In the birthplace of the Texas Lone Star Flag, Montgomery, Texas—a town as rich in history as it is in natural beauty—a newly renovated property has landed on the market, setting a new standard for luxury living.
With a hefty price tag of $1,920,000, this expansive residence is turning heads, not just for its stunning features but also for its standout listing price in a market where the median listing price hovers around $400K.
The median listing home price in Montgomery, Texas was $399K in January 2024, flat year-over-year, while the median home sale price was $342.4K.
But the property we’re about to tour isn’t your ordinary home.
Nestled within the serene landscapes that surround Lake Conroe, the expansive lakeside retreat at 18980 Harbor Side Blvd. combines the tranquility of its historic setting with modern sophistication and unparalleled amenities.
Spanning approximately 8,192 square feet on 1.422 acres, this palatial home boasts six bedrooms, six full bathrooms, and two partial baths, complemented by a four-car oversized attached garage.
The property’s recent updates have elevated its appeal, making it an attractive option for a buyer looking for a primary residence in the area.
But the house can just as easily serve as a secondary getaway or even as a lucrative investment for short-term rental ventures — especially considering its prime lakefront position on Lake Conroe.
Luxury is in the details, and this home does not disappoint.
From a dedicated wine room that promises the perfect temperature for vintage collections to a cozy breakfast room for morning gatherings, every aspect of this house is designed with sophistication in mind.
Entertainment is readily available in the form of a game room and a second-floor theater/media room, ensuring that residents and guests alike have ample space for relaxation and fun.
Two fireplaces add a touch of warmth and charm, enhancing the home’s welcoming ambiance.
The outdoor space is just as impressive, featuring a negative edge, saltwater swimming pool that merges seamlessly with the scenery, offering views of the lake beyond, and providing a tranquil escape.
The inclusion of a complete outdoor kitchen and two boat docks caters to both culinary enthusiasts and water sports aficionados, making this home a haven for those who appreciate the great outdoors.
Carol Wolfe of the Carol Wolfe Properties Team at Coldwell Banker Realty Houston brings this exceptional property to the market.
With serious vacation rental potential, the property can serve as an idyllic Airbnb destination, thanks to its luxurious amenities and secure, gated neighborhood setting.
However, that comes at a premium, and this property’s listing price significantly exceeds the area’s typical market prices.
According to Realtor.com, as of January 2024, the median listing home price in Montgomery was $399K, with the median listing price per square foot at $187, and the median home sold price at $342.4K.
This disparity underscores the unique nature of this listing, reflecting its unparalleled features and potential as a high-end residential or investment property in Montgomery, TX.
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Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The VA home loan: Unbeatable benefits for veterans
For many who qualify, VA home loans are some of the best mortgages available.
Verify your VA loan eligibility. Start here
Backed by the U.S. Department of Veterans Affairs, VA loans are designed to help active-duty military personnel, veterans and certain other groups become homeowners at an affordable cost.
The VA loan asks for no down payment, requires no mortgage insurance, and has lenient rules about qualifying, among many other advantages.
Here’s everything you need to know about qualifying for and using a VA loan.
In this article (Skip to…)
Top 10 VA loan benefits
1. No down payment on a VA loan
Most home loan programs require you to make at least a small down payment to buy a home. The VA home loan is an exception.
Verify your VA loan eligibility. Start here
Rather than paying 5%, 10%, 20% or more of the home’s purchase price upfront in cash, with a VA loan you can finance up to 100% of the purchase price.
The VA loan is a true no-money-down home mortgage opportunity.
2. No mortgage insurance for VA loans
Typically, lenders require you to pay for mortgage insurance if you make a down payment that’s less than 20%.
This insurance — which is known as private mortgage insurance (PMI) for a conventional loan and a mortgage insurance premium (MIP) for an FHA loan — would protect the lender if you defaulted on your loan.
VA loans require neither a down payment nor mortgage insurance. That makes a VA-backed mortgage very affordable upfront and over time.
3. VA loans have a government guarantee
There’s a reason why the VA loan comes with such favorable terms.
The federal government guarantees these loans — meaning a portion of the loan amount will be repaid to the lender even if you’re unable to make monthly payments for whatever reason.
This guarantee encourages and enables private lenders to offer VA loans with exceptionally attractive terms.
4. You can shop for the best VA loan rates
VA loans are neither originated nor funded by the VA. They are not direct loans from the government. Furthermore, mortgage rates for VA loans are not set by the VA itself.
Instead, VA loans are offered by U.S. banks, savings-and-loans institutions, credit unions, and mortgage lenders — each of which sets its own VA loan rates and fees.
This means you can shop around and compare loan offers and still choose the VA loan that works best for your budget.
5. VA loans don’t allow a prepayment penalty
A VA loan won’t restrict your right to sell the property partway through your loan term.
There’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home.
Furthermore, there are no restrictions regarding a refinance of your VA loan.
You can refinance your existing VA loan into another VA loan via the agency’s Interest Rate Reduction Refinance Loan (IRRRL) program, or switch into a non-VA loan at any time.
6. VA mortgages come in many varieties
A VA loan can have a fixed rate or an adjustable rate. In addition, you can use a VA loan to buy a house, condo, new-built home, manufactured home, duplex, or other types of properties.
Or, it can be used for refinancing your existing mortgage, making repairs or improvements to your home, or making your home more energy-efficient.
The choice is yours. A VA-approved lender can help you decide.
Verify your VA loan eligibility. Start here
7. It’s easier to qualify for VA loans
Like all mortgage types, VA loans require specific documentation, an acceptable credit history, and sufficient income to make your monthly payments.
But, compared to other loan programs, VA loan guidelines tend to be more flexible. This is made possible because of the VA loan guarantee.
The Department of Veterans Affairs genuinely wants to make the loan process easier for military members, veterans, and qualifying military spouses to buy or refinance a home.
8. VA loan closing costs are lower
The VA limits the closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be more affordable than other types of loans.
Money saved on closing costs can be used for furniture, moving costs, home improvements, or anything else.
9. The VA offers funding fee flexibility
VA loans require a “funding fee,” an upfront cost based on your loan amount, your type of eligible service, your down payment size, and other factors.
Funding fees don’t need to be paid in cash, though. The VA allows the fee to be financed with the loan, so nothing is due at closing.
And, not all VA borrowers will pay it. VA funding fees are normally waived for veterans who receive VA disability compensation and for unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
10. VA loans are assumable
Most VA loans are “assumable,” which means you can transfer your VA loan to a future home buyer if that person is also VA-eligible.
Assumable loans can be a huge benefit when you sell your home — especially in a rising mortgage rate environment.
If your home loan has today’s low rate and market rates rise in the future, the assumption features of your VA become even more valuable.
VA loan rates
The VA loan is viewed as one of the lowest-risk mortgage types available on the market.
Verify your VA loan eligibility. Start here
This safety allows banks to lend to veteran borrowers at lower interest rates.
Today’s VA loan rates*
Loan Type
Current Mortgage Rate
VA 30-year FRM
% (% APR)
Conventional 30-year FRM
% (% APR)
VA 15-year FRM
% (% APR)
Conventional 15-year FRM
% (% APR)
*Current rates provided daily by partners of the Mortgage Reports. See our loan assumptions here.
VA rates are more than 25 basis points (0.25%) lower than conventional rates on average, according to data collected by mortgage software company Ellie Mae.
Most loan programs require higher down payment and credit scores than the VA home loan. In the open market, a VA loan should carry a higher rate due to more lenient lending guidelines and higher perceived risk.
Yet the result of the Veterans Affairs efforts to keep veterans in their homes means lower risk for banks and lower borrowing costs for eligible veterans.
VA mortgage calculator
Eligibility
Am I eligible for a VA home loan?
Contrary to popular belief, VA loans are available not only to veterans, but also to other classes of military members.
