About Prescriptive Easement in Real Estate
One of the most important processes while buying a new home is a title search. The title search can help you understand many aspects of the property in terms of past homeownership and easement rights on the property.
When it comes to easement rights, there could be many variants available. In this post, we will understand what is an easement by the perception in detail.
What Is Prescriptive Easement?
The prescriptive easement also called an easement by prescription, is a legal agreement that gives one person access to another person’s property for a specific reason.
Prescriptive easement occurs when a person repeatedly and openly use a portion of another person’s property without the homeowner’s permission. Using the principle of adverse possession, the easement by prescription is formed.
The years and circumstances of such easements are specified by the state statutes. The creation of an easement by prescription may be sufficient if the use meets the needs of the service and demonstrates the continuity of purpose.
What Are The Requirements For Prescriptive Easement?
Several requirements must be met to grant this type of easement. Use of an easement must directly infringe the rights of the original property owner and must be done without the consent of the landowner.
If the landowner has the authorization to use the land, it would not be considered an adverse possession.
There must be evidence of continuous, uninterrupted use within the period established by state guidelines. The continuity criteria will not be met if use is too infrequent for a reasonable owner to object.
In general, all real estate occupations must be:
- Continuous:
All elements must always be met within the legal period (this period is
determined by the state). - Practical:
A person seeking adverse possession must also have physical possession. - Hostility:
Anyone looking for adverse possession does so without the owner’s consent.
Adverse possession is not needed if the landowner has provided consent. - Exclusive:
The property can only be occupied by an individual looking for adverse
possession. - Open
and Notorious: Anyone looking for adverse possession should own them
clearly and visibly.
All these conditions must be met for this type of easement
granted by adverse possession.
Is It Good Or Bad To Have A Property With Prescriptive Easement?
Based on how you define good and bad, the use of prescriptive easements is generally justified. They reduce conflicts with neighbors. Let’s say you have a road pass that crosses your neighbor’s property to get to your house. You can continue to use the property with this type of easement.
If you own land or buy a home with an easement, it may not be what you want. Even if the land is sold, the easement remains. This can reduce the value of the property, which can be an advantage when buying a property, but a loss when selling it.
What Are The Ways To Avoid Prescriptive Easements?
It is easier to avoid prescriptive easements than to eliminate them. There are two ways that homeowners or new home buyers can avoid this. The easiest way is to prevent intruders from using your property in the first place.
If you are concerned about students crossing your building when a school opens in your neighborhood, you can install a fence to prevent a right-of-way.
Another way to avoid going to court is to give consent to people using your property. Write “private property“.
The cross-border authorization may be revoked at any time.” This invalidates this type of easement requirement that uses is hostile or adverse.
Conclusion
Buying a home is one of the biggest financial decisions that one might have to take.
If the property that you are buying has a prescriptive easement, check if you are comfortable with the same. If you are not, you might want to reconsider your option to buy that property.
Get in touch with your trusted real estate agent to understand more about this type of easement.
About Micro Flipping in Real Estate
There are many ways to earn money as a real estate investor. Renting and fixing and flipping are a few of the most common ways to invest in real estate to generate income.
However, for individuals who are looking to start their venture in real estate, micro-flipping could be a good option to consider.
In this post, we will learn what is micro flipping in detail.
What Is Micro Flipping?
Micro flipping is different from the traditional fix-and-flip strategy. It’s a wholesale strategy where technology and data are used to find real estate properties that are undervalued.
Once an investor has identified one or more undervalued properties, they will buy, flip and sell them immediately. The word “micro” describes how quickly these properties are flipped and sold.
This is more of a high-volume and low-profit strategy. You can only expect to make a few thousand dollars per transaction, but you can close a lot of transactions because they closed quickly.
While you may choose to make some cosmetic improvements to properties to make them more attractive to potential buyers, it is not mandatory.
The reason why this strategy gained popularity during the pandemic is because of its quick closing nature.
It’s a way to flip real estate, with the click of a button. This is just one of the many benefits associated with micro-flipping that have made it so popular even after the pandemic.
How Does Micro Flipping Work?
This strategy is a little different from traditional real estate purchase and sale.
1 - Locate Properties
The process is initiated with the property search, but not just any property. Micro flippers require properties that are undervalued as the profit margin is lower compared to any other strategy.
Investors can choose from a variety of tools, but make sure the one you choose has at least the basic features listed below:
- Instant updates on properties for sale.
- The search option filters underpriced properties or sellers who need to sell fast.
- Correct contact details of sellers to contact them easily.
- Provide access through phone to filter out properties anytime and from anywhere.
- Get user-friendly inventory, allowing you to quickly view properties and make quick investment decisions.
2 - Negotiating the asking price with sellers
Finding a home is just the beginning. The next step is where the investors have to negotiate the sales price with the sellers.
As the investors are looking to make a profit, they should try to get the lowest sales price possible.
Generally, micro flippers work with motivated sellers. For instance, a seller who is looking to sell the property to avoid foreclosure can benefit the investor to get the deal in his or her favor.
3 - Lining up Buyers
In this type of strategy, investors generally have the buyer lined up before they buy the property.
This is the only way to ensure a fast transaction. Without buyers aligned, investors have to incur carrying costs, which reduces profits, and with the low-profit margin involved in microflipping, it is not sensible to hold the property.
Investors must sell the property for a profit, which means using a quick sales strategy to convince buyers to buy the property.
What Are The Pros And Cons Of Micro Flipping?
Pros:
Micro flipping can be considered a great form of passive investing as a majority of its process is done online. Your job will include finding underpriced properties, motivated sellers, and interested buyers. There is a small amount of work involved. In most cases, you can sell the property without any repairs to the home.
Another advantage of micro-flipping is speed and simplicity. You can move the property very quickly, especially when compared to a traditional neighborhood store. Micro conversions can be done using data analysis techniques. There is no need to cold call, knock on doors or drive around looking for property.
Cons:
One of the major drawbacks of this type of strategy is fierce competition. As many investors have adapted to this strategy, the market is getting saturated. Apart from usual real estate investors, you will have completion from big players called iBuyers. Zillow, Redfin, Opendoor, etc.
