Podcast: Insurance For Homeowners and Real Estate Investors

Insurance For Homeowners and Real Estate Investors

For this podcast about insurance I chatted with Matt Kincaid of Meridian Captone.  In the podcast we discussed insurance for homeowners and real estate investors.  Topics included first time homebuyer tips for arranging insurance, insurance for real estate investors with long term tenants and insurance for investors working in the short term rental space.

I hope you enjoy the podcast and find it informative.  Please consider sharing with those who also may benefit.

Listen via YouTube:

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You can connect with Matt at LinkedIn,  You can reach out to Matt for more information on their insurance products by emailing him at mkincaid@meridiancapstone.com.

You can connect with me on Facebook, Pinterest, Twitter, LinkedIn, YouTube and Instagram.

About the author: The above article “Podcast: Insurance For Homeowners and Real Estate Investors” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!

I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.

Transcript

[RealCincy.com Insurance Podcast]

[Beginning of Recorded Material]

Paul S.:             Hello everybody, this is Paul Sian with United real estate home connections. Real estate agent licensed in the state of Ohio and Kentucky. And with me today is Matt Kincaid with Meridian. Hi Matt, how are you doing today?

Matt K.:            I’m doing great, Paul, thanks for having me.

Paul S.:             Great to have you on here, and looking forward to our podcast today. Where we’re going to discuss insurance for homeowners, for investors as well as looking in-depth into the insurance policies and how that’ll help out buyers and investors, so why don’t you tell us a little bit about your background? When did you get started in insurance?

Matt K.:            Yes. It really started in junior/senior year of college. I went to NKU, graduated in 2015. My best friend actually dropped out of school and started selling commercial trucking insurance to long-distance truckers. So he thought it might be a good part-time job for me to do, do some customer service work.

So that’s what I did my senior year mostly. And picked up on it pretty quickly, and after I graduated, I started selling full-time, and it just happened to be when I stuck with. Ended up transitioning to more personal lines. So I still do a lot of commercials, but our main focus is personal. So we’re typical home auto landlord insurance that sort of thing, so that’s kind of how I got started.

Paul S.:             Great. And you’ve been with Meridian ever since?

Matt K.:            Yes. I’ve been with Meridian. It’ll be four years in September; I’ve been in the industry for about six years now.

Paul S.:             Nice. So I understand a lot of people don’t know that you’ve got your insurance brokers, which I believe Meridian is an insurance broker, and then you got your insurance agents. Can you explain a little bit the difference between an insurance broker and an insurance agent?

Matt K.:            Yes. So in the insurance world, there’s independence and captives; captives are just what it sounds are captive to one product, one company. Whereas with independence Meridian particular, we have about 15 different companies that we’re able to shop around through. So one of our companies is, for example, is Allstate. A lot of captives also have Allstate, but we have the same exact product.

But we also have 12 other companies that we can shop around through, to make sure that you’re getting the best. So it’ll really benefit to the customer and me as an agent, or I’m not if I was just one company, I know I have to stand behind that product 100% no matter what. Whereas being a Meridian, I can just do whatever is best for the customer.

Paul S.:             Yes. So the ideal then I guess is that you can shop around from multiple policies. Just like going into the store, you can compare different types of bread, and whatever price works best for you, whatever flavor works best for you. That’s similar to what you’re able to provide.

Matt K.:            Yes, that’ll be a good example. For like your typical, this may not be what we’re talking about but, but for like your home and auto, most of time, it’s best to be with one company, but not all the time. So I’m able to mix and match if need be, whatever is going to save the customer most money, whatever they’re company is having.

Paul S.:             Great. So let’s move on to first-time homebuyers. Insurance is a, especially for homeowners, insurance is the new thing for first-time homebuyers if they don’t really know what they’re looking for. When’s a good time for them to start having that conversation with their insurance person?

Matt K.:            So I think whenever you get in contract is a good time to start looking. Getting a quote is never going to hurt, you’re not bound to any coverage, or you’re not going to be paying. 90% of time, you’re not going to be paying the full 12 months up front.

So it’s good to start getting your quotes shops around, getting some final numbers to give to your lender if you have one. So they can finalize numbers and give you a good picture of what you might be looking at going forward. So it’s never too early in my opinion, but once you get into contract, I think is an ideal time.

Paul S.:             Yes. That’s something I agree with too. And it should be pointed out for those first-time homebuyers who don’t know, I mean insurance is required if they’re financing the purchase, and the lender is going to require homeowners insurance.

Matt K.:            Yes. A lot of people know that it’s not a law that have home insurance, but the lender can make that stipulation that you have to have it upon closing.