Find and lock a low VA loan rate today. Start here
The list of eligible VA borrowers includes:
Active-duty service members
Members of the National Guard
Reservists
Surviving spouses of veterans
Cadets at the U.S. Military, Air Force or Coast Guard Academy
Midshipmen at the U.S. Naval Academy
Officers at the National Oceanic & Atmospheric Administration.
A minimum term of service is typically required.
Minimum service required for a VA mortgage
VA home loans are available to active-duty service members, veterans (unless dishonorably discharged), and in some cases, surviving family members.
To be eligible, you need to meet one of these service requirements:
You’ve served 181 days of active duty during peacetime
You’ve served 90 days of active duty during wartime
You’ve served six years in the Reserves or National Guard
Your spouse was killed in the line of duty and you have not remarried
Your eligibility for the VA home loan program never expires.
Veterans who earned their VA entitlement long ago are still using their benefit to buy homes.
The VA loan Certificate of Eligibility (COE)
What is a COE?
In order to show a mortgage company you are VA-eligible, you’ll need a Certificate of Eligibility (COE). Your lender can acquire one for you online, usually in a matter of seconds.
Verify your VA home loan eligibility. Start here
How to get your COE (Certificate of Eligibility)
Getting a Certificate of Eligibility (COE) is very easy in most cases. Simply have your lender order the COE through the VA’s automated system. Any VA-approved lender can do this.
Alternatively, you can order your certificate yourself through the VA benefits portal.
If the online system is unable to issue your COE, you’ll need to provide your DD-214 form to your lender or the VA.
Does a COE mean you are guaranteed a VA loan?
No, having a Certificate of Eligibility (COE) doesn’t guarantee a VA loan approval.
Your COE shows the lender you’re eligible for a VA loan, but no one is guaranteed VA loan approval.
You must still qualify for the loan based on VA mortgage guidelines. The guarantee part of the VA loan refers to the VA’s promise to the lender of repayment if the borrower defaults.
Qualifying for a VA mortgage
VA loan eligibility vs. qualification
Being eligible for VA home loan benefits based on your military status or affiliation doesn’t necessarily mean you’ll qualify for a VA loan.
You still have to qualify for a VA mortgage based on your credit, debt, and income.
Verify your VA loan eligibility. Start here
Minimum credit score for a VA loan
The VA has established no minimum credit score for a VA mortgage.
However, many VA mortgage lenders require minimum FICO scores of 620 or higher — so apply with many lenders if your credit score might be an issue.
Even VA lenders that allow lower credit scores don’t accept subprime credit.
VA underwriting guidelines state that applicants must have paid their obligations on time for at least the most recent 12 months to be considered satisfactory credit risks.
In addition, the VA usually requires a two-year waiting period following a Chapter 7 bankruptcy or foreclosure before it will insure a loan.
Borrowers in Chapter 13 must have made at least 12 on-time payments and secure the approval of the bankruptcy court.
Verify your VA loan home buying eligibility. Start here
VA loan debt-to-income ratios
The relationship of your debts and your income is called your debt-to-income ratio, or DTI.
VA underwriters divide your monthly debts (car payments, credit cards, and other accounts, plus your proposed housing expense) by your gross (before-tax) income to come up with your debt-to-income ratio.
For instance:
If your gross income is $4,000 per month
And your total monthly debt is $1,500 (including the new mortgage, property taxes and homeowners insurance, plus other debt payments)
Then your DTI is 37.5% (1500/4000=0.375)
A DTI over 41% means the lender has to apply additional formulas to see if you qualify under residual income guidelines.
VA residual income rules
VA underwriters perform additional calculations that can affect your mortgage approval.
Factoring in your estimated monthly utilities, your estimated taxes on income, and the area of the country in which you live, the VA arrives at a figure which represents your “true” costs of living.
It then subtracts that figure from your income to find your residual income (e.g. your money “left over” each month).
Think of the residual income calculation as a real-world simulation of your living expenses.
It is the VA’s best effort to ensure that military families have a stress-free homeownership experience.
Here is an example of how residual income works, assuming a family of four which is purchasing a 2,000 square-foot home on a $5,000 monthly income.
Future house payment, plus other debt payments: $2,500
Monthly estimated income taxes: $1,000
Monthly estimated utilities at $0.14 per square foot: $280
This leaves a residual income calculation of $1,220.
Now, compare that residual income to for a family of four:
Northeast Region: $1,025
Midwest Region: $1,003
South Region: $1,003
West Region: $1,117
The borrower in our example exceeds VA’s residual income standards in all parts of the country.
Therefore, despite the borrower’s debt-to-income ratio of 50%, the borrower could get approved for a VA loan.
Verify your VA loan eligibility. Start here
Qualifying for a VA loan with part-time income
You can qualify for this type of financing even if you have a part-time job or multiple jobs.
You must show a 2-year history of making consistent part-time income, and stability in the number of hours worked. The lender will make sure any income received appears stable. See our complete guide to getting a mortgage when you’re self-employed or work part-time.
VA funding fees and loan limits
About the VA funding fee
The VA charges an upfront fee to defray the costs of the program and make it sustainable for the future.
Veterans pay a lump sum that varies depending on the loan purpose and down payment amount.
The fee is normally wrapped into the loan. It does not add to the cash needed to close the loan.
Find out if you qualify for a VA loan. Start here
VA home purchase funding fees
Type of Military Service
Down Payment
Fee for First-Time Use
Fee for Subsequent Use
Active Duty, Reserves, and National Guard
None
2.3%
3.6%
5% or more
1.65%
1.65%
10% or more
1.4%
1.4%
VA cash-out refinance funding fees
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
2.3%
3.6%
VA streamline refinances (IRRRL) & assumptions
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
0.5%
0.5%
Manufactured home loans not permanently affixed
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
1.0%
1.0%
VA loan limits in 2024
VA loan limits have been repealed, thanks to the Blue Water Navy Vietnam Veterans Act of 2019.
There is no maximum amount for which a home buyer can receive a VA loan, at least as far as the VA is concerned.
However, private lenders may set their own limits. So check with your lender if you are looking for a VA loan above local conforming loan limits.
Verify your VA loan eligibility. Start here
Eligible property types
Houses you can buy with a VA loan
VA mortgages are flexible about what types of property you can and can’t purchase. A VA loan can be used to buy a:
Detached house
Condo
New-built home
Manufactured home
Duplex, triplex or four-unit property
Find out if you qualify for a VA loan. Start here
You can also use a VA mortgage to refinance an existing loan for any of those types of properties.
VA loans and second homes
Federal regulations limit loans guaranteed by the Department of Veterans Affairs to “primary residences” only.
However, “primary residence” is defined as the home in which you live “most of the year.”
Therefore, if you own an out-of-state residence in which you live for more than six months of the year, this other home, whether it’s your vacation home or retirement property, becomes your official “primary residence.”
For this reason, VA loans are popular among aging military borrowers.
Buying a multi-unit home with a VA loan
VA loans allow you to buy a duplex, triplex, or four-plex with 100% financing. You must live in one of the units.
Buying a home with more than one unit can be challenging.
Mortgage lenders consider these properties riskier to finance than traditional, single-family residences, so you’ll need to be a stronger borrower.
VA underwriters must make sure you will have enough emergency savings, or cash reserves, after closing on your house. That’s to ensure you’ll have money to pay your mortgage even if a tenant fails to pay rent or moves out.
The minimum cash reserves needed after closing is six months of mortgage payments (covering principal, interest, taxes, and insurance – PITI).
Your lender will also want to know about previous landlord experience you’ve had, or any experience with property maintenance or renting.
If you don’t have any, you may be able to sidestep that issue by hiring a property management company. But that’s up to the individual lender.
Your lender will look at the income (or potential income) of the rental units, using either existing rental agreements or an appraiser’s opinion of what the units should fetch.