You should also know that the profit margins of most micro-flip businesses are low as it is a less profitable high-volume strategy. You need to manage your expectations because you won’t make as much money in any market as you would with other real estate investment strategies. If you’re microflipping, be prepared to close a lot of deals if you want a high-paying profile.
Conclusion
Micro flipping is a good option for individuals looking to kick starts their real estate investment profile. Make sure that you do your due diligence about the property and the area you are planning to conduct your business.
It is also important to use proper online tools that help you to find potential properties that you can micro-flip.
About iBuyers
The traditional way of selling your home may require a lot of time and work. The process of selling a home could be intimidating.
Maintaining repairs, making your home presentable, scheduling open houses, going through multiple offers, negotiating with potential homebuyers, and signing the sales contract are just the beginning steps in a home sales process.
If the buyer is applying for a mortgage which happens in most cases will take weeks before the sales transaction is complete.
A faster more efficient way to sell your home is in the new lately known as iBuying. In this post, we will take a look at what is an iBuyer in detail.
What Is An iBuyer?
iBuyer, also known as the instant buyer, is a company or group that uses the latest technology to buy your home for sale.
These companies intend to offer cash to the seller and make the process as easy as possible.
You don’t have to go through the hassles of prepping up your home for showing or marketing when you are selling your property to an iBuyer.
They will care of the marketing and staging of your property once they purchase it from you.
Usually, you will receive cash for the property that you have listed on these iBuyer portals within a few days.
Once the purchase transaction is complete, these iBuyers will list the property and re-sell it to appropriate buyers.
How Does iBuying Work?
In simple words, iBuyer is a company that has enough funds to buy houses in cash. To create an offer, iBuyers often rely on comparable homes in your local real estate market, also known as “comps”, similar to what a real estate agent will use to acquire a list price(or offer price) on the house.
Once an iBuyer buys a home, in many cases, these companies will make basic repairs to increase the resale price and list the property on the Multiple Listing Service (MLS).
Some iBuyers pay other real estate agents to sell their homes, while others work with their in-house listing agents.
Once these properties are listed on MLS, there is a description mentioning that these are sold by an iBuyer.
What Are The Pros and Cons Of Using iBuyer?
Just like any other process selling your property also comes with its benefits and drawbacks
Pros:
Speed: According to recent data from Realtor.com, the average home spends 43 days on the market from the time it’s listed to the time the seller closes on the sale. Selling to an iBuyer is a quick process that can be done in a matter of days without spending a lot of time finding a suitable buyer.
Convenience: The traditional way of selling your home involves many disadvantages, such as keeping your home clean and leaving it, often at the last minute, during home inspections and open houses. iBuyers eliminates that problem. Getting an offer from an iBuyer can take as little as a few clicks on your computer or smartphone.
Control and Flexibility: Although iBuying deals are usually quick, that doesn’t mean they have to be if you want to stay for a while at home that you are selling.
Conviction: Selling your home to a traditional buyer always involves certain risks and uncertainties. There are many reasons why the deal may not go through. For example, buyers may be forced to walk away from the deal if they do not qualify for a mortgage or if the appraised value comes lower than the asking price and they are unable to pay the difference out of pocket.
Cons:
Limited profit: iBuyers buy the property from the seller to make a profit just like any other investor or business. This results in sellers making considerably lower profits in returns of speed and convenience.
Limited Availability: Currently, iBuying is still a new way of selling properties and many individuals are testing it. Many iBuyers only operate in certain cities. One study found that iBuying thrives in Sun Belt cities including DFW, Atlanta, and Phoenix where the home inventory is fresh, affordable, and age-matched, which leads to reliable comps.
Hence, it could be difficult to find iBuyers in the area where you are property is located.
Conclusion
The iBuyer is one of the great options for both sellers and buyers. It is a quick, more flexible, and affordable option compared to the traditional home sale process.
Not only your process is quick it also helps you save money that you would otherwise pay to hire a real estate agent.
Make sure you understand the drawbacks of using iBuyers before deciding to sell your home to one.
About Fee Simple In Real Estate
It is a great feeling of freedom when you become a homeowner. However, you might need to make sure that you have the complete ownership right of the land and the property built on top of it so that you have the freedom to modify it as per your requirement.
In this post, we will be learning about fee simple in real estate which is one of the most common types of complete ownership in the country.
What Is A Fee Simple Ownership?
A fee simple in real estate is complete and permanent ownership of land and any buildings or structures on it.
In fee simple ownership, the owner owns the land outright with entire rights to modify the property as required keeping the zoning parameters in check.
The fee simple ownership is only related to real estate including land, immovable home structures, and any property directly attached to it, such as roads, ponds, machinery, or buildings.
In most parts of the country when an individual purchases a home, it is generally bought under fee simple ownership.
This means, you own the land and everything that sits on it with the rights to modify the structures as you see fit, and your name is on the title.
In the case of apartments or condos, the owner of the individual apartments will receive a fee simple with a full right for the unit subject to the contract which is called a restricted covenant.
All the owners have a common right to use public places and carry specific responsibility to maintain these areas.
You have the right to sell land and buildings whenever you want. You can also transfer this property to anyone you want.
Being said that, the owner could still lose ownership of the land and the property. If the owner in fee simple ownership defaults on property taxes or commits any violation, the government agencies can place liens on the property.
These interested parties can repossess the property through a foreclosure process.
What Are The Types Of Fee Simple In Real Estate?
There are two types of fee simple ownership in real estate, namely absolute fee simple ownership, and defeasible fee simple ownership.
1 - Absolute Fee Simple Ownership
It is the best form of ownership for a real estate property. In this type of fee simple ownership, the owner has complete rights and freedom to do any modification that they like on the land.
There are just a few things that the owner has to adhere to such as local laws, zoning laws, and liens.
Some zoning laws restrict property owners from operating retail outlets in areas designated as residential and from paying local property taxes. You have the right to sell, transfer or develop the property according to your wish.
While passing the property on to your heirs you are allowed to add certain circumstances to the final settlement.