Paul S.:             Great. And when a homebuyer first time, whether homebuyer existing or first-time homebuyer. What exactly is the insurance company looking at when they’re pricing out policies?

Matt K.:            So a big one is, you’ll hear this term going out a lot, insurance score. It’s a credit-based score; you don’t need a social to run it. But they’re able to calculate a similar score based on the amount of claims you’re turning in, your payments.

Are you making your payments on time? That sort of thing. So they’re able to get a good a good picture of the type of risk that the insurance company is taking on so that I mean if you’re looking at the property itself, the construction of the property, how old it is, the exterior that sort of thing.

Paul S.:             So does that involve a hard credit pool or a soft credit pool?

Matt K.:            It’s soft; you won’t see it on your credit at all.

Paul S.:             Okay, great. So that’s something that doesn’t have, even though during the home shopping process there’s going to be a bunch of credit pools, whether from a couple of lenders. But insurance it’s not one of those things that the buyers have to look at.

Matt K.:            No, absolutely not. Especially, that would be a big pain. Especially if I’m shopping through 15, and I’m running NVR and insurance score. But no, it won’t even show up on your score.

Paul S.:             Okay. So what are some of the best ways that homebuyers can improve their chance of getting a better insurance rate?

Matt K.:            Right. So prior insurance history is a big one, making your insurance payments on time. The area that you are in is going to be a big factor. The zip code, there’s different what’s called protection classes based on where the home is. So that’s based on how far you are from the fire hydrant, and also how far you are from the fire department.

So the highest protection class you can have is ten, that’s a maximum risk. You’re over five miles away from the nearest fire department, and your insurance rate is going to be higher. Simply do the fact if there was a fire or total catastrophe, it’s going to take longer for them to reach you.

Paul S.:             Okay. Let’s talk about the risk; you mentioned risk in there. How does risk play into it? Let’s say whether of the buyer themselves and if they’ve had past history of claims or the house even if they’ve never been in the house before what about the risk associated with that.

Paul S.:             Yes. So like I said before pass to insurance, history is big. With these landlord policies, it’s hard to tell what the price is exactly going to be. Because obviously, they’re going to rate it based off the buyer’s insurance score.

But they don’t know who’s going to be living in there. They don’t know the type of risk for who’s going to occupy that home. So it’s very limited; there’s more of a baseline price just based off the buyer’s insurance score and the protection class and the age and the property itself.

Paul S.:             Okay. In terms of the property itself, there’s a CLUE report which a lot of buyers probably have not heard about. Can you explain what the clue report is, what does it stand for, and what does that exactly provide?

Matt K.:            Yes. So I kind of describe it as a moto vehicle report for your home.  So it stands for the comprehensive loss underwriting exchange. So a lot of times, LexisNexis, you’ll get your reports from there. It’s just a big aggregate of claims that are turned in by insurers, and obviously, when I’m running your clue report, it’s going to pull up based off your name, your date of birth and the address if there are any claims that correspond to you, the insurance company can grade it importantly.

Paul S.:             Okay, great. Is there any cost for you pulling a clue report for a buyer?

Matt K.:            No, absolutely not. So for a personal policy, so if we’re talking landlord, that’s four units, four family and under. Most of the times, the company can run that itself. If it’s a commercial policy, it’s a little bit more different.

For example, if this is not a new purchase, maybe you’ve had this property for a few years, and you’re shopping right around, you may have to order that from your prior insurance company. But if it’s a new purchase, a lot of times it’s not going to be necessary, if it’s a commercial risk.

Paul S.:             Okay. Let’s talk about a homeowner who’s been in their house for a few years now, and they had a policy in place with an insurer. Do you have any recommendations or suggestions for them? I mean, do the rates get better? Do the rates get higher if they get another quote?

Matt K.:            So it’s kind of a cache one to it. It’s almost impossible to know what the insurance company is going to do. Obviously, you want to find a company that is A-rated or higher, that means they have a good financial stability, so they’re not just going to raise your rates for no reason.

But insurance is kind of like the stock market in some ways. If a company is taking big losses a certain year, they may try to recoup by raising rates, and that’s just going to be across the board based on your zip code. But I always just say just keep track of your rates. I know Meridian we have somebody who’s dedicated to be shopping if your policy goes up a certain percentage. So I think that’s great to have. But just pay attention to it, and re-shop it every couple of years if need be.

Paul S.:             Okay. By the fact of them, somebody re-shopping it, that’s not necessarily going to increase their rates, will it?

Matt K.:            No, absolutely not. Companies like to see that you’ve been insured, they don’t want to see you bounce around all the time, because that means they’re probably going to lose that risk in a year. But to answer your question, there’s no harm in re-shopping. I have customers that will call me each and every year to make sure that we have the best rate, that’s totally fine by me.