They’ll usually take 75% of that amount to offset your mortgage payment when calculating your monthly expenses.
VA loans and rental properties
You cannot use a VA loan to buy a rental property. You can, however, use a VA loan to refinance an existing rental home you once occupied as a primary home.
For home purchases, in order to obtain a VA loan, you must certify that you intend to occupy the home as your principal residence.
If the property is a duplex, triplex, or four-unit apartment building, you must occupy one of the units yourself. Then you can rent out the other units.
The exception to this rule is the VA’s Interest Rate Reduction Refinance Loan (IRRRL).
This loan, also known as the VA Streamline Refinance, can be used for refinancing an existing VA loan on a home where you currently live or where you used to live, but no longer do.
Check your VA IRRRL eligibility. Start here
Buying a condo with a VA loan
The VA maintains a list of approved condo projects within which you may purchase a unit with a VA loan.
At VA’s website, you can search for the thousands of approved condominium complexes across the U.S.
If you are VA-eligible and in the market for a condo, make sure the unit you’re interested in is approved.
As a buyer, you are probably not able to get the complex VA-approved. That’s up to the management company or homeowner’s association.
If a condo you like is not approved, you must use other financing like an FHA or conventional loan or find another property.
Note that the condo must meet FHA or conventional guidelines if you want to use those types of financing.
Veteran mortgage relief with the VA loan
The U.S. Department of Veterans Affairs, or VA, provides home retention assistance. The VA intervenes when a veteran is having trouble making home loan payments.
The VA works with loan servicers to offer loan options to the veteran, other than foreclosure.
Find out if you qualify for a VA loan. Start here
In fiscal year 2019, the VA made over 400,000 contact actions to reach borrowers and loan servicers. The intent was to work out a mutually agreeable repayment option for both parties.
More than 100,000 veteran homeowners avoided foreclosure in 2019 alone thanks to this effort.
The initiative has saved the taxpayer an estimated $2.6 billion. More importantly, vast numbers of veterans and military families got another chance at homeownership.
When NOT to use a VA loan
If you have good credit and 20% down
A primary advantage to VA home loans is the lack of mortgage insurance.
However, the VA guarantee does not come free of charge. Borrowers pay an upfront funding fee, which they usually choose to add to their loan amount.
The fee ranges from 1.4% to 3.6%, depending on the down payment percentage and whether the home buyer has previously used his or her VA mortgage eligibility. The most common fee is 2.3%.
Find out if you qualify for a VA loan. Start here
On a $200,000 purchase, a 2.3% fee equals $4,600.
However, buyers who choose a conventional mortgage and put 20% down get to avoid mortgage insurance and the upfront fee. For these military home buyers, the VA funding fee might be an unnecessary expense.
The exception: Mortgage applicants whose credit rating or income meets VA guidelines but not those of conventional mortgages may still opt for VA.
If you’re on the “CAIVRS” list
To qualify for a VA loan, you must prove you have made good on previous government-backed debts and that you have paid taxes.
The Credit Alert Verification Reporting System, or “CAIVRS,” is a database of consumers who have defaulted on government obligations. These individuals are not eligible for the VA home loan program.
If you have a non-veteran co-borrower
Veterans often apply to buy a home with a non-veteran who is not their spouse.
This is okay. However, it might not be their best choice.
As the veteran, your income must cover your half of the loan payment. The non-veteran’s income cannot be used to compensate for the veteran’s insufficient income.
Plus, when a non-veteran owns half the loan, the VA guarantees only half that amount. The lender will require a 12.5% down payment for the non-guaranteed portion.
The Conventional 97 mortgage, on the other hand, allows down payments as low as 3%.
Another low-down-payment mortgage option is the FHA home loan, for which 3.5% down is acceptable.
The USDA home loan also requires zero down payment and offers similar rates to VA loans. However, the property must be within USDA-eligible areas.
If you plan to borrow with a non-veteran, one of these loan types might be your better choice.
Explore your mortgage options. Start here
If you apply with a credit-challenged spouse
In states with community property laws, VA lenders must consider the credit rating and financial obligations of your spouse. This rule applies even if he or she will not be on the home’s title or even on the mortgage.
Such states are as follows.
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
A spouse with less-than-perfect credit or who owes alimony, child support, or other maintenance can make your VA approval more challenging.
Apply for a conventional loan if you qualify for the mortgage by yourself. The spouse’s financial history and status need not be considered if he or she is not on the loan application.
Verify your VA loan home buying eligibility. Start here
If you want to buy a vacation home or investment property
The purpose of VA financing is to help veterans and active-duty service members buy and live in their own home. This loan is not meant to build real estate portfolios.
These loans are for primary residences only, so if you want a ski cabin or rental, you’ll have to get a conventional loan.
If you want to purchase a high-end home
Starting January 2020, there are no limits to the size of mortgage a lender can approve.
However, lenders may establish their own limits for VA loans, so check with your lender before applying for a large VA loan.
Spouses and the VA mortgage program
What spouses are eligible for a VA loan?
What if the service member passes away before he or she uses the benefit? Eligibility passes to an unremarried spouse, in many cases.
Find and lock a low VA loan rate today. Start here
For the surviving spouse to be eligible, the deceased service member must have:
Died in the line of duty
Passed away as a result of a service-connected disability
Been missing in action, or a prisoner of war, for at least 90 days
Been a totally disabled veteran for at least 10 years prior to death, and died from any cause
Also eligible are remarried spouses who married after the age of 57, on or after December 16, 2003.
In these cases, the surviving spouse can use VA loan eligibility to buy a home with zero down payment, just as the veteran would have.
VA loan benefits for surviving spouses
Surviving spouses have an additional VA loan benefit, however. They are exempt from the VA funding fee. As a result, their loan balance and monthly payment will be lower.
Surviving spouses are also eligible for a VA streamline refinance when they meet the following guidelines.
The surviving spouse was married to the veteran at the time of death
The surviving spouse was on the original VA loan
VA streamline refinancing is typically not available when the deceased veteran was the only applicant on the original VA loan, even if he or she got married after buying the home.
In this case, the surviving spouse would need to qualify for a non-VA refinance, or a VA cash-out loan.
A cash-out mortgage through VA requires the military spouse to meet home purchase eligibility requirements.
If this is the case, the surviving spouse can tap into the home’s equity to raise cash for any purpose, or even pay off an FHA or conventional loan to eliminate mortgage insurance.
Qualifying if you receive (or pay) child support or alimony
Buying a home after a divorce is no easy task.
If, prior to your divorce, you lived in a two-income household, you now have less spending power and a reduced monthly income for purposes of your VA home loan application.
With less income, it can be harder to meet both the VA Home Loan Guaranty’s debt-to-income (DTI) guidelines and the VA residual income requirement for your area.
Receiving alimony or child support can counteract a loss of income.
Mortgage lenders will not require you to provide information about your divorce agreement’s alimony or child support terms, but if you’re willing to disclose, it can count toward qualifying for a home loan.
Different VA-approved lenders will treat alimony and child support income differently.
Typically, you will be asked to provide a copy of your divorce settlement or other court paperwork to support the alimony and child support payments.
Lenders will then want to see that the payments are stable, reliable, and likely to continue for another 36 months, at least.
You may also be asked to show proof that alimony and child support payments have been made in the past reliably, so that the lender may use the income as part of your VA loan application.
If you are the payor of alimony and child support payments, your debt-to-income ratio can be harmed.
Not only might you be losing the second income of your dual-income households, but you’re making additional payments that count against your outflows.
VA mortgage lenders make careful calculations with respect to such payments.
You can still get approved for a VA loan while making such payments — it’s just more difficult to show sufficient monthly income.
VA loan assumption
What is VA loan assumption?
One benefit for home buyers is that VA loans are assumable. When you assume a mortgage loan, you take over the current homeowner’s monthly payment.