Some conditions state that the main building cannot be demolished and others may state that the property stays in the family so the future heirs cannot are unable to sell it.
You can also choose to be the sole owner of the land and not give it to anyone as long as you live. As long as you pay your mortgage and property taxes, you won’t be in trouble with the law or with individuals.
2 - Defeasible Fee Simple Ownership
There is a slight difference between Absolute Fee Simple ownership and Defeasible Fee Simple ownership. The power to the owner in Defeasible Fee Simple ownership is less.
If the owner meets specific conditions set by the previous owner, he or she will have full ownership of the land for life. If the owner violates these conditions, they might lose ownership.
For example, the previous owner may set a condition where the new owner should always keep the property residential.
To convert that property into a hotel or other place of business would be to violate the covenant contract and you might lose the ownership of the property. In such an instance, the property would be returned to its original owner.
Conclusion
Fee Simple in Real Estate is the best choice for those who want the freedom to transfer, modify and maintain their property without any restrictions.
When you buy real estate, you need to exercise your rights, so make sure your ownership is clear and you adhere to the changes in state law.
About Warranty of Title
When you are buying or selling a property, the title of the property plays a significant role in the transaction.
The title of the property is used to determine the rightful owner of the property and ensure there are no encumbrances.
One such important term related to title is title warranty. In this post, we will understand what is a warranty of title and its importance in detail.
What Is Warranty Of Title?
Before we dive deep into this topic let us first understand the difference between a warranty deed and a warranty title.
A warranty deed is a legal document used to transfer the title or the property from one owner to another in a real estate transaction.
It is a document in which the ownership of the property is recorded legally.
Warranty of title is an assurance by the seller that he can legally sell the property and that there are no liens or legal claims on the property.
The party holding the lien on the property has a portion of the property under a legal claim for the amount that is owed by the homeowner.
The most common types of liens are tax liens, mechanical liens, or mortgage liens.
The property receives a clear title state where there are no liens on the property. Usually, the title company is responsible to search the title for any claims or liens and report if the title is clear for the property.
Title warranty is not provided in other types of deeds like a quitclaim deed. In a quitclaim deed, there is no guarantee of clear title, but the grantor effectively waives his interest in the property.
If a title issue arises later, the buyer will not have the protection that a title warranty would provide.
How A Transaction Is Confirmed Using Warranty Of Title?
A title warranty is automatic in most property sale transactions, but if the seller is acting as an agent, no title warranty may exist.
This case may occur in a situation where the auction is taking place for example, in a real estate sale.
In such cases, the seller of the property is not the owner, so he may not be aware of another party’s rights on the property.
A title warranty can give the buyer of the property legal rights to sue the seller if there are any claims or problems with the title of the property.
For example, an heir of a previous owner may have an outstanding claim on the property that is not reported by the seller.
The buyer can take legal action to recover the money he invested in the property purchase and the damages caused to rectify the issue.
Other risks of completing a transaction may include ongoing disputes over the scope of defining the property boundaries.
Adjacent property owners may say that the property line is different from what the seller presented to the buyer. Bills for unpaid invoices and taxes may exist, making the transaction difficult.
If the property in question doesn’t have any outstanding liens and the ownership of the property is established successfully, the property will receive a clear title, and the seller can then provide a warranty of title to the buyer without any impediment.
What Kind Of Protection Does Warranty Of Title Provide?
A title warranty protects against risks that would make the property less valuable to the buyer.
Common title risks are as follows:
- Any disputes regarding boundary lines or survey changes related to property.
- Liens on the property such as unpaid property taxes or federal taxes by the seller or the previous owners of the property.
- Any undisclosed prior transfer of ownership to third parties.
- Issues of probate or unsettled inheritance from deceased homeowners.
- Any restrictions on the seller’s right to transfer property.
- Any unreported mortgage loan on the property.
If a property has any of the above-mentioned attributes, the property will not receive a clear title during the title search.
An unclear title can require an expensive legal process to rectify the issue. These added costs may drop the value of the property and make it difficult to sell.
A title warranty protects against these risks by ensuring that the seller has a clear title and by giving the buyer the right to sue the seller if there are any of the above-mentioned issues with the title.
Conclusion
Warranty of title not only protects the buyer from any title issues but also helps the seller to have peace of mind and confidence that the transaction will go smoothly.
As a seller, it is suggested that you speak to your title company to make sure that the title of the property that you are selling is clear.
About Upfront Mortgage Insurance Premium (UFMIP)
If you are planning to buy a new property with less than a 20 percent down payment, your lender will add mortgage insurance to your monthly mortgage payment.
The mortgage insurance works differently based on the type of loan you apply for. In this post, we will be talking about upfront mortgage insurance premiums (UFMIP) in detail.
What Is UFMIP?
When you apply for an FHA loan, you as a borrower need to pay a specific amount at closing called an upfront mortgage insurance premium. The actual FHA upfront mortgage insurance amount is 1.75% of the total loan amount.
The FHA UFMIP is usually added back to the loan amount instead of paying in cash. Your lender then pays the UFMIP funds to HUD which helps protect lenders and FHA in the event of default on that mortgage.
For example, you are planning to buy $350,000 with an FHA loan and a minimum down payment of 3.5 percent.
This means the down payment amount that you as a borrower need to bring at closing is $ 12,250.
At the time of closing of your home purchase, you’ll also need to pay an upfront mortgage insurance of 1.75% of the final loan amount, which is the mortgage that you are taking to buy the property.
If the home is $350,000, and you’ll put down $12,250, you’ll pay 1.75% on $337,750, which is $5,910.63.
This means your total cash to close required would be $18,160.63 plus the fees and closing costs charged by the lender.
Though mortgage insurance is also applicable in conventional loans if the borrower makes less than a 20% down payment called private mortgage insurance (PMI).
This is collected by the lender every month along with the monthly mortgage payments.
If the borrower decides to refinance the current FHA loan within the first 36 months after the closing date, the borrower will be entitled to a refund for the unused portion of the mortgage insurance premium.
According to the experts, the reimbursement is based on the first upfront mortgage insurance premium and is reduced by 2% each year until there is nothing left to reimburse.
Can The UFMIP Be Refunded?