Paul S.:             Okay, that’s great and helpful information. To move on to investment real estate, can you talk about the differences in commercial versus residential investment real estate insurance?

Matt K.:            Yes, so kind of hard to describe the four. Commercial is going to be the five units and above, personal is going to be four and under. Coverages on that, the only differences that you’re going to see with commercial, instead of having a one hundred thousand or three hundred thousand liability limit, most of the time they’re going to include a general liability policy, which is going to include one million in liability.

A bunch of different other things that fall under that, so that might look different. Other than that, the forms are fairly similar. You just want to make sure that you have replacement cost, or if you want actual cash value, deductible, loss of rent. So those things are going to be similar, it’s just a matter of how many years you have, that sort of thing.

Paul S.:             Okay. In terms of investors who are owner occupying, they’re buying a duplex or four-unit, and they want to live in one unit. Are the insurance rates generally better for that type of situation?

Matt K.:            There’s not a clear answer for that, I mean it’s still going to be written on the same type of form. There might be some discounts being that the insurance company is able to calculate their risk, maybe a little bit more accurately. I mean, that could be a good thing or a bad thing for the customer.

But really, you just want to make sure that you’re asking those questions, make sure the agent is writing the policy correctly. So down the road, if there are any changes or let’s say the insurance company audits you and that information is inaccurate, that could then raise your rate.

Paul S.:             Okay. So I guess the answer is it depends?

Matt K.:            Yes. With a lot of insurance, it just depends, unfortunately.

Paul S.:             That’s still good to know. So let’s talk a little bit about insurance riders, I guess insurance riders applies both to regular homeowners as well as investors. What can you tell me? I guess first, let’s explain what’s an insurance rider, and why would somebody want one or need one.

Matt K.:            Yes. So with any insurance policy, there’s going to be a lot of things that are automatically included. Like if we’re talking landlord policy wind, hail, fire, that sort of thing. And then if you want to have personal property protection, let’s say you’re furnishing some of the items may be the appliances in the home can have that. Otherwise, the writers are going to look fairly similar to what you’re going to see on a typical homeowner’s insurance policy.

Or do you want water and sewage backup? Do you want replacement cost on your belongings or the roof? So those are going to look fairly similar. If the agent is asking the right questions and going over it thoroughly, there should be no question on how you want it covered. Some other things that might be on there is earthquake that’s not included; flood insurance it’s a totally separate policy, so there’s always that misconception that flood is included in the homeowners; it’s never included.

Whether it’s a landlord policy or homeowner’s policy, the way to differentiate that with water coverage is where the water is originating from. If the water originated from outside the house, that is flood. If the water is originating from inside, let’s say you have a pipe that burst, or a toilet that overflows or some pump that’s water inside the house and that’s something that could be covered either automatically or with a rider.

Paul S.:             Okay. And just look a little further into flood insurance that applies to both regular buyers and investors, but that’s also like you said this based on external factors close to a river, close to the lake. Where would somebody find out if their property falls under that, or requires flood insurance?

Matt K.:            So a lot of the times, the lender may have an idea if it’s required or not. Otherwise, just asking your insurance agent. There’s not like an automatic identification that is going to tell you. In the loan process, it will probably come up that flood insurance is required, and then at that point, the insurance agent can find out what flood zone you’re in, what kind of rate impact that’s going to have on you, and that sort of thing.

Paul S.:             And then flood insurance too is not something you provide directly, I believe that’s provided from the government, correct?

Matt K.:            Yes. So it’s a FEMA based product, but we do also have a private flood company if your loan accepts that, which can be up to 40% off of a FEMA back product, and it’s the same exact coverage.

Paul S.:             Okay. So let’s talk a little bit more about the private insurance coverage you said for flood insurance, as opposed to FEMA. That’s something you said the lender would have to allow it. Otherwise, they have to go through the government program?

Matt K.:            Yes. So I mean the laws are changing for this all the time, most of the time if it’s a Government loan, they’re not going to allow private flood insurance. But that could depend on a bunch of different factors.

So the best thing to do is just ask your lender if private flood is acceptable because if it is, that’s going to save you a ton of money. I just did one a couple of weeks ago, where FEMA wanted 1,500 bucks, and my private flood carrier came back at like 700. So that could be a big difference, especially if you have a certain down payment you need to make for the home, and just cut cost in general.

Paul S.:             That’s 1500 versus 700 is that a yearly cost?

Matt K.:            Yes, flood is always going to be a 12-month policy, just like your homeowners.

Paul S.:             Okay. Is it worth it? Let’s say somebody’s not listed as a; the property is not listed in flood zone, so they don’t require flood insurance. Is it worth it for them to maybe they happen to live behind a, there’s a small lake behind them? Is it worth it to get flood insurance for them?