Verify your VA loan home buying eligibility. Start here
That could be a big advantage if mortgage rates have risen since the original owner purchased the home. The buyer would be able to acquire a low-rate, affordable loan — and it could make it easier for the seller to find a willing buyer in a tough market.
VA loan assumption savings
Buying a home via an assumable mortgage loan is even more appealing when interest rates are on the rise.
For example:
Say a seller-financed $200,000 for their home in 2013 at an interest rate of 3.25% on a 30-year fixed loan
Using this scenario, their principal and interest payment would be $898 per month
Let’s assume current 30-year fixed rates averaged 4.10%
If you financed $200,000 at 4.10% for a 30-year loan term, your monthly principal and interest payment would be $966 per month
Additionally, because the seller has already paid four years into the loan term, they’ve already paid nearly $25,000 in interest on the loan.
By assuming the loan, you would save $34,560 over the 30-year loan due to the difference in interest rates. You would also save roughly $25,000 thanks to the interest already paid by the sellers.
That comes out to a total savings of almost $60,000!
How to assume (take on) a VA loan
There are currently two ways to assume a VA loan.
The new buyer is a qualified veteran who “substitutes” his or her VA eligibility for the eligibility of the seller
The new home buyer qualifies through VA standards for the mortgage payment. This is the safest method for the seller as it allows the loan to be assumed knowing that the new buyer is responsible for the loan, and the seller is no longer responsible for the loan
The lender and/or the VA needs to approve a loan assumption.
Loans serviced by a lender with automatic authority may process assumptions without sending them to a VA Regional Loan Center.
For lenders without automatic authority, the loan must be sent to the appropriate VA Regional Loan Center for approval. This loan process will typically take several weeks.
When VA loans are assumed, it’s the servicer’s responsibility to make sure the homeowner who assumes the property meets both VA and lender requirements.
VA loan assumption requirements
For a VA mortgage assumption to take place, the following conditions must be met:
The existing loan must be current. If not, any past due amounts must be paid at or before closing
The buyer must qualify based on VA credit and income standards
The buyer must assume all mortgage obligations, including repayment to the VA if the loan goes into default
The original owner or new owner must pay a funding fee of 0.5% of the existing principal loan balance
A processing fee must be paid in advance, including a reasonable estimate for the cost of the credit report
Find out if you qualify for a VA loan. Start here
Finding assumable VA loans
There are several ways for home buyers to find an assumable VA loan.
Believe it or not, print media is still alive and well. Some home sellers advertise their assumable home for sale in the newspaper, or in a local real estate publication.
There are a number of online resources for finding assumable mortgage loans.
Websites like TakeList.com and Zumption.com give homeowners a way to showcase their properties to home buyers looking to assume a loan.
With the help of the Multiple Listing Service (MLS), real estate agents remain a great resource for home buyers.
This applies to home buyers specifically searching for assumable VA loans as well.
How do I apply for a VA loan?
You can easily and quickly have a lender pull your certificate of eligibility (COE) to make sure you’re able to get a VA loan.
Most mortgage lenders offer VA home loans. So you’re free to shop and compare rates with just about any company that catches your eye.
Getting a VA loan for your new home is similar in many ways to securing any other purchase loan. Once you find an ideal home in your price range, you make a purchase offer, and then undergo VA appraisal and underwriting.
VA appraisal ensures that the home meets its minimum property requirements (MPRs) and is structurally sound and safe for occupancy.
What’s more, VA-specific mortgage lenders are actually some of the highest-rated (and lowest-priced) on the market. Here are a few we’d recommend checking out.
Time to make a move? Let us find the right mortgage for you
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
My wife and I moved out of our former primary residence a year ago, and we have been renting it out for $4,000 a month. Our current tenant is moving out next month and we will need to find a new one.
The house is probably worth about $750,000 and we have a $450,000 mortgage on it, which we managed to refinance when mortgages were rock bottom at 2.5%.
Should we plan to sell the house in two years in order to get the capital gains tax exemption, and then use the proceeds to buy a new investment property?
Or would we be better off keeping the property, continue renting it and abandon the tax exemption in order to hold on to our low mortgage?
Looking for Opportunities
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at [email protected].
Dear Looking,
You have a 30-year mortgage at a rock-bottom rate of 2.5% that you will possibly never see again in your lifetime. Why are you in a rush to sell?
If you are trying to get ahead without paying taxes, you have time, but how much time is the question.
The biggest challenge with waiting to sell is that your home could appreciate significantly, and you may not qualify for the capital gains tax exemption of $500,000 when filing jointly with your spouse.
You don’t say how much you bought it for, but even if you had bought it for $500,000 and the home is $750,000, you’ve still got time before hitting that cap of $500,000. As long as you don’t exceed that, and the government does not change that number, your plan to wait and sell makes sense.
As you’re looking to buy a new investment property, consider doing a 1031 exchange. With a 1031 exchange, you can sell whenever you want, and defer paying taxes on the profit. The “catch” is you need to move that money into another investment property. Plus, you may have to take on a new mortgage.
Factor in the new rate and the potential rental income, and see if the math makes sense. If that other investment property you’re looking at doesn’t net you the same or similar profit as your current rental, then don’t sell.
The bottom line: Unless there’s a strong reason for you to sell independent of taxes — perhaps you need the extra money, or you are sick of dealing with tenants, for instance — it seems like the best move would be to hold on to the home, or try to swap it out for another.
And don’t just take it from me. “There is no hurry to sell,” Ed Fernandez, president and CEO of 1031 Crowdfunding, a company specializing in 1031 exchanges, also advises.
“You can always capture the gains any time after two years, but in this scenario, it looks like the cash flow you are receiving from the current mortgage might be better than any opportunity you would have to go out and buy in the current market environment,” he added.
That’s two opinions in favor of retaining your rental. The third opinion? That’s up to you.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Read next: How one loan officer is staying ahead of the curve The program offers up to 75% loan-to-value (LTV) for loan amounts ranging from $1 million to $1.5 million for primary residences and up to 65% LTV for loans between $1.5 million and $2 million. For non-owner-occupied and second homes, up to 60% LTV … [Read more…]
I had a conversation with a friend the other day about his current housing situation.
In a nutshell, the home he resides in isn’t large enough for his family, nor does it have certain amenities like a swimming pool.
At the same time, he loves his home and the very cheap mortgage attached. Like millions of other Americans, he’s got a 30-year fixed in the low 3% range.
This has created a dilemma for him and many others, who want to move, but can’t make it pencil at today’s rates and asking prices.
But one thought is to rent out his current home and then rent another, as opposed to buying. Or selling for that matter.
It’s Possible to Rent Out Your Current Home and Rent Yourself
One trend that has emerged of late is the ‘rent out and rent’ scheme.
The way it works is relatively simple. If you’re an existing homeowner, you simply rent out your property to someone else and then go rent a different home.
This allows you to keep your low-rate mortgage intact, and it allows you to rent for less than what a new mortgage would cost.
It works because the PITI on the old house is so low, and asking rents are pretty attractive in many markets nationwide.
Sure, there might be a premium for rent on the new property, but it can still be the cheaper option relative to buying a home.
And the homeowner doesn’t need to worry about a large down payment, or losing their original home, which could now be seen as an investment property.
Let’s Look at an Example of Rent Out and Rent
Current monthly PITI: $3,500 per month
Potential rent for existing home: $6,000 per month
Cost to rent a larger home: $7,500 per month
Cost to buy a larger home: $10,000 per month plus $300k down
Cost to rent out and rent: $1,500 per month
As noted, I’ve got a friend considering a rent and rent out arrangement. Somewhat incredibly, the property he has his eye on is literally across the street.
This makes it easier, at least from a moving point of view. He can probably just lug his stuff over on his own, if he’s up for it.
It also allows him to keep an eye on his old property, which can be helpful but also perhaps a bit awkward.
