage Rate
While it might seem daunting, negotiating your mortgage rate is entirely possible and could result in substantial financial savings. Lenders and mortgage brokers often have some flexibility in the rates and fees they can offer. This is where thorough research and understanding of your own financial health, including your credit scores, debt-to-income ratio, and loan options, can be advantageous.
The more you understand these factors, the more leverage you have during negotiations. A well-prepared negotiation strategy can give you a significant advantage in securing a mortgage rate that suits your financial situation best.
Remember, even a slight decrease in your mortgage rate can result in significant savings over the life of your loan. It’s worth the effort to negotiate terms; it could save you a considerable amount of money in the long run.
Conclusion
Securing the best mortgage interest rate can make your dream home more affordable and save you thousands over the life of the loan. By understanding how different factors like your credit scores, down payment, and loan term affect your rate, you can take steps to secure the best mortgage deal. Remember, a home loan is likely to be one of the biggest financial commitments you’ll ever make, so take the time to get it right.
Frequently Asked Questions
What is the ideal credit score for getting the best mortgage rate?
While credit requirements can vary by lender, a credit score of 740 or higher generally qualifies borrowers for the best mortgage rates. However, it’s still possible to secure a mortgage with a lower credit score, but the rates might be higher.
What’s the difference between a fixed-rate and an adjustable rate mortgage (ARM)?
A fixed-rate mortgage has a constant interest rate and monthly payments that never change. This offers stability and predictability over the life of the loan.
Adjustable rate mortgages have an interest rate that may change periodically, affecting your monthly payments. The rate adjustments are tied to market conditions and specified in the mortgage agreement.
The main difference is that a fixed-rate mortgage offers long-term stability in payments, while an ARM carries the risk of the payments increasing or decreasing over time.
How much can I save by improving my credit score?
The difference in mortgage rates between different credit score ranges can be substantial. For instance, improving your credit score from ‘fair’ (580-669) to ‘very good’ (740-799) could potentially lower your interest rate by a full percentage point or more. Over the life of a 30-year mortgage, this could translate to tens of thousands of dollars in savings.
How much should I save for a down payment?
The amount you should save for a down payment can depend on the type of loan you’re getting and your financial situation. Traditionally, a 20% down payment is recommended for conventional loans, as this allows you to avoid paying for private mortgage insurance (PMI). However, some loan types, such as Federal Housing Administration (FHA) loans, allow for lower down payments.
How do I choose between a 15-year and a 30-year loan term?
The choice between a 15-year and a 30-year loan term depends on your financial circumstances and goals. A 15-year loan typically has a lower interest rate but a higher monthly payment, making it a good choice if you can comfortably afford the payments and want to pay off your mortgage faster. On the other hand, a 30-year loan has lower a monthly payment but a higher interest rate, making it a more affordable option for many buyers.
Is it worth buying discount points to lower my interest rate?
Whether it’s worth buying discount points depends on your particular situation. If you have the cash and plan to stay in your home a long time, buying points can be beneficial. The savings over time from a lower rate can exceed the points’ upfront cost.
What are some examples of first-time homebuyer programs?
First-time homebuyer programs can vary by state and by lender, but some examples include FHA loans, USDA loans, and VA loans, as well as specific state-sponsored programs that offer down payment assistance or tax credits. It’s worth checking with your local government and potential lenders to see what programs might be available to you.
How do market conditions impact mortgage rates?
Mortgage rates are influenced by a variety of market conditions, including inflation rates, economic growth indicators, and monetary policy decisions by central banks. Generally, when the economy is strong, mortgage rates tend to rise to keep inflation in check. Conversely, during economic downturns, rates often fall to stimulate borrowing and investment.
Many people are lured into the world of real estate investing by stories of millionaires who started their journey with no money down or no steady employment. But the reality is that making money in real estate isn’t easy; a good credit score, investment capital and steady income can help in the beginning.
You’ll also need to grasp the nuances of the local real estate market and learn how to manage financial aspects such as cash flow and property taxes. While real estate buying, selling, and renting may not be much like a game of Monopoly, it is possible to earn steady side income, supplement your retirement, or even build a full-time real estate investment business with the right tools, knowledge, and patience.