Matt K.:            I think it’s at least worth having that conversation, you know everybody’s different. You know there are some customers they’re going to want all the bells and whistles, they are going to want earthquake even if you’re not even close to a fault, that sort of thing.

So it’s just having that conversation, I mean you can never be too covered. It’s never a bad idea to cover all your paces, but it’s just a matter of what the insured is willing to spend, and if they think it’s worth taking that risk or not.

Paul S.:             Okay. Most of the insurance policies we’re talking about, and I shouldn’t say most, I should say all the policies we’re talking about right now are generally applied to like long term whether you as a long term owner-occupant or as a long term investment property, where you have a one continuous tenant may be staying a year after a year or long-term leases basically.

Let’s talk a little bit about short term tenants like your Airbnb, your VRBO, I mean, are there different insurance requirements for that, different insurance policies? What would you recommend? And what have you seen for other people who are looking for that type of insurance?

Matt K.:            Yes. So honestly, I’ve ran across it a few times. The one thing you want to make sure of is most companies will either not write it, or they’ll have an endorsement done for a short-term rental. So that’s going to be a surcharge for you. Other than that, it’s going to be fairly similar. You just want to make sure if you’re going through air Airbnb or VRBO make sure what they are going to cover.

They’re going to include an insurance policy, so you don’t want to have any overlaps, we also don’t want to have any gaps in the insurance. I know Airbnb will, for example, not cover bodily injury or property damage, so that’s something that’s going to fall under your insurance policy. So it’s just making sure that you understand the verbiage. So if you do have an Airbnb home that you want to get insured, take a look at that policy, send it to your insurance agent. Have them write over it, and make sure that you’re fully covered.

Paul S.:             Okay. That’s something that you’d provide if somebody’s coming to look for a policy through you for a short term rental that you would be able to assist them with too?

Matt K.:            Yes, absolutely. I did one last week; the customer was very concerned about the pricing. He was coming from USAA; they wanted like 2,500 bucks on the year for a single-family Airbnb.

I have a great company called Berkshire Hathaway; they have a product specifically for Airbnb or VRBO. I was able to cut his price almost in half. So we definitely have products for it; off the top of my head I probably have three or four that I can quote through.

Paul S.:             Okay, great. And just to go back to your company’s footprint, Meridian, basically, are you able to offer insurance all 50 states? Are you limited anywhere?

Matt K.:            So yes, we’re not available in all 50 states, but we are available in the Tri-State as well as Tennessee, Illinois, a lot of the southeast. So if you have any questions about that, please give me a call.

That being said, I have a lot of property investors that are coming from either across the country or overseas. That is totally fine, as long as the property that they’re buying is within our scope, we can definitely accommodate.

Paul S.:             Okay, great. And what’s the best way for somebody to reach out to you if they want to get some more information?

Matt K.:            So you can reach me either by phone or email. I’m also very active on Facebook. My phone number is 513-503-1817. Or you can reach me by email that is MKincaid@Meridiancapstone.com.

Paul S.:             Okay, great. That’s all the questions I have for you today, Matt, thanks for being on.

Matt K.:            Yes, thanks for having me.

[End of Recorded Material]

Source: cincinkyrealestate.com

Acronyms of Real Estate: What Homebuyers Need to Know

Real estate is a regular smorgasbord of acronyms – everything from APR to REO. Here’s a list of the ones you’re likely to run into and what they mean when you’re buying or selling a house:

Acronyms You’ll Hear Associated with Real Estate Professionals

Real estate agents, builders and most other realty-related professions have numerous professional designations, all designed to set them apart from those who haven’t taken advanced courses in their fields. These designations don’t mean that professionals without letters after their names are not as experienced or skilled, but rather only that they haven’t taken the time to further their educations.

Read: How to Build Your Real Estate Team

Let’s start with the letter “R,” which stands for Realtor. A Realtor is a member of the National Association of Realtors, the nation’s largest trade group. NAR says it speaks for homeowners, and it usually does. But in that rare occasion when the interests of its members and owners don’t align, it sides with those who pay their dues.

Read: A Timeline of the History of Real Estate

NAR embraces a strict code of ethics. There are about 2 million active and licensed real estate agents nationwide, and 1.34 million can call themselves Realtors.

NAR members sometimes have the letters GRI or CRS after their names. The Graduate, REALTOR® Institute (GRI) designation signifies the successful completion of 90 hours of classroom instruction beyond the continuing education courses required by many states for agents to maintain their licenses. After the GRI, an agent may become a Certified Residential Specialist (CRS) by advancing his or her education even further.