Anyway, the house across the street is larger, has a view, and has a swimming pool. These are all wants and needs.
However, the price tag is a bit higher, we’ll call it $7,500 per month to rent. The good news is his current mortgage payment (full PITI) is just $3,500 a month.
And he can potentially rent his place for $6,000 per month because he got in cheap about a decade ago with that ultra-cheap mortgage rate.
If we do the math, it would cost $1,500 more per month to rent the larger home, using the cash flow on his existing property to offset the increased rent.
But he gets the larger space, the nicer home, the pool, the view, etc.
Perhaps more importantly, he doesn’t need to buy a home at today’s lofty prices and come in with a massive down payment.
Assuming they purchased a similar property, they’d need a $300,000 down payment and the mortgage rate would likely be 6-7% versus their current 3% rate. Ouch!
This Works When Home Prices Are High and Your Existing Payment Is Low
The reason this strategy works right now is because it’s more expensive to buy a home than rent in many places.
You can thank both high mortgage rates and high home prices, which have moved higher in tandem.
As I always say, there isn’t an inverse relationship between home prices and mortgage rates.
They can both go up together, go down together, or sometimes diverge.
This plan also works because many homeowners like my friend got into their current homes when prices and rates were low.
So they essentially have a lot of wiggle room to cash flow if renting out their existing properties, which can then be used toward a new home.
But instead of buying, they can simply pay a little extra in rent to get what they want, while continuing to enjoy appreciation on the old property.
At the same time, any improvements made on the old home benefit them as well. And they can always move back in the future.
For the record, this strategy can also be employed with downsizing. So a pair of empty nesters can rent out their larger home and go rent a smaller one.
In their case, we’re talking lower rent, potentially leading to some additional cash flow without having to commit to a new home purchase.
There Are Pros and Cons to Renting Out and Renting
It’s not without its risks though. When you rent, you’re at the mercy of your landlord. They might want to sell at some point, at which time you’d need to move.
You could also be limited in terms of making improvements or changes to the property.
In addition, you’re now a landlord yourself, which isn’t always a passive job. And the tenants present new risks, such as failure to pay rent.
It’s also possible to find your old home vacant for a month if you’re unable to find a tenant.
So you could be in a situation where you have to float two monthly housing payments. If you’re unable to, well, you’ve got a problem.
But the advantages are there too. You get the property you want/need for a lot less than what it might cost to buy.
And you get to keep your old home, which could be an incredible investment opportunity.
You’ve also got optionality. You can rent for a while then go back to your old home. Or decide after a while to buy something.
You aren’t necessarily locked in beyond the initial rental contracts in place, which might last a year.
It gives you time to determine your next move, assuming you’re not quite sure what you want to do.
Unfortunately, this also speaks to the dearth of for-sale inventory available in the housing market today.
And the incredible position many homeowners are in, thanks to their low-rate fixed mortgages.
Whether you dream of a snowbird lifestyle where you spend winter in warm sunshine and summer enjoying gentle breezes, want a lakeside vacation retreat, or hope to establish financial security with income from a rental property, you’ll need a budget and a plan to accomplish your goal of buying a second home.
If you already own your primary residence, you have some experience with the process of buying a home. But buying a second home typically requires more cash up front, a stronger credit profile, and an understanding of the tax implications of the purchase.
Let’s explore what it takes and what you need to know to buy a second home.
Read more:13 steps to buying a house
Why buy a second home?
A second home can be used for a variety of purposes besides vacations or as an investment. Some people spend time in two locations for work and prefer to own property in both places. Others are preparing for a future retirement in a new location and want to build equity in a home there. Some people buy a second home near a university where their children can live while in school.
While your goals for your second home are personal, how you intend to use the property has tax implications and will affect your mortgage options to finance the purchase.
How to budget for a second home
Just like when you purchased your primary residence, you’ll need to consider all the costs of buying a second home. In addition to the mortgage principal and interest, you’ll need to budget for:
Homeowner’s insurance. Insurance rates vary by location and can be higher in some areas popular for vacation homes, such as coastal Florida or mountain regions in the West. In addition, rates may be higher or lower depending on whether you rent the property for short-term stays or long-term leases or whether the property is often empty.
Property taxes. Get an estimate before finalizing your offer.
Homeowner association dues. Some communities charge homeowners fees for maintenance and amenities.
Maintenance. A common rule of thumb is to save at least 1% of the home’s value for maintenance and emergencies. If your second home is farther away or you have renters, you may need to budget for professional maintenance services.
Property manager. If you choose to rent a property, especially to short-term renters, you may want to hire a manager to handle the details. That typically runs 8% to 12% of your rental income.
Utilities. Your costs will depend on how often the property is occupied.
Vacancy. If you’re counting on rental income, make sure you have the resources to cover expenses when the property is empty between tenants.
Travel costs. If you buy a second home at a distance from your primary residence, consider how much it will cost in gas or airfare for visits.
Your plan for buying a second home
Your loan options vary according to whether your second home is for personal use or as an investment.
Typically, second-home buyers apply for a conventional loan or a jumbo loan to finance their purchase. Government-backed loans from the FHA and VA are usually not an option for second homes or investment properties.
Personal use
Lenders usually classify a home as a second home rather than an investment property if it’s rented for a maximum of 14 days annually.
However, if you finance the purchase with a conventional loan, most lenders will allow you to rent the property to tenants for up to six months if you don’t use the estimated rental income to qualify for the loan.
If you need a jumbo loan, most lenders will limit you to renting the property for a maximum of 14 days to be considered a second home.
Investment property
Both jumbo and conventional loans are available to finance an investment property, but they typically have stricter qualification guidelines than second home loans. However, you may be able to use some of the estimated rental income to qualify for the loan.
If you rent your property full-time to others and don’t use it yourself, that’s considered an investment property by the IRS. In addition, the IRS rules say that your second home can be considered a residence if you use it the greater of either 14 days per year or “10% of the total days you rent it to others.”
The IRS explains it this way: If you use the second home one month per year, it’s considered a residence rather than an investment property, unless you rent it for 300 or more days per year.
Consult a tax professional to estimate deductions for your second home or rental property.
How to qualify for second-home financing
Generally, lender requirements to qualify to buy a second home are stricter than to finance a primary residence. Rates, terms and guidelines vary by lender and according to your individual circumstances, so you should shop around to compare them.
Typical requirements are:
Credit score: A minimum of 620 to 680 or above for a second home loan; 700 or above for an investment loan.
Down payment: A minimum of 5% to 10% for a second home loan; 15% to 25% for an investment loan.
Debt-to-income ratio: 43% to 45% for both loan types.
Alternative ways to buy a second home
If you’d rather not apply for a mortgage to buy a second home, there are other options to consider:
Cash: If you have significant savings or investments to sell, you may want to pay cash for your second home.
Cash-out refinancing: Depending on how much equity you have in your primary home, you may be able to refinance that loan and use your equity to buy a second home.
Home equity loan. If you have plenty of equity in your primary residence, you could borrow against it to purchase a second home. However, the interest rates on a home equity loan may be higher.
Home equity line of credit: Alternatively, you could open a home equity line of credit (HELOC) to pay for a second home. Typically, a HELOC has a higher interest rate, but as you pay down the balance you gain access again to your equity.
Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes
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Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes
By: Rob Chrisman
Wed, Jan 31 2024, 10:56 AM
I could tell that my cat Myrtle was miffed. Not only had the work on her “2024 Vision Board Statement” languished, but either there was no line-caught halibut in her bowl, or the laser pointer’s battery was dead. It turned out that it was neither. Instead, it was news that the CFPB was not meeting its goals. the Office of Inspector General of the Federal Reserve Board released a report assessing the CFPB’s process for conducting enforcement investigations and making two recommendations. First, noting that the CFPB has not met its stated goal to file or settle 65 percent of its enforcement actions within two years, the OIG recommended that the CFPB Office of Enforcement incorporates the timing expectations for key steps in the enforcement process into the tracking and monitoring of matters. The OIG also recommended improvements to enforcement staff training on document maintenance and retention requirements for the CFPB’s matter management system. The report states that the recommendations were accepted by the CFPB, with a follow-up to ensure full implementation. Today’s Commentary podcast can be found here and this week’s is sponsored by Calque. With The Trade-In Mortgage powered by Calque, lenders help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. Hear an interview with Broker Action Coalition’s Katie Sweeney on her transition from leading the Association of Independent Mortgage Experts (AIME) to leading the Broker Action Coalition and the Political Action Committee that she started with AIME.
Lender and Broker Software, Products, and Services
Are you looking to source new third-party originators (TPOs) for your wholesale and/or correspondent channels in 2024? If so, be sure to start by considering important factors such as production volume, branch total, number of loan officers, and product types. While it can be overwhelming to manage all these factors, Optimal Blue’s Comergence Prospect Marketing solution makes it easy. As the most comprehensive prospect marketing and data analysis tool in the industry, Comergence simplifies how you research the marketplace, understand client volume and trends, identify and develop new business opportunities, and empower your field sales staff. Plus, production numbers are updated every week. Contact Optimal Blue to take the first step toward more effective TPO sourcing with Comergence Prospect Marketing.
Make your general ledger profitable and run your business more efficiently with Loan Vision and LV-PAM. Instead of “staying alive until ‘25”, with Loan Vision, a software built BY the mortgage industry FOR the mortgage industry, you can “produce more in 24!” Customers on Loan Vision see improvements of 30 precent+ decrease in days to close the books, 20 percent+ reduction in accounting headcount, complete LOS to G/L automation, and improved reporting and visibility. Interested in learning how Loan Vision can help you run a more efficient and profitable company? Contact Carl Wooloff to schedule a call today.
HELOCs, AVMs, PCRs… when it comes to home equity lending and its corresponding appraisal solutions, it can start to look like alphabet soup. Thankfully, Class Valuation put together your one-stop shop for all home equity appraisal solutions, specifically for brokers. The Home Equity Playbook by Class Valuation is a must-have guide for navigating the intricacies of home equity valuations. It provides essential insights and detailed explanations, ensuring you’re equipped with the knowledge necessary for accurate and efficient appraisals. This guide is more than just a resource; it’s a roadmap to understanding various appraisal methodologies and their use cases in HELOC lending. When you download the playbook, you’ll find everything you need to know about AVMs, evals and more, including what they are, what they’re used for, and how Class’ solutions may differ from others. You’ll find that navigating home equity appraisal solutions is no longer a daunting task, but a streamlined, manageable process. Download it here.
Want to make it easy for your borrowers to opt out of pre-screened credit offers to keep them from being bombarded by your competition when their credit is pulled? Your POS can do that. Well, maybe not yours, but LiteSpeed by LenderLogix can!
You need more than just a license to make money as a Loan Officer, but you probably already knew that. For starters, you’ll need to know three things to be successful: how to talk to your clients, how to process a loan application and how to seal the deal. At Madison Chase Academy we teach Loan Officers how to become successful in a short period of time. There are so many mistakes to avoid and I’m here to teach you how to do things the right way… the first time! 6 Months to 6 Figures. I will walk you through exactly what is necessary for you to build a profitable Loan Officer business. For more information contact Tanya Blanchard (770-851-9334).
Fannie and Freddie Updates
When a lender originates a conventional loan, the usual next step is to sell it to Freddie Mac or Fannie Mae, and retain the servicing, sell it to them and sell the servicing, or sell the loan servicing released. Or the servicing can be sold in bulk transactions later. Who’s buying the servicing that many lenders are selling to stay afloat? Well, among others, AmeriHome, Pennymac, Carrington, Newrez, and… Planet Home. During 2023, Planet Financial Group, LLC, parent of national mortgage lender and servicer Planet Home Lending, LLC and Planet Management Group, LLC, Owned Mortgage Servicing Rights (OMSR) portfolio rose to $92.48 billion at yearend 2023, up 47 percent from yearend 2022. 2023 origination volume hit $25 billion, down only 5 percent versus 2022. The company reached and estimated #2 government correspondent lender and the #3 correspondent lender overall, and acquired $14 billion of MSR’s through bulk and Co-Issue channels.
Planet’s servicing portfolio ended 2023 at $104.69 billion, up 42 percent from $73.64 billion in December 2022. At yearend, Planet was the 9th largest Ginnie Mae servicer, according to Inside Mortgage Finance data. Sub-servicing volume ended the year at $10.95 billion overall, up 68 percent from $6.5 billion at yearend 2022. Planet’s residential origination volume ended at $25 billion, down just 5 percent from 2022. Correspondent volume held steady in 2023, ending at $23.78 billion, off 1 percent from 2022 volume. Planet’s correspondent market share rose from 4.2 percent at yearend 2022 to 6.4 percent at Q3 2023, according to the latest data available from Inside Mortgage Finance. At yearend 2023, Planet was the #3 correspondent lender, up from #5 at yearend 2022 and the #2 government correspondent lender, up from #3, according to data from Refinitiv.
On January 23, Freddie Mac and Fannie Mae (the “Enterprises”) announced an updated Single-Family Social MBS and Corporate Debt Bonds Framework, and updates to mortgage-backed securities (“MBS”) disclosures. As part of the framework updates, the Enterprises will rename the Social Index to the “Mission Index” in February. Additionally, Fannie Mae will update the formulation of the index in February, and Freddie Mac will update the formulation of the index in May. The Mission Index offers MBS investors insights into the Enterprises’ mission-oriented lending initiatives, enabling investors to allocate capital towards those activities. The revised Mission Index will apply to pools issued by Fannie Mae starting in March and for Freddie Mac starting in June.
The updated frameworks define criteria beginning in June for the Enterprises’ mortgage collateral that may be pooled, issued, and labeled “Social MBS.” That label is applied when the Mission Index score of the underlying pool exceeds a specified threshold. The Enterprises also announced they plan to provide impact reporting annually beginning in 2025, “which will help the market understand the associated impact of the loans underlying their investments.”
Fannie Mae is implementing two enhancements for the HomeReady® mortgage product. For creditworthy very low-income purchase (VLIP) borrowers, Fannie’s Mae is offering a new temporary $2,500 credit for use towards down payment and closing costs. Along with this enhancement for borrowers, lenders who take HomeReady product commitments in Pricing & Execution-Whole Loan® (PE-Whole Loan®) can now reduce hedging costs and lock in margins with an enhanced best-efforts commitment. Fannie Mae Lender Letter (LL-2024-01).
Fannie Mae’s Press Release announced Single-Family Social Bond Framework. The updated Social Bond Framework describes the Fannie Mae mortgage collateral eligible to be pooled, issued, and labeled as Single-Family “Social MBS.”
Fannie Mae posted the January Appraiser Quality Monitoring (AQM) list.
Leverage key learnings and observations from calibrations to enhance your quality control (QC) program. This Fannie Mae Quality Insider features opportunities and tips aggregated from QC calibration exercises across a larger segment of lenders.
Freddie Mac published Guide Bulletin 2023-24 announced several changes, including updates to 10-day PCV types and occupancy requirements for a cash-out refinance to require all borrowers to occupy the mortgaged premises if occupied as a primary residence. See AmeriHome Mortgage Announcement Number 20240109-CL for more information.
Capital Markets
Credit conditions loosened as Treasury yields and mortgage rates decreased, so businesses and individuals are taking advantage of the borrowing opportunity. The Wall Street Journal has examined eight charts that detail the state of credit, from an increase in corporate bond issuance and consumer borrowing to a decrease in secured bond issuance. Despite long-standing concerns about a recession, some indicators suggest the economy and credit markets are at the beginning of a cycle of growth! Of course, with too much growth comes higher rates.