Many people are unaware that if you pay off your mortgage insurance or refinance your FHA loan to conventional or sell your home within 5-7 years of ownership, you can usually get a refund.
This means you can still get a substantial refund after paying your FHA loan for all those years.
Homeowners can refinance and cancel their mortgage payments after 5 years if they take out an FHA loan before June 2013.
Homeowners must maintain 22% of the equity in their home and all monthly mortgage payments must be made on time.
Homeowners with FHA loans issued after June 2013 must refinance their existing loans into conventional and must have a current loan-to-value ratio of at least 80%.
What Are The Pros And Cons Of UFMIP?
Pros:
- Easier to qualify for a loan: With protections like upfront mortgage insurance premiums; the federal government can back FHA loans. This often provides better options for borrowers who may have difficulty qualifying for a traditional loan.
- Low Down Payment: Upfront mortgage insurance is 1.75% of the total loan amount. Though it is an added cost, the low down payment of 3.5% could still be an affordable loan option compared to other loan programs.
Cons:
- Higher upfront cost: When you close on your home, you must pay a one-time payment of 1.75% of the home loan amount. These costs are in addition to other closing costs and expenses for the purchase of the home. Upfront MIP increases the overall cost of buying a home, which can be difficult for borrowers with limited capital.
- Annual MIP is still required: Along with the upfront mortgage insurance premium the borrower also has to pay annual MIP along with their monthly mortgage payments.
Conclusion
FHA loans could be a great option for a borrower with limited cash in hand for buying a house, however, ensure that you are prepared for a huge UFMIP along with an annual MIP.
There are conventional loans with low down payments that you can get with no upfront MIP.
It is best to compare multiple options so that you can make an informed decision and choose the one that is most cost-effective and affordable.
About Signature Loan
Everybody needs credit at some point in life whether it is to buy a new home, to pay off debts, medical emergencies, etc.
There are two categories of loans secured loans and unsecured loans. In secured loans, the lenders provide loans against collateral; the best example of a secured loan would be a mortgage.
In an unsecured loan, the bank or the lender provides loans without any collateral; an example of an unsecured loan would be signature loans. In this post, we will understand what is a signature loan in detail.
What Is A Signature Loan? How Does It Work?
A signature loan, also known as a “character loan” or “good faith loan,” is categorized as an unsecured personal loan.
Unlike a secured loan, this type of loan does not require security, such as an asset or home that the lender can foreclose if you don’t pay it back.
Instead, the loan is backed by your signature, which is a legitimate promise to repay the loan amount.
To determine whether to lend a signature personal loan, lenders typically look for solid credit history and sufficient income to repay the loan.
In some cases, a lender may require a loan guarantor, but a guarantor is only contacted if the primary borrower defaults on the loan.
Unsecured refers to the fact that these loans are not secured by any form of physical security, unlike auto loans and mortgages. Signature personal loans are amortized over a set period and paid back in equal monthly payments.
When you apply for this type of, lenders take into account factors such as your credit history, income, and credit score to determine if you qualify for the loan.
These factors also help lenders determine the interest rate and loan amount that the borrower qualifies for.
If you are approved for this type of unsecured loan, the lender will transfer you a lump sum in cash.
You then pay off the loan with interest over a fixed repayment term, usually 24 to 60 months or longer.
What Are The Pros And Cons Of Signature Loans?
Pros Of Signature Loan:
- Quick funding: If you need funds in quick succession, some lenders can withdraw funds within the same business day or a few business days once you are approved.
- No Collateral: Since all signature loans are unsecured loans, you don’t need to worry about the lender taking over your car or taking over your home.
- Low-Interest Rates than Revolving Credits: The average personal loan interest rate is usually lower than the average credit card interest rate. Using this type of loan to pay off high-interest credit cards balance would make good financial sense.
Cons Of Signature Loan:
- High fees and pre-payment penalties: most lenders will charge fees such as origination, late fees, and pre-payment penalties. These fees can significantly increase the cost of the loan.
- High potential interest rate: Since there is no collateral for such loans, the interest rate charged is higher than secured loans.
- Late payments can damage your creditworthiness: If your payments are more than 30 days late, it can severely damage your credit history and you could face challenges qualifying for any loans in the future.
Conclusion
Though the signature loan is a good option, the thing to note is that it is not available with every bank or lender.
Lenders who provide signature personal loans have higher fees and interest rates as the risk is higher for lenders due to a lack of collateral.
You can start your search online to check which lenders provide signature loans and ensure to have good credit and consistent income before applying for a signature personal loan.
About No Doc Mortgage
If you are thinking of applying for a mortgage to buy a property, you have many loan programs available at your disposal.
Most of these loans would require income documentation as the lender would need to know if the borrower applying for the loan is making enough money to repay the loan.
However, there is one mortgage loan that does not require income documentation or verification. In this post, we will understand what a no-doc loan is in detail.
What Is A No Doc Mortgage?
No doc mortgage, also known as low doc, no- income-verification, or stated-income mortgage is a type of private money loan program in which the borrower is not required to submit tax returns or verification of income.
Instead, these loan programs are approved based on an agreement from the lender that the borrower can repay the loan in the future.
Because income is not easily verifiable, it is common for people (including self-employed borrowers) who do not have a regular income to choose to go for this type of mortgage.
Although this type of mortgage is risky, there are generally no regulations and the borrowers have to pay higher down payments compared to a traditional mortgage.
How Does A No Doc Loan Work?
In a regular mortgage, the borrower needs to provide income documentation for income qualification.
To prove your income qualification the lender would require your recent paystubs, W2s, and/or tax returns.
Lenders want borrowers to be able to repay their loans by proving that they have a consistent and dependable income.
Of course, this is in addition to other parameters that are required for a borrower to qualify such as loan to value, debt-to-income, and decent credit scores.
However, some mortgage loan programs may not require proof of income which is called a no-doc mortgage. In this type of mortgage, the borrower has fewer documents to provide.
Instead, the lender would request a declaration from the borrower stating that he or she would be able to repay the mortgage.
These loans are generally given and are best suited to individuals with no source of income, the self-employed, temporary workers, or new immigrants.