Unlike mutual funds, the stock market, cryptocurrency or many other investments, real estate is tangible. Real estate is a concrete asset—one can see, touch, and even reside in. That gives investors a sense of security. However, it also creates unique challenges.
Managed well, the stability and passive income from rental properties can be a safety net against more volatile investments.
This guide is here to clarify the process for beginners. It aims to empower you to make informed decisions, reduce risks, and lay a strong foundation for your real estate investing journey.
Benefits of Investing in Real Estate
The allure of real estate goes beyond the mere ownership of tangible assets. It presents a robust suite of financial benefits that have the potential to amplify wealth and provide stability in uncertain times. As we navigate the advantages, it becomes evident why many seasoned investors prioritize real estate in their portfolios.
Steady and Passive Income
Real estate investing, especially in rental properties, stands out for its potential to provide a consistent revenue stream. When you own a rental property, the monthly or quarterly distributions from tenants contribute to steady income, which can safeguard your finances against unexpected events or economic downturns.
This consistency contrasts with the often erratic nature of the stock market, which can fluctuate daily based on global events, company performances, and other factors. Additionally, for those aiming to attain financial freedom, the passive income generated from real estate can be a step closer to achieving that goal. Over time, as the mortgage payment decreases or remains static, rental rates may rise, increasing your monthly cash flow.
Appreciation Potential
Every investor dreams of their assets appreciating, and real estate often doesn’t disappoint. While there can be periodic downturns in the real estate market, historical trends suggest that properties generally gain value over the long run.
This means that not only can investors benefit from rental income, but they can also potentially see substantial gains when they choose to sell the property.
Tax Benefits
Navigating the world of taxes can be intricate, but real estate investors often find several advantages here. The ability to deduct mortgage interest and property taxes from taxable income can be a significant financial boon.
Furthermore, strategies like depreciation allow real estate investors to offset rental income, reducing their tax burden. Consulting with a financial advisor can help investors maximize these benefits and understand other potential tax advantages, such as 1031 exchanges or deductions related to property management.
Diversification
The saying “don’t put all your eggs in one basket” is sound investment advice. Diversification is a fundamental strategy to mitigate risks. By adding real estate to an investment portfolio, investors introduce a separate asset class that doesn’t directly correlate with the stock market or mutual funds. This can provide a buffer, ensuring that a downturn in one sector doesn’t wholly derail an investor’s financial trajectory.
Leverage
Leverage, in the context of real estate investing, refers to the ability to use borrowed capital to increase the potential return on an investment. When you purchase property with a mortgage loan, you’re often putting down only a fraction of the property’s total cost, while still reaping the benefits of its entire value in terms of appreciation and rental income.
This magnifies the return on investment, as the gains and income generated are based on the property’s total value, not just the down payment. It’s a powerful tool but should be used wisely. Over-leveraging or not accounting for potential rental vacancies can turn leverage into a double-edged sword.
Types of Real Estate Investments
As one dives deeper into the world of real estate, it becomes evident that this asset class is multifaceted, with various avenues to explore and invest in. The right choice often depends on an investor’s goals, risk tolerance, budget, and expertise. Here’s a closer look at some prominent types of real estate investments:
Residential Properties
Residential properties cater to individuals or families. They range from single-family homes to duplexes, triplexes, high-rise buildings with apartments, and other multi-unit properties. You may encounter the term “MDU” or “MUD,” which stand for multi-dwelling unit or multi-unit dwelling, to describe anything more than a single family home, or SFR (single family real estate).
Investing in residential real estate, especially the SFR market, is often a beginner’s first step due to its familiarity and the perpetual demand for housing. While these properties can be a reliable source of rental income, investors should be prepared for the challenges tied to property management, tenant turnover, and ongoing maintenance.
Commercial Real Estate
When one thinks of skyscrapers lining city horizons or sprawling office parks in suburban locales, that’s commercial real estate. These properties are tailored to businesses, and can include complete corporate headquarters or individual offices.