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Builders can obtain the GBI – Graduate Builder Institute – designation by completing nine one-day classes sponsored by the educational arm of the National Association of Home Builders. Those who pass more advanced courses become Graduate Master Builders, or GMBs. Remodeling specialists with at least five years of experience can be Certified Graduate Remodelers, or CGRs. And, salespeople can be CSPs, or Certified New Home Sales Professionals.

In the mortgage profession, the Mortgage Bankers Association awards the Certified Mortgage Banker (CMB) and Accredited Residential Originator (ARO) designations, but only after completing a training program that may take up to five years to finish. To start the process, CMB and ARO candidates must have at least three years’ experience and be recommended by a senior officer in their companies.

Acronyms Associated with Mortgage Lending

When obtaining a mortgage, you will be quoted an interest rate; however, perhaps the more important rate is the annual percentage rate, or APR, which is the total cost of the loan per year over the loan’s term. It measures the interest rate plus other fees and charges.

An FRM is a fixed-rate mortgage, the terms of which never change. Conversely, an Adjustable Rate Mortgage (ARM) allows rates to increase or decrease at certain intervals over the life of the loan, depending on rates at the time of the adjustment.

Female client consulting with a agent in the officeFemale client consulting with a agent in the office

A conventional loan is one with an amount at or less than the conforming loan limit set by federal regulators on Fannie Mae and Freddie Mac, the two major suppliers of funds for home loans. These two quasi-government outfits replenish the coffers of main street lenders by buying their loans and packing them into securities for sale to investors worldwide.

Other key agencies you should be familiar with are the FHA and the VA. The Federal Housing Administration (FHA) insures mortgages up to an amount which changes annually, as does the conforming loan ceiling. The Veterans Administration (VA) guarantees loans made to veterans and active duty servicemen and women.

LTV stands for loan-to-value. This important ratio measures what your are borrowing against the value of the home. Some lenders want as much as 20% down, meaning the LTV would be 80%. But in many cases, the LTV can be as great as 97%.

Private mortgage insurance (PMI), is a fee you’ll have to pay if you make less than a 20% down payment. PMI covers the lender should you default, but you have to pay the freight. Fortunately, you can cancel coverage once your LTV dips below 80%.

Your monthly payment likely will include more than just principal and interest. Many lenders also want borrowers to include one-twelfth of their property tax and insurance bills every month, as well. That way, lenders will have enough money on hand to pay these annual bills when they come due. Thus, the acronym PITI (principle, interest, taxes, and insurance).

Real-estate owned (REO) properties are foreclosed upon by lenders when borrowers fail to make their payments. When you buy a foreclosure, you buy REO. Short sales are not REO because, while they are in danger of being repossessed, they are still owned by the borrower.

houses real estate market selling buyinghouses real estate market selling buying

Acronyms You’ll Hear During an Appraisal

There is no acronym for an appraisal, which is an opinion of value prepared by a certified or licensed appraiser (though sometimes other types of valuation methods are used in the buying and selling process).

A Certified Market Analysis (CMA) is prepared by a real estate agent or broker to help determine a home’s listing price. A Broker Price Opinion (BPO) is a more advanced estimate of the probable future selling price of a property, and an automated valuation model (AVM) is a software program that provides valuations based on mathematical modeling.

AVMs are currently used by some lenders and investors to confirm an appraiser’s valuation, but they are becoming increasingly popular as replacements of appraisals, especially in lower price ranges.

Other Terms to Know

If you hear the term MLS, you should know it stands for multiple listing service. An MLS is a database that allows real estate brokers to share data on properties for sale, making the buying and selling process more efficient. There are many benefits to both homebuyers and sellers utilizing an MLS, for more information on how to get your home available through an MLS, work with a real estate professional when selling.

Read: What Buyers and Sellers Need to Know About Multiple Listing Services

Did you know? Homes.com has some serious MLS partnerships, no joke! When you start your home search on Homes.com, you’ll see accurate property information quickly so you’ll never have to wonder if a home is actually available.

House tourHouse tour

However, not all properties for sale are listed on the MLS. A home may be a for-sale-by-owner (FSBO), if the owner is selling his or her property without an agent and bypassing an MLS listing. In addition, some agents fail to enter their listings in the MLS for days or weeks at a time in hopes of selling to a list of preferred clients.

Read: Advantages of Buying With or Without an Agent

Finally, you may find yourself buying into a homeowners association (HOA) when you purchase a house or condominium apartment. HOAs are legal governing bodies that establish requirements everyone must adhere to in order to keep the community it oversees running smoothly and ensure property values are maintained.