In supply and demand news, the Treasury Department has pared its borrowing estimate for the first quarter to $760 billion from the $816 billion projected in October. “Experts” had predicted the opposite, but Treasury officials say less borrowing is needed because of improving fiscal flows and higher-than-expected cash on hand.
Speaking of predictions that did not come to fruition, the U.S. economy is healthier than what economists expected a year ago. But some Federal Reserve officials emphasize a need for caution as they determine how to proceed with monetary policy. Per Fed Governor Waller, “Inflation of 2 percent is our goal. But that goal cannot be achieved for just a moment in time. It must be sustained.”
With the items above as a backdrop, in news of interest to the mortgage market, the latest home price data from S&P/Case-Shiller for November was another reminder that affordability remains challenging for home buyers. Despite the U.S. National and 20-City Composite Indexes recording their first month-over-month declines since January 2023, November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with the National Composite rising 5.1 percent and the 10-city index rising 6.2 percent. Rates falling around 100 basis points since October could support further annual gains in home prices.
Today’s highlight is the FOMC statement followed by the post-meeting press conference with Chair Powell, but the economic calendar kicked off with mortgage applications decreasing 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 26. Last week’s results included an adjustment to account for the MLK holiday. Prior to the Fed, we’ve also received ADP employment for January (107k, much lower than expected), and the Q4 employment cost index. Later today brings the Quarterly Refunding announcement, then January Chicago PMI. No change in the fed funds target rate range is expected with the release of the latest FOMC policy statement, but the market will be eager to hear if there is any softening in the hawkish rhetoric. We begin the day with Agency MBS prices better by .125-.250, the 10-year yielding 4.01 after closing yesterday at 4.06 percent, and the 2-year at 4.30.
Employment, and Transitions
Stronghill Capital, LLC, an Austin, TX-based Wholesale and Correspondent lender, is hiring across the country! If you’re a relationship-focused Account Executive with experience in Non-QM and Investor Financing, including multi-family and mixed-use properties, we’d love to speak with you! Stronghill’s Account Executives enjoy open territories, multi-channel opportunities to work with clients as correspondents or brokers, and consistent communication and collaboration with the Executive Leadership team. Stronghill Capital is a non-bank, balance-sheet lender specializing in commercial and investment property loans. We can help your clients meet their needs. If you’re looking to join a rapidly-growing, dynamic organization with a focused commitment to growth and expansion in Non-QM, reach out to our SVP of Sales, Matt Brammer, or 440.382.3183 to learn more.
Cenlar FSB announced the promotion of several senior leaders and the appointment of one Vice President: Owen Amster, to Vice President and Controller, Nick Brett, to Senior Vice President of Client Management, Mike Day, to Vice President of Executive Client Management, Trevor Friel, to Vice President of Workforce Management, and Rena Madia, to Vice President of Customer Interaction. Heidi Carter is now the Vice President, Business Information Officer, serving as the dedicated Business Information Officer (BIO) lead for our corporate functions across the enterprise.
Dark Matter Technologies announced that Tony Fox as its chief of client engagement responsible for directing the company’s account management and client success teams and will report to Sean Dugan, chief revenue officer at Dark Matter.
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Imagine slashing your monthly mortgage payment to zero or, better yet, turning a profit from the very place you call home. This isn’t a daydream for the financially savvy few; it’s the reality of house hacking.
Through the eyes of those who’ve made it work, house hacking transforms your living situation into an opportunity for financial freedom. From young professionals to families, people across the country are finding that their biggest expense—housing—can actually become their biggest asset.
What is house hacking?
House hacking is a strategy that involves purchasing a primary residence with the intention of living in one part while renting out the rest as a rental property. This could mean buying a multifamily home and living in one unit, renting out the others, or even renting out spare bedrooms in a single-family home. The rent collected from tenants goes towards the mortgage and other property-related expenses, potentially allowing the owner to live for free or even make a profit.
A Spectrum of Possibilities
The beauty of house hacking lies in its flexibility. Here are a few scenarios to illustrate its range:
The Multi-Unit Maven: Alex buys a duplex, lives in one unit, and rents out the other. The rent from the second unit covers the mortgage, meaning Alex lives mortgage-free.
The Single-Family Sharer: Jamie purchases a four-bedroom house, occupies one room, and rents out the other three. The rental income covers all housing costs.
The Basement Dweller: Casey acquires a home with a separate basement apartment. Living in the basement, Casey rents out the main floor, using the rent to pay the mortgage and save for future investments.
These examples highlight how you can house hack to adapt to different housing markets, personal living preferences, and financial goals. Whether you’re drawn to the idea of living rent-free, eager to dive into real estate investment, or looking for a way to reduce your housing expenses, house hacking offers a practical path to achieving your objectives.
Tailoring the Strategy to Your Lifestyle
Choosing the right house hacking approach depends on your lifestyle, financial goals, and how comfortable you are sharing your space. Considerations include the type of investment property, your desired level of interaction with tenants, and local market conditions. The key is to find a balance that works for you, ensuring your home remains a comfortable place for you while optimizing its income potential.
By embracing the concept of house hacking, you can transform your approach to homeownership, turning a typically expensive part of your life into a source of income. With careful planning and a bit of creativity, your journey towards financial independence might just start at your own front door.
Benefits of House Hacking
House hacking isn’t just a real estate strategy; it’s a lifestyle adjustment that opens doors to numerous financial and personal benefits. Let’s dive into the advantages, supported by real-world examples and data, to understand why so many are turning to house hacking as a way to improve their financial health.
Financial Freedom Faster
One of the most compelling benefits of house hacking is the accelerated path it provides toward financial freedom. By significantly reducing or eliminating one of life’s largest expenses—housing—you can allocate funds towards paying down debt, investing, or saving for future goals.
For instance, consider the case of Sam, who purchased a triplex, lived in one unit, and rented out the other two. The rental income not only covered the mortgage but also allowed Sam to save an additional $1,000 a month. This extra savings contributed to Sam’s ability to retire early, a dream that seemed unreachable before house hacking.
Access to Better Financing Options
House hackers often enjoy more favorable financing terms. Owner-occupants can qualify for lower down payments and better interest rates compared to traditional investment property loans.
For example, an FHA loan might require as little as 3.5% down for a multi-unit property, provided one of the units will be owner-occupied. This lower barrier to entry makes real estate investment accessible to more people. Data shows that owner-occupied financing options can save homeowners thousands of dollars over the life of a loan, making the investment in house hacking even more appealing.
Learning the Ropes of Real Estate Investing
House hacking serves as an invaluable hands-on education in real estate investing and property management. This benefit is difficult to quantify, but incredibly valuable.
Take Angela, who started her real estate journey through house hacking. By managing her duplex, Angela gained firsthand experience in screening tenants, handling maintenance issues, and understanding the financial aspects of real estate investments. This knowledge empowered her to expand her portfolio and become a full-time real estate investor.
Tax Advantages
House hacking can also lead to potential tax deductions, including mortgage interest, property taxes, and expenses related to renting out part of your home. These deductions can significantly lower your taxable income.
For example, let’s say John allocates 50% of his property’s square footage to tenant use. John can deduct 50% of the mortgage interest, property taxes, and maintenance expenses on his tax return, providing a substantial financial benefit at the end of the fiscal year.
Building Wealth Over Time
House hacking stands out not just for its immediate financial relief on living expenses but also for its profound long-term impact on wealth accumulation. By strategically applying rental income towards mortgage payments, those who house hack effectively build equity without dipping into personal savings. This method of leveraging other people’s money accelerates wealth building, offering a tangible path to increasing net worth over the years.