No documentation mortgages do not comply with the Consumer Credit Protection Act which states the lender should verify the potential borrower’s finances.
As there is no income verification required, these types of mortgages are risky for lenders. Since 2010 after the execution of the Dodd-Frank Wall Street Reforms and Consumer protection act, no doc mortgages have become less popular.
This is due to the guidelines stating all mortgages are required to have all the documentation.
What Are The Benefits of No Doc Mortgage?
- They facilitate financial access to real estate investors who wish to invest. It might be difficult to qualify for conventional loans if you have multiple investment properties, not to forget never ending documents. No documentation mortgage can be a way forward in such cases.
- As this is an asset-based mortgage, and not much documentation is required, the closing time for the loan is faster than any other conventional loan.
What Are The Disadvantages of No Doc Mortgage?
- These types of loans are difficult to apply for due to their scarcity. There aren’t many banks or lenders that provide such kinds of mortgages. Therefore, it can be difficult to find a lender that offers no income doc loans.
- Since the lender faces high risk in these mortgages, they would require the borrower to make higher down payments. Also, the interest rates on these loans might be higher compared to other conventional products.
Conclusion
No doc mortgage could be a good option for investors and self-employed individuals; however, it is difficult to find a lender who provides this type of mortgage.
You can search online for lenders who are providing such kinds of loans or speak to your trusted mortgage advisor for such options.
About Mortgage Loan Lock
As we all know that in the mortgage industry the interest rates change quite often.
When you are looking to refinance your current mortgage or buy a new home with a mortgage the lender or the bank will charge you an interest rate for the loan that they provide.
In a market where the interest rate is rising, you must lock your loan with the lender before you lose on a good interest rate. In this post, we will learn what is a loan lock and how it works.
What Is A Loan Lock?
A loan lock, also known as a mortgage rate lock is a tool that allows borrowers to “lock” an interest rate for a mortgage for a set period usually 15 to 60 days.
If the loan does not close within the lock-in period, the borrower may extend the period by paying an additional fee.
Let’s say you lock the interest rate at 5% for 15 days and after 10 days the interest rate increases to 5.5%.
You will still qualify for 5% interest, which will keep your loan lower over the long term. Thus, the rate lock protects the borrower from rising mortgage interest rates.
How Does The Loan Lock Work?
Locking in the loan assures the borrower that the lender will provide a loan at a specified interest rate at the time of closing. In most cases, lenders provide loan estimates that show the interest rate at the time of application rather than at the time of closing.
The listed interest rate also includes the lender’s profit margin. Interest rates can rise or fall before closing, so a mortgage rate lock protects borrowers against rising interest rates during the lock period.
Lenders sometimes offer a loan at a certain rate plus a few points.
The points represent the fees you pay at the start of the loan to get a lower interest rate for the life of the loan.
If the interest rate drops during the lock-in period, the borrower can choose to withdraw the application.
This type of withdrawal is called the risk of loss for the lender. However, the borrower must be very careful to ensure that the mortgage loan lock agreement allows for cancellation.
In some cases, when the interest rate drops during the lock-in period, the borrower may have the option of adjusting the new lower rate using the float-down facility.
This option may be an additional cost to the borrower as it has a potential risk for the lender.
Mortgage rate locks usually may last for 15 to 60 days. At the very least, it should include a reasonable amount of time for the borrower to process their loan application. Sometimes this lock-in time can be as short as a few days.
A borrower can negotiate the terms of a rate lock and often extend the term of the lock for an additional charge or slightly higher interest rate.
What Are The Benefits Of Loan Lock?
Mortgage rate loan locks are popular with borrowers for a reason. Here are some of the benefits of locking your rate before the loan process begins:
- You are in a better position to anticipate your monthly payments once you lock your loan before the loan processing begins.
- Fixed interest rates allow you to focus on what is required to complete the closing without worrying about interest rates or being tied to a higher interest rate if there is a delay in closing.
- If necessary, you can get an extension for the lock-in period for an additional fee.
What Are The Drawbacks Of Loan Lock?
Mortgage rate locks could be a good option, but it’s not perfect. Below are two disadvantages of locking your loan:
- Rates can change at any time and there is no way of knowing if the interest rate will drop until the loan closes.
- When the interest rate drops, you’re locked into a fixed rate and you can’t get a lower rate. The exception is when the mortgage rate lock has a “float down” clause written in to cover such circumstances. But getting float down from the lender will come with additional cost.
Conclusion
A loan lock could be one of the best options if you are looking to buy a new home or refinance your current mortgage.
As a borrower ensure that you check the market condition so that you can anticipate the rate lock and get the most out of the mortgage rate lock.
Ensure that all the required documents are submitted on time so that the loan is closed before the lock period expires to avoid additional extension charges.
About U.S.A House Price Index
If you are looking to buy or sell your property you must have an idea about the property prices in your area.
Many parameters affect the property prices in an area. These parameters help to determine the house price index in various regions of the country.
In this post, we will learn what is the house price index is in detail.
What Is HPI?
The HPI is a Federal Housing Finance Agency’s (FHFA) index that indicates the prices of single-family homes.
The HPI measures home prices based on information from home purchases and mortgage refinances in all 50 states and more than 400 US cities since the 1970s.
In addition to serving as an indicator of housing price developments, it also functions as a tool for understanding estimated changes in mortgage prepayments, housing affordability, and mortgage defaults.
Deeper Definition Of HPI.
The HPI is compiled by the Federal Housing Finance Agency (FHFA) using data provided by the Federal Home Loan Mortgage Corp. (FHLMC), commonly known as Freddie Mac, and the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae.
HPI is derived from transactions like conforming and conventional mortgages on single-family homes.
This index is measured based on the resale or refinancing of the same properties by calculating their average price changes after every transaction.
The home price index report is usually issued quarterly, however, since March 2008 a monthly report has also been issued regularly.
The data for HPI is collected from a review of mortgages purchased or securitized by Freddie Mac and Fannie Mae.
The HPI is a measure of changes in single-family home prices that began in the mid-1970s to the present using complex analysis. It measures the average change of home value during the resale or refinancing transaction of the same property.