Commercial leases often run longer than residential ones, offering the potential for stable, long-term rental income. However, the entry point can be higher, with larger down payments and a more extensive due diligence process. Additionally, commercial real estate values can be closely tied to the business environment of the locality.
Industrial
Industrial real estate encompasses properties like warehouses, distribution centers, and manufacturing facilities. They’re integral to business operations, ensuring products move efficiently from manufacturers to consumers.
Investing in this sector can offer substantial rental yields, especially if the property is strategically located near transportation hubs. However, the nuances of industrial real estate, such as zoning laws and environmental concerns, necessitate a more in-depth understanding than residential or commercial sectors.
Retail
This sector includes shopping malls, strip malls, and standalone stores. What’s unique about retail real estate is that leases sometimes include a provision where the landlord gets a percentage of the store’s profits, termed as “percentage rent.”
In a thriving commercial area, retail properties can be quite profitable, with long-term leases and the potential for appreciating property values. However, investors should be mindful of shifts in consumer behavior and the evolving retail landscape, especially with the rise of e-commerce.
Multi-Purpose Commercial
A new breed of commercial real estate has emerged to compete with the growth of e-commerce. Multi-purpose commercial spaces blend housing units with office space and retail, often adding hospitality and entertainment venues.
Typically, these spaces are the domain of large real estate investment and property management firms. But if you invest in commercial office space or retail, you will be competing with these multi-purpose properties for tenants, so they are worth acknowledging.
Real Estate Investment Trusts (REITs)
For those not keen on direct property ownership, REITs present an attractive alternative. These are companies that own, operate, or finance income-producing real estate across various sectors. What makes REITs distinctive is that they’re traded on stock exchanges, similar to stocks.
By investing in a REIT, you’re buying shares of a company that manages a portfolio of properties, thus gaining exposure to real estate without the hassles of property management. Moreover, by law, REITs are required to distribute at least 90% of their taxable income to shareholders, leading to potentially attractive dividend yields. However, it’s essential to remember that like all publicly traded entities, REITs can be subject to market volatility.
9 Ways to Invest in Real Estate
Investing in real estate can seem tricky for beginners. But, with time and patience, anyone can master it. Focus on simple investment methods first to get to know your local property scene, meet experienced investors, and learn how to handle money wisely. As you learn and grow, you can dive into more complex investment options.
Here are some great ways for beginners to start in real estate:
1. Wholesaling
Acting as the bridge between property sellers and eager buyers, this method primarily focuses on securing properties at a rate below the prevailing market value. The secured contract is then transferred to an interested buyer, ensuring a margin for the wholesaler.
2. Prehabbing
Unlike intensive property renovations, prehabbing is about amplifying a property’s appeal through minimalistic enhancements. These properties, once given their facelift, usually attract investors with a keen eye for larger renovation projects.
3. Purchasing Rental Properties
An avenue promising consistent returns, this involves acquiring properties to lease them out. For those not inclined towards the intricacies of landlord duties, there’s always the option of hiring seasoned property management professionals.
4. House Flipping
A strategy that has garnered significant attention, house flipping involves a cycle of purchasing, upgrading, and promptly reselling properties, aiming for a profit. The emphasis is on swift transactions and keen market acumen.
5. Real Estate Syndication
Envision a collective where like-minded investors come together, pooling both resources and expertise. Such collectives venture into large-scale property acquisitions, and the ensuing profits or rental incomes are distributed among the participants.
6. Real Estate Investment Groups (REIG)
Primarily, these are conglomerates that steer their operations around real estate investments. By amassing capital from a plethora of investors, they dive into acquisitions of sizeable multi-unit residences or commercial holdings.
7. Investing in REITs
Real Estate Investment Trusts (REITs) revolve around the ownership and meticulous management of properties that yield income. However, investors don’t have to handle the management themselves. Instead, participants can relish the benefits of the real estate sector without the responsibilities of direct property ownership.
8. Online Real Estate Platforms
A fusion of technology with real estate, these platforms seamlessly connect potential investors with vetted property developers. This synergy enables backers to finance promising property ventures and, in exchange, enjoy periodic returns that encompass interest.
