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Thinking About Investing in Property?
These are confusing times. For sellers and those who have lost their homes, it is a heartbreaking time. For the first time home buyers and investors, the bargain homes are an investment opportunity. So, all kinds of buyers are coming out of the woodwork to hunt for a bargain and close a real estate deal.
However, how do you know if it is the right investment or not? If you are thinking about buying an investment property, and not just a home, then you have joined the ever growing real estate investment club in US. According to David Leech, the chief economist of the National Association of Realtor’s, “The housing market has reached a new height. The major change is the growing population with a rising number of households entering the age in which people typically buy their first home. In short, people now have the need, desire and ability to buy homes.”
To be ready to take the buying plunge, first, you should know if you are familiar with the market. You also have to pay attention as to how many houses are listed for, in the neighborhoods you're planning to invest in, and have a realistic view of how much a house will cost you. However, if you're dreaming about that big corner house with no idea about its asking price, you may want to spend some more time becoming familiar with the market trends and how much the houses are being sold for.
Second, do you have the money for a down payment and closing costs? The down payment is a percentage of the value of the investment property. Down payments usually range from 3 to 20 percent of the property value. You may also be required to have Private Mortgage Insurance if your down payment is less than 20 percent. Closing costs include points, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other settlement costs. You can expect to pay between from 2 to 7 percent of the investment property value. Generally, buyers will receive an estimate of these costs from your lender after you apply for a mortgage.
Last, but not the least, you must know as to how much you can afford. As a general rule, your monthly mortgage payment should be less than or equal to a percentage of your income, usually about a quarter of your gross monthly income. Also, your income, debt and credit history go into determining how much you can borrow. As a general rule, your debt -credit card bills, car loans, housing expenses, alimony and child support, should not be more than about 30 to 40 percent of your gross income. There are also certain additional expenses which will come with owning a home. This includes homeowner’s insurance, utility bills, and maintenance costs, roofing, plumbing, heating and cooling etc.
According to finance.realtor.com “ It is very important to have your credit in good shape and make sure your credit report is accurate. Before lending the potential lenders will view your credit history as to how much debt you've accrued, how many accounts you have open, whether your payments are made on time, etc. Depending on all this they will decide whether to give you loan or not. It is important to get a report from each of the three credit reporting companies: Equifax, Experience, and Trans Union. Before applying for loan you must also keep in mind if you have made any recent major purchases, particularly a vehicle. If you do, you may have a harder time getting a loan or it could potentially lower the amount you'll be approved for”.
Once you decide you're ready, you'll need to be prepared to move quickly if you're aiming to buy in a sellers' market. Now the next step would involve hiring a real estate professional and getting reproved for a mortgage loan. This way you'll know if you can get approved and how much you can spend on a house. It also puts you in a stronger position when you ultimately want to make an offer for sale on the house.
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