The home price index is a “constant quality” index because changes in housing quality are supervised by tracking the same single-family homes over time. The HPI displays nominal gains as it is not adjusted for inflation.
The data represented in HPI includes tens of millions of US home sales. Because the index tracks home sales over time, it provides an overview of changes in home price at the national, state, census, county, metro, and zip code levels.
How Is HPI Utilized?
The HPI is one of several economic indicators that investors use to gain insight into broader economic trends and potential movements in the stock market.
Rising and falling real estate prices can have serious consequences on a country’s economy.
Rising prices generally create more jobs, boost confidence and encourage higher consumer spending.
This opens the gates for greater aggregate demand, improving the country’s gross domestic product (GDP) and overall economic growth.
However, when real estate prices fall, the opposite happens. Consumer confidence falls and many organizations profiting from the demand for real estate initiate laying off their employees which could sometimes cause an economic recession.
How Does The HPI Work?
The HPI is a free, publicly available measure of US housing prices. FHFA. The index is calculated based on single-family mortgages purchased or securitized through Freddie Mac and Fannie Mae, the largest mortgage GSEs in the United States.
The HPI provides a tool for understanding housing market trends that play an important role in the economy.
For example, researchers can use the HPI to understand changes in housing affordability, prepayments, and mortgage defaults.
Conclusion
A house price index is a free tool provided by FHFA publicly. This tool is mostly used by researchers to understand the economic trends that help investors to invest their money in the real estate market at the right time to get maximum returns.
You as a homeowner or home buyer can use this indicator to analyze the property prices in your area if you are looking to buy or sell your real estate property.
About Commercial Mortgage Backed Securities
Just like an individual might require a mortgage to buy a real estate property, a business
or a company might require a mortgage to buy a commercial real estate property.
We all know that the in residential mortgage industry, the mortgages are
bundled and sold in the secondary market as mortgage-backed securities (MBS).
Similarly, the commercial mortgage industry also has commercial mortgage-backed
securities (CMBS). In this post, we will learn what are CMBS in detail.
What Are CMBS?
Lenders create CMBS. They take a group of commercial real estate loans, put them into a package, and sell them to investors as a series of bonds. These bonds are usually divided into segments, also known as tranches.
These bonds are sorted based on their ratings and risks. The bonds that have the highest rating have the lowest risk of investment and are known as senior debt.
The bonds that have the lowest rating have the highest risk and are known as junior debt.
Senior debt is the first in the queue to receive payment of principal and interest. The junior debts are the first to be affected if the borrower defaults on the mortgage payments.
You can choose which tranche to invest in depending on the type of return you are looking for and how much risk you are willing to take.
As there are no rules to standardize CMBS structures, pricing them can be difficult. The underlying CMBS securities can include any number of commercial mortgages of varying values, property types, and values – such as commercial real estate and more than four-unit multi-family properties that generate income.
CMBS carries less prepayment risk than residential mortgage-backed securities (MBS) because the terms of commercial mortgages are usually fixed.
How Does CMBS Work?
Just like collateralized debt obligations (CDOs) and collateralized mortgage obligations (CMOs), CMBS are also sold in the form of bonds. Multiple mortgage loans that form the CMBS, act as collateral if the borrowers default on the mortgage payments.
If everything goes well, the investors receive their returns in form of principal and interest paid by the borrowers
Loans are usually held within a trust and vary widely in terms, types of assets, and amounts.
The underlying loans collateralized by CMBS include mortgages for real estate such as complexes, factories, office parks, hotels, office buildings, apartment buildings, and shopping centers. These mortgages are often held within the same trust.
A mortgage is generally considered non-recourse debt any consumer or commercial debt that is secured only by collateral.
This means, that if the borrower defaults on the payments, the lender cannot take any of the borrower’s assets outside of the collateral.
As CMBS are complex investment vehicles, they require a wide variety of market participants.
These participants may include a credit rating agency, the trustees, investors, the certificate servicer, the lead servicer, the primary servicer, and the special servicer. Each of these participants fulfills specific responsibilities to ensure the proper functioning of CMBS.
Pros Of CMBS:
Term Loans Are Fixed: CMBS-backed loans are often fixed. The borrower cannot repay them early without pre-payment penalties. Because of this, CMBS offers a much lower prepayment risk than residential MBS.
Prudent Underwriting Guidelines: CMBS wrote after the 2008 financial crisis tends to be larger. They have more prudent underwriting guidelines than residential MBS.
Better Returns: CMBS in the bond market typically have higher yields compared to federal or corporate bonds. This means that as an investor you get an opportunity to make higher profits.
Cons Of CMBS:
High Default Risk: Just Like corporate bonds, CMBS are subject to default risk. If borrowers default on monthly mortgage payments, CMBS investors may suffer losses.
Default risk can vary, and is usually based on the strength of the market in the location and the date when the mortgage was originated.
Real Estate Market Reaction: CMBS issued during peak market periods or when underwriting guidelines are lenient tend to carry higher risk.
CMBS can also be adversely affected by weakness in the real estate market. This is what happened in 2008 and 2009 when the CMBS loans dried up during the financial crisis of 2008. They gradually recovered as real estate market conditions were getting better.
The rating depends on the bank: The rating a CMBS receives depends on the honesty and integrity of the lender that originated the loan in the first place.
Investors do not know what they are buying if the CMBS are incorrectly represented or rated. As a result, this could cause the same ripple that ended in the 2008 sub-prime mortgage crisis.
Conclusion
Key things to consider before investing in commercial mortgage-backed securities are that these are backed by commercial real estate and not residential real estate.
There is a lower risk of pre-payment as CMBS has fixed loan terms. Also as an investor make sure that you assess the risk before you invest in the different tranches based on your evaluation of risk versus the returns.
About Certified Public Accountant (CPA)
All U.S citizens must file their tax returns every year. Similarly, even all companies and businesses need to file their annual taxes. If you are a working individual, you may choose to file your taxes with IRS.
However, you can also use professional help to file your annual taxes through a certified public accountant.
In this post, we will understand what is a certified public accountant and what are their roles and responsibilities.