9. House Hacking
A blend of homeownership and investment, house hacking is about maximizing the potential of a multi-unit property or a single-family home. Investors live in one segment while leasing out the remaining portions. This dual approach can significantly reduce or even negate monthly housing expenses, serving as an excellent introduction to the world of property management for novice investors.
6 Steps to Get Started in Real Estate Investing
Starting on the path of real estate investing requires careful planning, due diligence, and a methodical approach to ensure that your investments are sound and have the potential for fruitful returns. Whether you’re dreaming of becoming a millionaire real estate investor or merely looking to diversify your investment portfolio, following a structured process can be the key to success. Here’s a step-by-step breakdown:
1. Assess Your Financial Health
Every investment journey should begin with introspection. As an aspiring real estate investor, it’s essential to have a clear understanding of your current financial standing. Ask yourself questions like:
How much capital am I willing to invest?
What are my short-term and long-term financial goals?
Do I have an emergency fund set aside?
Evaluating your risk tolerance is equally crucial. Some might be comfortable flipping houses, while others might prefer the steadiness of rental properties. Consulting a financial advisor at this stage can provide insights tailored to your financial health, enabling you to make informed decisions as you proceed.
2. Dive Deep into Market Research
Knowledge is power in the world of real estate. The local market can be significantly different from national or even statewide trends. Delve deep into understanding:
The demand for rental properties in your target area.
The average property values and rental rates.
The historical appreciation rates.
Any upcoming infrastructure projects or urban development initiatives.
Furthermore, familiarize yourself with real estate terminology. Phrases like “cap rate,” “loan-to-value,” and “operating expenses” will become a regular part of your vocabulary. The better informed you are, the more confidently you can navigate your investments.
3. Assemble Your Real Estate Team
No investor is an island. Success in the real estate business often hinges on the strength and expertise of your team. Look for professionals with a proven track record and positive reviews. Your team might include:
Real estate agents who understand the investor’s perspective.
Property managers to streamline tenant interactions and maintenance.
Lawyers specializing in real estate transactions.
Accountants familiar with the tax implications of real estate investments.
4. Explore Financing Options
The path to acquiring a property is paved with various financing methods. Traditional mortgages are common, but the real estate industry offers other mechanisms like:
Hard money loans.
Private money loans.
Real estate syndication where multiple investors pool resources.
Seller financing.
Each of these has different pros and cons, interest rates, and repayment terms. Understand each deeply to determine which aligns best with your financial strategy.
5. Analyze Potential Properties
The crux of real estate investing is ensuring that the numbers make sense. Before purchasing, assess the property’s potential for generating rental income. Break down:
Monthly mortgage payments
Property taxes
Maintenance costs
Potential vacancy rates
Your goal should be a positive cash flow, where the monthly income from the property (rent) exceeds all these expenses.
6. Negotiate and Close the Deal
Once you’ve zeroed in on a property, the negotiation phase begins. Here, understanding the property’s market value, any existing damages or repair needs, and the local real estate market dynamics can give you an edge.
When it comes to closing, be aware of all associated costs. These might include inspection fees, title insurance, and escrow fees. Being well-informed can help you negotiate these fees and ensure that you’re not overpaying.
Risks and How to Mitigate Them
Like any investment, real estate comes with its set of challenges and uncertainties. The difference between successful real estate investors and those who falter is often the ability to anticipate risks and prepare for them. Here’s an exploration of some prevalent risks in real estate and actionable steps to manage them:
1. Market Fluctuations
Real estate markets can be volatile, with property values rising and falling based on a myriad of factors.
Mitigation: To protect against market downturns, it’s essential to buy properties below their market value. Conducting comprehensive research and seeking expert investment advice can help investors make informed decisions. Remember, real estate is often a long-term game, so a short-term dip can be offset by long-term appreciation.
2. Unexpected Repairs and Maintenance
Properties can often come with surprises, from plumbing issues to roof repairs.