Lew Sichelman

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Syndicated newspaper columnist, Lew Sichelman has been covering the housing market and all it entails for more than 50 years. He is an award-winning journalist who worked at two major Washington, D.C. newspapers and is a past president of the National Association of Real Estate Editors.

Source: homes.com

The REO Guide: 10 Steps to Buying a Bank-Owned Home

Many potential homebuyers and investors overlook bank-owned properties, but for buyers who take the time to understand the REO process, these homes can be a significant opportunity.

Some homebuyers are intimidated by foreclosed and bank-owned homes because they often require more renovations — and a different type of negotiation — than other options on the market. However, some REO properties come at a significant discount, and, if you’re willing to work through some of the nuances of the post-foreclosure market, you can set yourself up for a great deal.

What is a Real Estate Owned (REO) Property?

REO, which stands for “Real Estate Owned,” is a term applied to foreclosed properties whose ownership has transferred to the bank or lender.

In order to become an REO property, it must go through these general steps:

  1. Loan Default. The homeowner/borrower defaults on (fails to make) their mortgage payments for a certain length of time, with the qualifying amount usually specified in the mortgage terms.
  2. Foreclosure. The lender initiates legal proceedings against the borrower to foreclose on the property.
  3. Auction. The property is then offered to the public at a foreclosure auction and typically sold to the highest bidder. If the property sells to a third party at the auction, the bank or lender recoups some of the cost of the outstanding loan balance, interest and fees from the sale of the property.
  4. REO Status. If the home fails to sell at auction to a third party, possession typically passes to the lender and it becomes a Real Estate Owned (REO) property. The lender prepares to sell it, which may involve evicting occupants and removing outstanding liens attached to the property.

REO properties are attractive to homebuyers or real estate investors for several reasons. In many cases, lenders are motivated sellers who do not want to sit on their REO inventory, and (depending on the bank’s history with the property) these homes may be priced at a discount. However, other factors — like the home being sold “as is” — may affect the ultimate price, so it’s important to work through the process methodically to make sure you account for every variable.

10 Steps to Buying REO Properties

The process for buying an REO home is similar to the standard home buying process, but there are a few key exceptions to keep in mind. Whether you’re buying the home to live in or as an investment, these 10 steps should help set you up for success with bank-owned properties.

Step 1: Browse Available REO Properties

Before you get too far into the process, take a look at the properties available in your target market or price range. There are several ways for prospective homebuyers to browse available REO properties:

  • Bank and lender listings: Lender-specific listings, such as PennyMac REO listings, show all available bank-owned properties from a certain lender.
  • Multiple Listing Service: Lenders and Realtors® often use the Multiple Listing Service to list REO properties, making it easy to find options from multiple lenders in one place.
  • Real estate agent: A real estate agent will be able to find REO offerings from multiple lenders in your desired area.
  • Online services: Other online services, such as Zillow, offer tools to look up foreclosures by certain characteristics or in certain areas. Some of these tools are free to use, while others may charge a fee.

Step 2: Find a Lender and Discuss REO Financing

Once you’ve found a property you are interested in, talk to a lender about your financing options. This is particularly important because of the timing of the REO homebuying process; lenders are motivated to sell and want to get these homes off of their books, so the more prepared you are with financing, the better.

One thing that can speed up the REO homebuying process is getting pre-approved by the lender that owns the home. With this pre-approval, the lender that owns the REO property will know that you are financially qualified to purchase the property, making them more likely to accept your offer.

Step 3: Find a Real Estate Buyer’s Agent Who Knows REO Homes

A buyer’s agent is a great partner to have while you navigate the home buying process. Your buyer’s agent helps make sure you are finding the best properties at the best possible prices, and they will use their experience to guide you through every stage of the process. Your agent should also be able to tell you if you need to hire anyone else, such as an attorney or an inspection service, depending on your state and situation.

If you are specifically interested in REO properties, try to find a buyer’s agent who works with REO properties frequently. This way, your real estate agent knows the ins and outs of negotiating with a lender, how to calculate the cost of necessary repairs, how to work within the lender’s timeline and how to prepare you for what comes next.

Step 4: Refine Your List of Lender-Owned Properties

Once you are working with a buyer’s agent, you can start narrowing down your list of REO properties. Some major characteristics that should be taken into account include the following:

  • Listing price
  • Significant repairs needed (and the overall impact on price)
  • Location (and proximity to a school, workplace, or other desired area)
  • Number of bedrooms and bathrooms
  • Quality of neighborhood and surrounding areas
  • Community resources in the area, such as parks, gyms, places of worship, etc.
  • Lender-specific contingencies or requirements

Once you have taken your “must have” features into account, if you are left with multiple properties, refine your list based on “nice to have“ features like a large yard, a finished basement or an in-ground pool. Share your favorite homes with your agent, who can set up tours for properties at the top of your list.