What Does CPA Stand For? What Is CPA?
CPA stands for a certified public accountant that is licensed by the State Board of Accountancy.
To earn the prestige associated with a certified public accountant license, you must display ability and knowledge by meeting high educational standards by passing the exam for certified public accountant and gaining a certain amount of general accounting experience.
There are two prime characteristics required to become a certified public accountant, passing the Uniform CPA exam, and getting the state-required licensing based on the state that you are planning to practice in.
Apart from passing the exam and getting the state-required licensing, earning the Certified Public Accountant designation also requires a bachelor’s degree in finance, accounting, or business administration.
To complete the certification, the individuals are also required to complete 150 hours of education and have at least two years of experience in public accounting.
In addition, retaining the designation of a certified public accountant also requires completing a certain number of hours of continuing education each year.
What Are The Roles And Responsibilities Of A CPA?
Certified public accountants play important roles in planning and researching goals for individuals and businesses. Below are a few key responsibilities for a certified public accountant.
- Analyze transactions and prepare reports.
- Manage lead approvals and manage payables/receivables.
- Participate in budget processes.
- Regularly review accounting activities.
- Organize and update financial records (both digital and physical) as needed.
- Always keep senior managers informed of the company’s financial situation.
- Keep company financial information confidential.
- Keep up with industry developments and regulatory changes.
- Forecast revenue and analyze profit margins.
- Conduct regular detailed audits to ensure accuracy of financial, expenditure, and investment documents.
- Establish accounting policies and procedures.
- Contacts with tax accountants to monitor tax payments and returns.
What Is The Difference Between CPA and Accountant?
All certified public accountants are accountants, but not all accountants are certified, public accountants.
An accountant is any person who keeps and interprets financial records. However, certified public accountants are not limited to one industry or even one job function.
In addition to maintaining and interpreting financial records, CPAs may provide additional services as a result of knowledge gained through exam preparation and continuing professional education (CPE) requirements.
According to the American Institute of Certified Public Accountants, those who earn the CPA designation have five basic expert services.
- Advice on legal disputes
- Audit and review
- Financial planning
- Consulting services
- Tax preparation and consulting
Acquiring the Certified Public Accountant license would require proper planning, a lot of patience, and a significant amount of time.
Becoming a Certified Public Accountant also requires a commitment to continuing education even after you acquire your certification.
Certified Public Accountants are often required to complete 40 hours of continuing professional education (CPE) each year based on state government requirements.
As passing this exam and the commitment to continuing education could be tough, many in the finance and accounting fields consider this license to be one of the most popular designations available to accounting professionals.
Conclusion
Having a Certified Public Accountant title is one of the most prestigious designations a professional can earn.
As Certified Public Accountants earn more than accountants as they provide many services that an accountant may not be able to provide.
Hence many companies and businesses hire a Certified Public Accountant for their financial assistance.
About Buy To Let Mortgage
In recent times many people are looking to purchase investment properties to have a passive income by putting the properties on rent.
When it comes to investment properties, the process of taking a mortgage is similar to that of a primary home; however, there are a few key differences. In this post, we will learn what is a buy to let mortgage, and how it works.
What Is Buy To Let Mortgage?
A buy to let (also known as BTL) mortgage is a mortgage taken on a property that the borrower rents out to make a profit.
BTL mortgages have a higher rate of interest and stricter lending guidelines compared to conventional mortgages, including a higher down payment.
To be eligible for a BTL mortgage, the minimum down payment required is twenty-five percent of the property value.
How Does A Buy To Let Mortgage Work?
To get a BTL mortgage, the borrower needs to meet basic requirements as listed below:
As mentioned above, you will need a minimum of 25% down payment to buy an investment real estate property depending on your credit rating.
Mortgage requirements for renting a property are less strict if you plan to live in the house. Let’s say you buy a two-unit townhouse and plan to live in one of the units. In such a case, you can make a 15% down payment.
If you are looking to have an even lower down payment than 15%, you can consider an FHA or VA loan to purchase your investment real estate property.
If you do not have enough down payment to qualify for a conventional BTL mortgage, using FHA or VA loan for buying an investment property may lower your down payment requirement.
You can also use potential rental income to obtain a BTL mortgage. Lenders will consider $ 0.75 for every dollar based on the current market rental rate if you consider rental income in your application.
If the market rental price of a property that is similar to the investment property you are buying is $ 1,500 per month, the lender will consider $1,125 per month while calculating your income ratios.
The stronger your overall financial profile, the more flexibility a lender can offer with down payment and interest rate requirements.
High credit scores, combined with six-month cash reserves and a low debt-to-income ratio (DTI), are key to approving buy-to-let mortgages.
The minimum credit scores most lenders require for qualifying for a BTL mortgage are 680 to 700. If you have a credit score better than that there is a possibility that you can qualify for a better interest rate.
A six-month cash reserve is necessary for repairs and reimbursement of rental costs, which will inevitably be reflected. Owning a rented property means that you are responsible for the maintenance, repair, and other property-related costs.
Where To Get Buy To Let Mortgages?
There are many options if you are looking for a BTL loan for your investment property purchase.
- Banks
- Online lenders
- Hard Money Lenders
- Credit unions
Traditional BTL mortgage lenders – banks, credit unions, and even online lenders – check your credit report and your general finances to see if you can afford one.
On the other hand, hard money lenders are private investors who specialize in buy-to-let mortgages.
They may be willing to finance a mortgage without a credit check, but you will pay a higher interest rate for such type of loan.
The repayment term is shorter compared to a conventional lender. Hard money loan providers also charge fees that may also include prepayment penalties and often require a higher down payment, usually up to 30%.
Conclusion
The primary reason to buy an investment property is to gain profit. Hence when you are looking for buy-to-let options, you must check all the possible options.
Even if you decide to go with buy to let mortgage, you need to see that you are making enough profit over your mortgage and property costs.
About Leasehold Estate
Most people are aware of the difference between owning a home and renting one.
However, there is a third category that not many people are aware of which is known as a leasehold estate. In this post, we will learn what is a leasehold property in detail.