Mitigation: Regular property inspections can catch potential problems before they become major expenses. Setting aside a buffer fund specifically for maintenance can also cushion the financial blow of unforeseen repairs.
3. Vacancy Periods
There might be periods where your property remains unoccupied, leading to loss of rental income.
Mitigation: Properly vetting and building a good relationship with tenants can lead to longer lease periods. Diversifying your investment properties across different areas can also help, as vacancy rates might vary from one location to another.
4. Legal and Tax Implications
Real estate investors can sometimes find themselves entangled in legal disputes or facing unexpected tax bills.
Mitigation: Regular consultations with a tax professional or attorney familiar with the real estate industry can keep investors informed and protected.
Long-term Strategy and Growth
Real estate investing is not just about making a quick buck; it’s about building lasting wealth. Adopting a long-term perspective and continuously refining your strategy can pave the way for consistent growth in the real estate industry. Here’s how:
1. Define Your Real Estate Identity
Are you more comfortable with a buy-and-hold strategy, where properties are retained for long-term growth and steady rental income? Or do you thrive on the excitement of flipping houses, where properties are bought, renovated, and sold for profit? Understanding your preference can help tailor your investment strategy.
2. Reinvestment is Key
For those adopting a buy-and-hold strategy, reinvesting the rental income can substantially grow your real estate portfolio. By channeling profits into purchasing additional properties, investors can benefit from compounded growth.
3. Diversify Your Portfolio
As you gain experience, consider diversifying across various real estate sectors. Branching out into commercial real estate or exploring real estate investment trusts (REITs) can provide additional avenues for income and growth.
4. Continue Your Education
The real estate industry is continually evolving. By staying updated on market trends, attending seminars, and networking with other real estate professionals, you can adapt your strategy and seize new opportunities as they arise.
5. Scale Strategically
A real estate empire begins with just one property. With time, dedication, and a sound strategy, it’s possible to grow your holdings into a substantial full-time income. As you scale, ensure you’re not overextending; always prioritize the quality of investments over quantity.
Key Tips for Beginners
Embarking on a journey into real estate investing can be thrilling, yet the complexities of the industry can sometimes overwhelm beginners. Simplifying the learning curve is essential for novice investors to make informed decisions and find success. Here are some pivotal tips to guide those just starting out:
1. Start Small and Scale Gradually
Many millionaire real estate investors began their journey with a modest property. Purchasing a smaller, more manageable property as your first investment can help you navigate the nuances of the real estate business without being overwhelmed. As you gain confidence and experience, you can then venture into bigger and more diverse properties to scale your portfolio.
2. Prioritize Education
The world of real estate is vast and ever-evolving. Leverage online real estate platforms to learn about market trends, investment strategies, and financing options. Additionally, joining real estate investment groups can be invaluable. These groups not only provide mentorship but also offer opportunities to share resources, insights, and deals with other investors.
3. Location is Crucial
In the real estate realm, location often takes precedence over the type or condition of a property. A mediocre house in a prime location can fetch better returns than a grand mansion in a less desirable area. Research local market dynamics, neighborhood amenities, future development plans, and other location-specific factors before making an investment decision.
4. Networking is Key
Surrounding yourself with knowledgeable people can fast-track your learning process. By connecting with seasoned real estate investors, you can gain insights from their experiences, avoid common pitfalls, and even discover potential partnership opportunities. Attend local real estate seminars, join investor forums online, and participate actively in real estate conferences to grow your network.
5. Stay Updated and Adapt
The real estate industry is not static. Market conditions, property values, and investment strategies can change. Being adaptable and staying updated on industry trends will ensure you remain ahead of the curve and can capitalize on new opportunities.
6. Always Conduct Due Diligence
Before diving into any real estate transaction, thorough due diligence is imperative. From understanding property taxes and zoning laws to estimating potential repair costs and evaluating tenant profiles, leaving no stone unturned will protect you from potential setbacks.
8 Terms Beginner Real Estate Investors Should Know
Venturing into real estate can feel like you’ve entered a world with its own language. Don’t worry; everyone feels this way at the start. Knowing basic real estate terms can help you communicate confidently and make informed decisions.