Step 5: Get an Appraisal on Your Ideal Property

Some REO homes go for a great price, but buying a bank-owned home is not an automatic bargain. An REO property may be discounted based on an undesirable location or severe damage, or it can be overpriced based on comparable sales in the area or the lender’s desire to recoup the money spent. Either way, it’s a good idea to consider getting an appraisal so you know how the true value compares to the asking price.

An appraisal will help you get an objective estimated value, which you can compare to the bank’s asking price to see if the price is fair. During the appraisal, a licensed appraiser will take inventory of major systems (i.e., HVAC, plumbing), the structural integrity of the home, and check the prices of comparable homes in the area.

Note: An appraisal, which tries to estimate true home value, is different from a home inspection, which tries to take inventory of current and potential issues. An appraisal will help you decide whether or not the asking price is fair; an inspection will help you understand the repairs and renovations needed, which is critical for a bank-owned home.

Step 6: Make an Offer

Once you’ve found a property that is right for you, it’s time to make an offer.

Your agent will help you decide what kind of offer is likely to be accepted, put together the offer and submit it to the lender. Depending on the lender, you may need to submit special contract forms or paperwork. It is also common to attach an earnest money deposit check to your offer. This check (commonly 1-2% of the purchase price) is usually held in an escrow account until the purchase is finalized.

Make sure to consider the inspection process as you are making your offer. You may choose to make the offer contingent on inspection so you are protected if the inspection uncovers significant (and potentially dangerous) issues. If necessary repairs are well-documented, you can use that documentation to make your case for a low offer. Talk to your agent to understand your options when it comes to inspection contingencies.

Step 7: Have the Property Inspected

An inspection should be part of buying any home, but it is crucial for bank-owned homes. Real estate owned properties are typically sold “as is,” meaning the homebuyer is on the hook for any repairs — including major structural issues — that need to be fixed. An REO home may have been vacant for weeks or months, it may be neglected due to the homeowner’s financial trouble, or the previous owners may have removed items or damaged the property before vacating. Additionally, it’s possible that the property has gone through non-permitted renovations.

With that in mind, you need to be 100% sure you know what needs to be fixed before finalizing the loan. Having a home inspection done is the best way to take a thorough inventory of what repairs need to be made. The cost of these repairs should be added to the asking price so you have a better idea of what the home will cost you (and whether it’s still a good deal after repair costs are factored in).

In some cases, the lender may conduct an inspection when the home becomes bank-owned. If so, make sure you get a copy of the inspection report and review it thoroughly to decide if it is comprehensive enough to help make your decision.

Step 8: Negotiate Details

For better or worse, negotiating with a lender for a bank-owned home is different from negotiating with a homeowner.

On one hand, dealing with a bank instead of a homeowner means you don’t have to worry about emotional attachments to the home influencing the decision. You are also usually dealing with a very motivated lender who wants to get rid of the property (especially if it’s been on the market more than 30 days).

On the other hand, banks typically take longer to respond to an offer (or a question) than a homeowner because the offer must be reviewed by several individuals or companies. When the lender does respond, they will expect you to respond quickly to keep the process moving.

Working with a lender also means jumping through more corporate hoops. Banks are also more likely to present a counter offer because they must demonstrate they tried to get the best possible price for the property. In addition, the lender may ask you to sign a purchase addendum (which you should thoroughly review with your real estate agent or lawyer) and your final offer may be contingent on corporate approval.

Step 9: Finalize Your Loan

Now that you have submitted an offer, several things will be going on at once: the home inspection, negotiations with the bank, and the finalizing of your loan. During this time, you will be filling out paperwork and sharing information with your lender to ensure your loan is the right fit for the offer you have submitted.

Now is also the time to verify the status of the title. The bank typically clears the title before selling a bank-owned home but you can never assume this is the case. Contact the lender to see if the title has been cleared. If not, the lender may have a title company standing by to perform these services. If you are expected to do so yourself, hire a title company to run a full, insured title search before closing the deal.

Step 10: Closing

Once all of the paperwork is in place, you’ve wired in your down payment and your loan funds are in place, it’s time to close.

Closing on an REO property is similar to any other closing, with a few notable exceptions. If you’re unable to close by a predetermined closing date, the lender may charge a penalty for each day beyond the deadline. (You can try to avoid these delays by getting pre-approved for a loan and getting assurance that your financing will come through by a given date.)

At the closing, you and the lender representative will sign the documents necessary to transfer the house into your name and to finish your mortgage. After you’ve signed everything and the money goes to the right place, you’ll get the keys and a new title: homeowner.