What Is A Leasehold Estate?
A leasehold estate is when a building is owned by you and the land is owned by someone else.
In this case, you will pay the other person a monthly lease fee to borrow the land that your property is sitting on.
Usually, you will see a lot of leasehold properties in condos; however, there could be other types of properties under leasehold estate.
A leasehold estate is a lot cheaper compare to other properties as you don’t have the ownership of the land.
Deeper Leasehold Estate Definition
When you are looking to buy a property on MLS, and find out that a particular unit in a building is a lot cheaper than other units, you might want to check if that unit is listed as a leasehold property.
By law, the MLS has to spell out the word leasehold and cannot be abbreviated. A lot of people get excited about the leasehold estate because of its lower price.
However, there are a few things that you might want to consider when you are dealing with leasehold properties.
Risk Factors To Consider Before Buying A Leasehold Property
If you are planning to buy a leasehold property, there are a few risk factors that you might want to consider before you make up your mind to buy that property.
The first risk factor to consider is that the lease amount could increase over time. Just like there is a possibility that your rent may increase when you are renting a property, the lease amount for the property that you are borrowing could go up over a period.
You as a buyer don’t have control over this as the owner of the land has the right to increase the lease over time.
The second Risk factor that you might want to watch out for is that there could be a clause in the contract where you might have an option to buy the land known as buying the fee.
However, since the land is owned by someone else, the price would be determined by the seller which is usually equivalent to the price of the building itself or even more.
The third risk factor to consider is the renewal of the lease. At the time the landowner may increase the lease period for these lands, however, the terms of the lease could be very unfavorable for you.
Hence, you should go through the renewal contract to make sure that you are not getting any surprises.
The final risk factor to watch out for when you are considering purchasing a leasehold estate is the fact that at the end of the lease period, you are going to have to forfeit the building as well.
At the end of the lease contract, you would have to return the land to the owner with the building and you would not get any money back for the amount that you paid to buy the building initially as well.
Conclusion
Leasehold estates are not necessarily bad deals. Based on your situation the lease period could go up to 99 years which if you in your life don’t plan to live there for that time, it might be a great deal for you to sign up for something like that.
However, if you are considering something for your family that is a legacy you want to leave behind for your family, then leasehold property may not be a sensible option for you.
It is important for you to understand your goal of buying a property and discuss all the options accordingly with your trusted real estate agent to make an informed decision.
About Easement in Real Estate
When you are planning to buy a new home, there are many things that you need to see through apart from the regular title work and mortgage application.
Apart from these things, there is one more thing that as a buyer you need to make sure of, “Easement”.
In this post, we will understand what is an easement in real estate in detail.
What is an Easement?
An easement is one individual’s right to utilize the land for a specific reason when it is owned by another person.
Assuming that there is an easement on your land, the property is yours, yet others can utilize it or access it. Everything relies upon the terms.
A property easement is a situation guided by law in which the title to a particular piece of land stays with the landowner, however, someone else or association is given the option to involve that land for a perceptible reason.
For instance, a service organization might have an easement that permits them admittance to an electrical post on your property.
Or on the other hand, you could have an easement on a piece of your property assuming it blocks admittance to a prime street.
How others access it relies upon the kind of easement that has been conceded.
How does an Easement Work?
Used to depict an undeniable level arrangement between the property owner and third party-either an individual or an association – a regular easement right lays out a type of installment by the solicitor to the property owner for the option to use the subject of easement for a particular reason.
The easement rights are specific to two parties who have agreed upon the subject of the easement.
Usually, these easements are designed for the particular use of the land and the termination of easement given to the owner of the land.
However, it is possible that some easements are transferred upon the sale of the property; hence it is imperative for the buyers to check if there are any ongoing easements on the property.
What are the Types of Easements?
I - Affirmative Easement:
An affirmative easement allows an easement holder to perform some action on the property owned by someone else
II - Negative Easement:
A negative easement prohibits somebody (Burden property owner) from doing something on their property.
Typically easements rights relate to access and not to possession of the property. The benefited parcel is called a dominant parcel. And the burdened parcel is called a servient parcel.
III - Easement Appurtenant:
An easement that is attached to the piece of land is known as an easement appurtenant.
This type of easement can be transferred to the subsequent owners of the dominant parcel so that the subsequent beneficiaries can continue to benefit as it runs with the land.
IV - Easement in Gross:
The easement in gross is attached to a person or maybe an entity and not the land or the property.
So easements in gross are typically not transferrable to the subsequent owners and beneficiaries.
Rather, easements in gross are non-transferable except in the case where easements in gross are given to members of the public for rights of way over public property.
For example, public streets, highways, or walking paths especially those that are owned by the government.
V - Utility Easements:
This sort of easement is an understanding between a landowner and a service organization that permits the service organization to run electrical cables, water channeling, or different kinds of utilities through a property.
Utility easement arrangements are regularly remembered for a property’s deed or held by a city or district.
VI - Private Easement:
Another kind of easement is a private easement arrangement between two private parties.
This easement is genuinely standard in that it gives one party the option to involve a piece of property for individual necessities.
A farmer might require admittance to a lake or extra agricultural land, for instance, and a private easement understanding between his neighbor and himself give him admittance to these necessities.
Further, if piping or a comparative utility is expected to be gone through an adjoining property for an individual’s well framework, the understanding is taken care of through a private easement.
VII - Easement By Necessity:
This sort of easement is more liberal in that it doesn’t need a composed understanding and is enforceable by local regulations.
An easement by necessity emerges when one person is expected to utilize someone else’s property.
For instance, when an individual is expected to utilize a neighbor’s driveway to get to his house, it’s viewed as an easement by the need
Conclusion
It is important to know what an easement is and also to consider how to distinguish it from other legal rights.
If there is an easement on the property that you are planning to buy, you might want to check if that easement right is expired.
If it is not expired, you can hope that the holder of the easement agrees to terminate the easement rights.
IF the holder disagrees, you might have to visit the court to get it resolved which may cause a lot of distress to an individual especially when the holder of the easement is one of the neighbors.
It is best in such a situation to consult a real estate lawyer to find the best resolutions.