Dive into these essential terms every beginner should grasp:
Appreciation: Appreciation is the increase in the value of a property over time. It’s one of the primary ways real estate investors make money, especially in growing markets. Appreciation can result from factors like inflation, increased demand, or improvements made to the property.
Capitalization rate (cap rate): Think of the cap rate as a tool to gauge the potential return on a property. It’s a percentage derived from comparing a property’s net operating income to its current market price.
Cash flow: This term captures the money dance – what’s coming in and what’s going out. In the context of rental properties, it means the rental earnings minus all the costs. Positive cash flow indicates you’re earning more than you’re spending.
Equity: Equity represents the value of ownership in a property. It’s calculated by taking the market value of the property and subtracting any outstanding mortgage or loans against it. As an investor pays down their mortgage or if the property appreciates in value, their equity in the property increases. This equity can be tapped into for various financial needs or reinvested.
Leverage: This term refers to the concept of using borrowed money, often in the form of a mortgage, to invest in real estate. It allows investors to purchase properties with a small down payment and finance the remainder. When used correctly, leverage can amplify returns, but it can also increase the risk if property values decline.
Net operating income (NOI): Simplified, NOI is the profit made from a property after deducting all operational costs. It’s your rental income minus all the expenses, showing the true earning potential of a property.
Real estate owned (REO): An REO property is one that didn’t sell at a foreclosure auction and is now owned by the bank. These properties are often sold at a lower price because banks aim to sell them quickly, making them attractive to investors.
Return on investment (ROI): In simple terms, ROI measures the bang you get for your buck. It’s calculated by comparing the profit you made to the amount you invested. The higher the ROI, the better your investment performed.
Conclusion
Real estate investing offers an avenue to diversify your portfolio, generate steady income, and potentially achieve long-term growth. With due diligence, a clear strategy, and the right team, beginners can successfully navigate the complexities of the real estate industry and lay the foundation for a prosperous investment journey. Remember, every millionaire real estate investor started with their first property. Your journey is just beginning.
In May 2021, the median price for a home was $350,300. That reflected a 23% increase year-over-year, demonstrating that the housing marketing was bustling after the impact of the COVID-19 pandemic. But it’s not just a rise out of the pandemic that has created a competitive housing market in 2021 and beyond. The record high in May 2021 followed 111 months of year-over-year gains, starting in March 2012.
In 2021 and 2022, the housing marketing has been awash in demand. But there aren’t enough homes to go around, leading to bidding wars and other challenges for buyers. Looking at this landscape, you may wonder, can you buy a house with bad credit?
The Challenges of Buying a Home with Bad Credit
Mortgage lenders look at a lot of factors to determine if you qualify for a home loan. Of course, your annual income and debts are crucial, but your credit score is also a significant factor. Applicants with great credit scores—750 or higher—tend to have an easier time getting approved for a mortgage and getting the most competitive interest rates available. Applicants with credit scores below 650 may have a more difficult time getting approved for a mortgage or securing low interest rates.
For a mortgage lender, all applicants present some sort of calculated risk. Lenders perceive those with higher credit scores as being at lower risk of foreclosure or defaulting on their home loans. As a result, people with high scores can get a lower interest rate and more favorable terms on a loan. Unfortunately, those with bad credit scores are automatically perceived to be a higher risk and—if they can get a loan—may end up paying higher interest rates and having to agree to less appealing terms that come with a bad credit mortgage.
COVID-19’s Impact on Buying a Home
The pandemic had some impact on the mortgage-buying process. That’s true for individual buyers as well as the entire process.
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Homebuyers may have faced financial struggles during the pandemic, for example. Job or income loss could have led to difficulties paying bills or the need to take out loans to cover living expenses short-term. Those situations can impact credit and your ability to get a home loan.
At the same time, the Federal Reserve dropped interest rates in 2020 to help support the struggling pandemic economy. One result was that buying a house became very attractive, in part due to the lower overall cost of the loans.
