Buying Property: Three Key Points to Remember

There are three key financial elements to remember when purchasing a property.  These are crucial, to ensure that investors get a property to suit their lifestyle, and something within their budget. The process of purchasing a home varies slightly, depending upon whether the investor lives in England and Wales or Scotland. 

Borrowing Estimate 

Before looking at property for sale at Zoopla.co.uk or similar sites, it’s important to speak with a mortgage advisor. They will calculate the size of the deposit, how much the investor earns and their credit rating.  Then work out a maximum loan amount. 

Gone are the days of 100% loans. Since the 2007 credit crunch, banks are less likely to take risks. Bear in mind that the smaller the deposit; the more the lender will charge to mitigate against financial risk. Lenders can lend around three to four times the annual income. If investors are buying as a couple, then this can increase further. 

One-Off Costs

These are costs that can possibly occur during the purchase, and therefore need to be factored into the borrowing process. This list covers most, but not all, potential one-off costs:

  • Lender’s Valuation
  • Building Survey
  • Legal/Conveyancing Fees
  • Stamp Duty
  • Land Registry Fee
  • Local Authority Search Fees
  • Estate Agency Commission (for the sale of another property)
  • Mortgage Indemnity Fees

Calculate How Much Is Affordable

After visiting a lender and also working out the one-off costs, it’s time to work out how much is affordable.   Here’s a step by step breakdown which should help you figure out who much is affordable:

1. Work out the income from the sale of the current property, if there is one. 

2. Then calculate the amount that can be borrowed.

3. Calculate the savings or investments that can be used for the purchase.

4. Deduct the approximate one-off costs for the property. This will provide a rough estimate of the price range that is affordable.  

If you follow these three steps you should have no problem making the huge investment which is a piece of property. Just be sure to take your time and do everything properly, as there are few purchasing decisions as important as this one.

Photo by: james.thompson

What to do Wednesday in Personal Finance? Is the Adjustable Rate Mortgage becoming extinct?

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I was reading an article last week that made the motion that adjustable rate mortgages (ARM) are dying.  For starters, adjustable rate mortgages are loans where the interest rate changes periodically.  Generally they are a good option when you are buying a house and the prevailing fixed rate mortgages rates are high.

This notion did not surprise me because interest rates are at historic lows for fixed rate mortgages.  You would be silly not to lock in a mortgage at these rates now, the interest rates are likely not going to get any lower than they are in your life time.  Listen they are at rock bottom now, I was having a water cooler discussion at work just looking for a consensus with my older  wiser co workers to see if they had ever seen or remember rates this low and none of them could! 

What do you think?  Do you have an ARM?  What was your reasoning for going with an ARM vs a fixed rate? 

Well my wife and I have a fixed rate loan.  We thought a few years ago that we had to lock in quick on our rate which is 5.00%, so we locked in at the onset of going through the process to secure the mortgage.  Little did we know that rates would continue to plummet!  Right now rates on a 30 year fixed rate mortgage are around 3.86% according to Bankrate.com.   

According to the Valentine’s Day press release from Freddie Mac, 95% of refinances were to fixed rate loans.  Historically, the ARM loans were great for people looking to have low fixed interest payments at the beginning of the loan then the variable afterward.  Why the great exodus from adjustable rate mortgages? 

Present fixed rate mortgages offer historically low interest rates.  You can lock into a 15 or 20 year loan at payment close to that of a 30 year in the past.  Rates on 15 and 20 year fixed rate loans have generally are a fraction of a percentage point lower in interest as well for the shorter term.  Homeowner fear of rising interest rates has caused a surge in refinance activity in the recent months.  Rates cannot go below 0% and 3.86% is pretty darn close to that, so why not a fixed rate? 

Just my two cents on the fixed rate mortgages, I do not think you will in the near future see lower rates than we are currently seeing today.  The Federal Reserve and Ben Bernanke do not see any interest rate increases in the foreseeable future. 

Get out there and get it refinanced or that dream house you were talking about!  But remember to fit it into your budget and make sure that you will indeed break even in your refinance. 

 

PHOTO BY: woodleywonderworks

I’m a baller – I own rental furnished apartment properties

Well I am not new to the rental property thing but I will tell you how it all started.  It all started a few years ago about rental properties when we were looking to move out of our furnished apartment for rental because our landlord was driving us crazy.  We were aggressively scouring Craigslist to find an apartment.  Well we found an apartment, ground level which means no stairs!

We decided to grab it as soon as we saw it; we definitely thought the rent was well below market value.  Come to find out the gentleman was getting ready to put the house on the market and was just trying to get it rented to cover his carrying costs until he could sell the house.  The house is a 2 family house upstairs and down.

About a week after we moved in the house was on the market.  We casually discussed purchasing the house and I didn’t really think I would be purchasing a house this quickly.  A month and a half later after all the paperwork and legalities, I was handed the keys to my first house.  Still in the whirlwind of the purchase, I quickly listed the rental property on Craigslist to try and rent out the upper unit.

After a few showings of the rental property and being in the middle of the winter months we didn’t know what to do.  So we found a few college guys, don’t pass judgment on college guys these 2 were very respectful and great tenants!

We had previously rented units but didn’t really have a contract, I wanted to come off as official and make sure I followed all the rules and regulations.   All of our previous contracts for rentals were either handshake deals or poorly written contracts.

I did a little research and found a few companies out there that write contracts specific to the state of New York. There is a little more about me! I decided to purchase a template to which I could edit.  It was very well written, I just filled out some of the information that pertained to the rental and I was ready to go.

Since the house is an older house we had to notify the tenants that there was the potential for lead paint in the unit.  I warned them not to gnaw on any of the window sills for fear of lead poisoning.   I had to give them a lead pamphlet and have them initial a form acknowledging that they know of the potential of lead based paint.

The guys stayed a little less than a year, but to get the apartment rented in the winter during a tough time of the year we were not too specific on the length of the contract.  After their tenure in our apartment a single female moved in and she is now in the process of moving out.  So as we speak, I am getting emails daily for potential tenants to rent.  Sure I am a pretty good judge of character, but I love the internet because you can find just about anything on anyone!

Life can turn upside-down very quickly and you find out you’re a homeowner and landlord in a matter of moments.  As a single family household the rental allowed for Mrs. MBA to stay at home with our little one!

We will discuss another time on how we derived a fair market value to rent the unit for.

Anyone else own rental property, if so how have you coped with tenant turnover? We are trying to find a tenant that will stay for a decent duration, but as long as it is rented we are happy.  Now that the Mrs. is working this will be a nice supplemental income.  Did I mention that the rental unit covers our mortgage plus some of the escrow!

What are your thoughts on owning rental property? More hassle than they are worth?  I would like to purchase more as a means of additional income for our family.

PHOTO BY: hownowdesign