Tuesday, March 24, 2015

How To Be A Smart Buyer

I’m looking forward to my upcoming Lunch and Learn at Nacho Mama’s on April 1st.  It’s been a great way for me to collaborate with other local professionals on topics I’m not an expert on, and I’m excited to share my expertise with everyone and answer any questions they might have.  So, in the sharing spirit, I recently had a client who found their dream home and while they were excited about it, they ultimately didn’t put an offer down which ended up being the right decision.  So I’d like to share a few tips on how to be prepared when house hunting.

  1.      A very important step before you start to house hunt is to get pre-approval for a loan.  This saves you so much time and stress when beginning your investment.  Don’t get attached to a house without knowing your budget.  My clients were in fact prepared with their pre-approved loan.  Taking that step allows you to house-hunt with confidence and also lets the seller know that you’re serious about buying and not just browsing, which may be perceived as wasting their time.
  2.      It’s helpful to have a checklist.  When you’re looking for a home its easy to get caught up in the excitement, imagining your life in every space you see, which is why having a checklist is important to help bring you back to earth.  Does this home have a washer/dryer, dishwasher, ceiling fans?  Practical check lists can help you make a better buying decision, and also calculate the true cost of moving.  You’ll have to incorporate big purchases like an updated refrigerator into the cost of the house.  This kind of spending isn’t limited to major appliances.  While buying a home without tons of curb appeal can save you money on the bottom line, it’s also an investment of your time and money to make those improvements down the line.
  3.      Its very important to keep the future in mind.  My clients were first time home buyers and were concerned about growing out of their house too quickly.  The house they had in mind would be perfect if they could turn the attic into a master suite.  “We found what we thought could be our dream home…we were ready to have an expert come look at it in just a few days,” my client said, recounting her experience.  Even with a contractor ready to go, the house they fell in love with had an offer on it less than 48 hours on the market.  It wasn’t enough time for their contractor to give them the go-ahead.
  4.      Ultimately they weren’t ready to commit their loan to a house they weren’t sure they could expand.  So, even after being prepared with their pre-approved loan they had to let go of the house.  “Definitely the quicker you take action the better your chances, but we aren’t going to rush into such a huge decision without being sure first,” my client had the right idea.  When making that kind of investment, you want to be positive that you’re spending your money wisely and for the long term.  Eventually you also want to think about the return on your investment, and being able to make that improvement on the home would’ve ensured that for them, within their loan budget.

     So while the market makes no guarantees, you can vastly improve your odds in the game by having your ducks in a row financially.  It helps you make smarter decisions about the investment in your future.  Because my clients were confident in what they wanted their money to buy and how they wanted to put their investment work for them, they were able to pass on that home.  It was a sound decision not to rush an offer because of the pressure put on them by another buyer.  But without knowing their loan amount in advance, they wouldn’t have even been a contender.  

Tuesday, March 17, 2015

Mortgages, Self Employment and What It Takes

     There are so many benefits to being self-employed.  All the tax breaks, the lax dress code (i.e. pajamas!) and setting your own hours to name a few.  Those tax breaks for your business, especially within the first few years are essential to getting your feet on the ground and making your company a viable success.  However, when it comes to applying for a mortgage loan, those breaks don’t necessarily translate to earned income.  It’s harder as a self-employed business owner to present yourself as a sensible loan candidate to a bank, which is why it requires that much more planning.

     Even if you make an exceptional living, it can prove difficult to qualify for the first-rate home loan your income deserves.  Typically a candidate must provide tax returns from the previous 2 years of an application, which may not necessarily represent your actual take-home pay.  There’s a disparity between what you want to claim for the IRS and what income you want to prove to your mortgage lender.  Your income after business expenses is often much lower than what you are really taking home and can end up not qualifying you for the amount you need, or in the worst case, not qualifying at all.   While some lenders understand this and allow you to add some deductions back to your bottom line for mortgage loan consideration (i.e. depreciations or a one time large purchase), others won’t.  Hence, the planning ahead.  As a self-employed individual, you must be prepared.

  The best option, if available is to make less deductions in the two years leading up to the date you apply for a mortgage loan.  Organize your finances so that personal and business expenses stay as separate as possible.  For instance, making a large purchase on a business credit card may not be counted towards your credit because it belongs to the business.

     Make sure your business shows an increase in income. You may want to consider this when planning the timing of your mortgage loan application.  Banks will average your income over two years to bypass seasonal spikes in revenue, but ultimately they want to see that your business is growing into a success.

     The least attractive option, but still workable, is to have a co-signer on the mortgage.  Otherwise you could opt for a smaller loan easier to qualify for, or look around for a smaller, more manageable investment if that’s the objective.

     The balance between saving your business money during tax time and impressing your potential lender is a delicate one.  However, it is not impossible with the right planning. After all, if you can start your own business, you can do anything!

     This is one of the many topics I’m going to cover during our monthly "Lunch and Learn" on Wednesday, April 1st.  Come hear me and Wanda Fears talk about subjects like this as it relates to Richmond small business owners and other self-employed individuals.  It's been such a success, and I can’t wait to hear all of your questions as we learn and lunch together!

Click here to RSVP to our exclusive Lunch Event with the Richmond Business Alliance. 

Wednesday, March 11, 2015

Rent Vs. Own. What's the better option?

Buying a home is one of the most financially sound things a person could do for themselves.  Homeowner’s net worth is on average 4 times greater than those who simply rent.  Think of owning your own home as a type of savings account.  Paying into your principal monthly increases the equity in your home.  In addition it provides tax and insurance deductions among other benefits.  Take advantage of historical lows in mortgage rates, first homebuyer programs and low mortgage insurance and invest in your financial future.  Just look at the amount of money that you could be investing in yourself, rather than giving it away to someone else’s pocket:

Tuesday, March 3, 2015

DOs and DON’Ts while awaiting approval

Processing your loan doesn’t mean that everything you’ve done up to this point is now frozen in a time capsule and awaiting approval from the lender.  There are many factors to still take into account: reverification of your employment, a soft pull on your credit to insure no new debt has been obtained, etc.  Until your loan is closed, this list of Do’s and Don’ts can still affect the final outcome.

This list is a little longer than the Do’s, essentially because any one of these could could push you over to the “maybe” column as a loan candidate.

Quit your job.  Unless your job change is within the same field for equal pay or a promotion within your company for a raise, moving positions can make it seem like you’re standing on uncertain ground to a creditor.  If a change like this occurs, please call your loan officer.
Check your credit or allow anyone else to, either.
Make any other large purchases like leasing a new car or other real estate.
Co-sign another loan
Apply for other credit or fill out any other credit application
Run up your credit card debt
Undertake any large home improvements if they’re not a condition of the loan you’ve applied for

While this list is shorter, it is just as important to remain focused and on task to have the best outcome possible for your loan decision.

Make sure all accounts are up to date.
Continue making all debt payments on or before their due date.
Keep an accurate and full record of all documents, statements, paycheck stubs or bills being paid off through this loan.

Following these simple rules will help ensure that your loan doesn’t ‘blow up’ in the final stages.  If you do have problems with credit payments, change jobs or have any other life event that may affect your credit approval, contact your loan officer immediately.  It’s better to be proactive than scrambling at the last minute to figure out a way to still get you into your home.