Instead of allocating a significant portion of their income towards housing, house hackers can redirect these funds into savings, investments, or debt reduction. This shift not only enhances financial security but also amplifies the potential for future financial growth
While outcomes can vary based on numerous factors like market dynamics and property management, the foundational strategy of house hacking provides a compelling approach to financial independence and wealth building.
Case Studies That Inspire
The real magic of house hacking comes alive through the stories of those who’ve embraced it. From the young professional who used house hacking to eliminate student debt to the couple that built a real estate empire starting with a single house hack, these narratives underscore the transformative power of this strategy.
By analyzing their journeys, we uncover a common thread—a strategic approach to living and real estate investing that turns conventional wisdom on its head and opens up new possibilities for financial independence.
Exploring Your Options: Five House Hacking Strategies
So, now that you understand what housing hacking is and what the benefits are, how do you get started? Well, depending on your goals, here are four different ways you can go about it.
1. Rent out a portion of your home
The most common way to get started house hacking is by buying a home and then renting out a portion of it. For instance, if you bought a two-story home, you could rent out the downstairs. Or, if you buy a home with a finished basement, you could live upstairs and rent out the basement.
This house hacking strategy is good in low-cost living areas because the rental income could actually cover your monthly mortgage payments. However, this may not work out in parts of the country that have a high cost of living.
2. Rent out your home entirely
If renting out a portion of your home isn’t enough to move the needle financially, then you could try renting your entire house. This could be a suitable option for anyone who is young and able to find an alternative, affordable living situation.
For instance, if you could temporarily live in a trailer or rent an apartment with a roommate, you could rent out your home for more money. This would allow you to pay off the house and cover your monthly rent payments.
3. Rent out by the room
If you’re just looking for a little extra money every month and don’t want to sacrifice the majority of your home, you could just try renting out one room. For instance, if you have a large four-bedroom home, you could rent out one room.
This gives you some extra money to put toward your mortgage payments, but you still get to enjoy the benefits of being a homeowner.
4. Rent out an additional unit
Many of the options on this list are ideal for young, single people. But what if you’re married and have a family? In that case, the idea of living with full-time roommates might not interest you.
If so, you could buy a multifamily property and rent out the other units. You could also rent out units attached to your home. This could be a unit that either comes with the house or one that you build yourself.
This will take some effort because you’ll need to fix it up and turn it into a space someone would want to rent. But if you have the interest, this could be the best way to house hack your primary residence while still protecting your family’s personal space.
5. Do a live-in flip
Live-in flipping is a popular real estate investment strategy where the investor purchases a residential property and lives in it while making improvements to increase the property’s value. The investor will then resell the property at a higher price than they originally paid for it, resulting in a profit. This strategy is often used by investors who are looking to build equity quickly.
Living in the property allows you to get to know the neighborhood, research the local market, and avoid paying rent while working on the property. The improvements you make can include anything from painting and landscaping to remodeling the interior of the home.
Legal and Tax Implications of House Hacking
Venturing into house hacking offers financial benefits but also introduces a set of legal and tax considerations that are crucial for a successful strategy. Here’s a concise overview to guide you through these aspects:
Local Zoning Laws
Zoning Requirements: Check your local zoning ordinances to ensure that your house hacking plans comply with regulations regarding rental properties, especially if you intend to modify a single-family home into a multi-unit property.
Permits: Obtain any necessary permits for renovations or conversions to avoid legal issues and ensure the safety and legality of your property for tenants.
Tax Benefits and Liabilities
Rental Income Reporting: Understand that rental income must be reported on your tax returns. Proper documentation of income and expenses is essential for accurate reporting.
Deductible Expenses: Familiarize yourself with what can be deducted, such as mortgage interest, property taxes, maintenance costs, insurance, and depreciation. These deductions can significantly reduce your taxable income.
Capital Gains: If you sell your property for a profit, be aware of capital gains tax. Living in the property for two of the five years before selling can qualify you for an exclusion on capital gains tax up to a certain limit.
Compliance with Landlord-Tenant Laws
Legal Responsibilities: As a landlord, you’ll need to adhere to state and federal laws regarding tenant rights, fair housing, and safety standards. This includes understanding eviction procedures, security deposit regulations, and the requirement for habitable living conditions.
Proper Reporting and Documentation
Keeping Records: Maintain meticulous records of all financial transactions, leases, and communications with tenants. This documentation will be vital for tax purposes and in the event of legal disputes.
Professional Advice
Consultation: Given the complexity of tax laws and real estate regulations, consulting with a tax professional and a real estate attorney can provide tailored advice and ensure you’re maximizing your benefits while minimizing legal risks.
House Hacking Checklist: Preparing for Success
House hacking requires careful planning and consideration. To ensure you’re well-prepared, we’ve compiled a comprehensive checklist. This guide will help you work through the initial stages, make informed decisions, and set you up for a successful house hacking experience.
1. Assess Your Financial Readiness
Evaluate Your Financial Health: Check your credit score, debt-to-income ratio, and savings. Your financial stability will affect loan approval and interest rates.
Budget for Upfront Costs: Calculate potential down payments, closing costs, renovation expenses, and an emergency fund for unexpected repairs.
2. Understand Financing Options
Research Loan Types: Familiarize yourself with different mortgage options, including FHA loans, conventional loans, and VA loans, if applicable.
Pre-Approval: Before house hunting, get pre-approved for a mortgage to understand how much you can afford and demonstrate your seriousness to sellers.
3. Choose the Right Property
Analyze the Potential ROI: When selecting a property, assess key return on investment (ROI) metrics, including cash flow, cash-on-cash return, net operating income (NOI), and cap rate. These metrics will help you understand the financial performance and potential profitability of the property.
Location: Select a location with high rental demand, considering factors like proximity to schools, employment centers, and public transportation.
Property Type: Decide whether a single-family home, multifamily property, or another type of property, suits your goals and budget best.
Condition: Be realistic about the amount of work you can handle. A fixer-upper may offer a higher return but requires more investment upfront.
4. Plan for Landlord Responsibilities
Understand Landlord-Tenant Laws: Research local laws regarding landlord responsibilities, eviction processes, and tenant rights.
Create a Lease Agreement: Draft a clear and comprehensive lease agreement that outlines rent, rules, and responsibilities. Consider seeking the advice of a legal professional.
5. Prepare for Property Management
Tenant Screening: Develop a process for screening tenants, including credit and background checks, to ensure reliability and compatibility.
Maintenance and Repairs: Plan for regular maintenance and emergency repairs. Consider whether you’ll handle repairs yourself or hire professionals.
6. Consider Privacy and Lifestyle Changes
Set Boundaries: Think about how you’ll maintain privacy and manage shared spaces, especially if renting out part of your primary residence.
Adjust Expectations: Living with tenants or managing a rental property can bring challenges. Be prepared for a lifestyle adjustment.
7. Develop an Exit Strategy
Long-Term Goals: Consider your long-term real estate and financial goals. How does house hacking fit into your broader investment strategy?
Resale Considerations: Keep potential resale value in mind when choosing and maintaining your property. Making wise improvements can enhance future profitability.
8. Continuous Learning
Educate Yourself: Real estate and property management are complex fields. Continually seek knowledge through books, podcasts, and networking with experienced investors.
This checklist is your starting point for a thoughtful and structured approach to house hacking. By addressing each item, you’re laying a solid foundation for your real estate investment journey, poised to navigate the challenges and reap the rewards of this strategic endeavor.
Bottom Line
House hacking is a creative way to pay off your mortgage, improve your monthly cash flow, and gain real estate experience. You can begin house hacking as a way to earn a little extra cash every month, or you could treat it like a long-term real estate investment strategy. You can put as much or as little into it as you want.
Just make sure you do your due diligence before getting started. Make any necessary adjustments to the house, choose your tenants carefully, and take your responsibilities as a landlord seriously. This allows you to make the most of your house hacking experience.