Bad Credit in a Competitive Market
But now rates are increasing again—and may continue to rise throughout the year. Increasing rates may decrease competition between buyers, but they can make it more difficult for someone with less-than-great credit to buy a home for a number of reasons, including:
You may not be able to outbid others. Lenders may be willing to take a risk on someone with poor credit, but that risk is usually fairly limited. That means you may not be able to get approved over a certain amount, limiting how much you can pay for any home.
Your loan options may limit you. Buying a house with bad credit often means leveraging a government-backed loan, such as FHA or USDA loans. These loans must follow certain requirements about loan-to-value ratios, inspections and other steps to buying a home. In today’s housing market, having to stick to strict requirements can put you at a disadvantage.
Sellers may not choose your offer. Even if your offer is competitive, if you’re bidding with an FHA loan or other such financing, sellers may opt for a cash offer or one backed by a traditional commercial loan. Right or wrong, there’s some perception that cash or traditional loan offers are more likely to go through.
How to Buy a House with Bad Credit
It’s not all a lost cause, though. There are options for buying a home with poor or bad credit, such as Federal Housing Administration (FHA) loans. That’s true even in a competitive market.
FHA Loans
FHA loans have some of the most lenient qualification requirements. And they’re available to any homebuyer, not just first-time buyers.
To be eligible for an FHA loan, you need a credit score of at least 500. You’ll also have to meet other requirements, including appropriate debt-to-income ratios and not having certain types of open collection accounts in your credit history. Overall, you need to demonstrate to the lender that you’re reasonably able to pay the mortgage associated with the loan.
If you have a credit score between 500 and 579, the loan-to-value ratio is limited to a maximum of 90% on any FHA loan you might be approved for. That means you’ll need to come up with at least 10% of the purchase price as a down payment. For example, if you buy a home for $200,000, you’ll need at least $20,000 for the down payment.
If you have a credit score of 580 or above, you could be eligible for maximum financing. That means you may be able to get a loan with as little as 3.5% down.
VA Loans
Veterans Administration loans are available to military veterans and qualified spouses. The VA doesn’t set a specific credit score requirement for its programs, though it does state that borrowers will need to meet creditworthiness requirements. At the very least, the lender must determine that you have the means to pay the mortgage.
Some benefits of VA loans include:
They don’t necessarily require a down payment
No requirement for PMI, even if you don’t put down 20%
Competitive interest rates you might not be able to access elsewhere
USDA Loans
The United States Department of Agriculture offers mortgages to home buyers in eligible rural areas whose incomes fall in the low-to-average income range for their areas. The USDA doesn’t publish a minimum credit score requirement. It simply states that borrowers must have the willingness and ability to repay the loan, as demonstrated in part by their credit history. USDA lenders must look at three years of credit history.
Other Options
There are ways to increase your chances of getting approved for a mortgage with bad credit, even if you don’t want to go with one of the above government-backed options. Consider saving up for a larger down payment. A larger down payment reduces the amount you need to borrow and increases your likelihood of getting approved for a mortgage.
You may also be able to avoid the need for Private Mortgage Insurance with a higher down payment. Bypassing the need for PMI can easily save you $1,000 per year or more. It also frees up more money so you can pay down other debts, which can improve your credit.
Know Your Credit Score
If you’re thinking about trying to buy a home in the near future, the first step you should take is finding out where your credit stands. Begin by looking at your current credit reports and carefully reviewing them. Specifically, be on the lookout for any mistakes or errors on your report.
If you notice something incorrect on your report, you can file a dispute—most credit bureaus let you file a dispute online. You should also take the time to calculate how much of a mortgage you can reasonably afford before applying for one.
If you’re not sure what your credit score is, you can see your credit score for free on Credit.com. You also get a free credit report card that shows you ways to improve your credit score in each of the five areas that factor into how your score is calculated.
For even more information about where your credit stands, consider signing up for ExtraCredit®. You’ll get access to 28 of your FICO® scores, including the type of scores used by lenders to evaluate you as a mortgage borrower.
Once you know where you stand with your credit score and have done what you can to improve it, you can start shopping for mortgage rates and loans.