Is an REO Home the Right Fit For You?

A bank-owned home can be a great opportunity for homebuyers or investors to find a good deal — but only if you’re willing to be patient and thorough. Dealing with a lender rather than an individual seller may mean slower response times and a more difficult negotiation, but it can lead to a potentially lower price from a motivated seller that has already handled outstanding taxes.

Browse PennyMac REO listings to see available bank-owned properties from PennyMac, or call a PennyMac Loan Officer to discuss your options today.

Source: pennymacusa.com

5 Pretty Easy Ways to Save Money on a Vacation

Do you have high hopes that there will be traveling your family’s future, but not quite sure how you can afford it?

You’re not alone. While Americans will spend an average of 10% of their household income on vacationing this year, a full 74% take on debt for their trips. Each of these tips offers you both an easy and effective way to save a substantial amount of money off your next vacation trip. Use them wisely, and you might even be able to squeeze in some extra travel this year.

1. Make use of grocery store prepared food sections

Some people think it’s crazy to not eat at restaurants for all of your vacation meals. Mostly, they want the entire week off from cooking any food.

I don’t blame them (or you) for thinking this. So, what if I told you that you can still avoid cooking all week, and not actually eat out for every single meal?

While vacationing, find your local grocery store with a prepared food section. You can find hot meals for your family – complete with salads and desserts – for much less than what it would cost to eat out. Plus, there’s’ no need to pay a tip.

2. Plan activities around discount times and coupons

You can easily save a bundle on your vacation expenses by planning your activities around available discounts. This doesn’t have to be as limiting as it sounds, it just means you have to be smart about it. For example, you could:

  • Buy a local Entertainment book and use the tourist coupons that come with it.
  • Purchase discounted tickets to local attractions and activities on group buying sites (such as Groupon.com, and LivingSocial.com) by entering the zip code of where you’ll be traveling to.
  • Plan your trip dates around free museum days (I did this on a trip to France, and got in to see the Louvre on its free Sunday of the month).

3. Change the season you travel in

One of the easiest ways you can save on almost all the costs of your next vacation is by simply changing the season that you take it. The time of year you choose makes a huge difference in how much you’ll pay – it’s a simple illustration of supply and demand.

During summertime when kids are out of school and families want to get their vacations in, you’ll pay more. But if you decide to leave for a trip to Disney World one week before schools traditionally let out? Then you’ll not only save yourself tons of waiting time in lines but a lot of money.

In fact, that’s what personally happened to me over five years ago when my husband and I decided last minute to drive to Disney World. It was May, and there were virtually no people around. No lines, no waiting, and hardly a kid in sight.

We asked anyone we could find what was going on, and they said that it would be all-out pandemonium just one week later when their peak season begins (when the majority of kids are out of school). We had unknowingly hit the jackpot, and our cheap hotel bill reinforced that!

Get creative by using winter breaks, trips during the school year, and long weekends in the off-season to save a bundle without even trying.

4. Rethink traditional hotel stays 

Next to transportation costs to get to your destination, hotel costs will make the second biggest dent in your budget. With an average cost of $133.34/night to stay in a hotel, you can see how a 5-night ($666.70) or a 7-night vacation ($933.38) can really add up.

One of the easiest ways to save on vacations is by rethinking traditional hotel stays.

Consider options like these, all of which I’ve done myself:

  • Staying with family or friends
  • Share a hotel room with family or friends
  • Book a rental with local homeowners instead of with hotels (using sites like AirBnB or Vrbo)
  • Use hotel deal sites to snatch up unfilled rooms (such as  Secretflying.com, and TheFlightDeal.com)

5.  Consider group travel

Traveling in groups allows you to pool your money for better rates. My husband’s family, for example, likes to go all-in on a beach house for a long weekend in Galveston. We generally get a 5 to 6-bedroom rental right on the beach, and the cost is just $200-$300 per family for 3-4 nights. If we were to travel on our own, we would never be able to afford such a nice place.

Not only that, but if your group travel entails a road trip, you may be able to carpool with someone to save on gas costs. And if you split up meal prep duties between families like we do? You not only have to cook only once or twice per stay, but you don’t have to eat out in restaurants the whole time.

Another way to secure travel savings in groups is by going after group discounts. Whether booking excursions, airfare, or anything else with a travel agent or by yourself, be sure to ask about possible group discounts.

Don’t forget to shop around

Pricing for hotels, airfare, and things to do can vary greatly. Don’t just visit a company’s website and assume that’s the best price. Check a number of sites — including discounters like Priceline — and look for package deals. You should also consider looking for less-traditional sources for booking trip. Warehouse clubs Costco and Sam’s Club, for example, offer deals on travel (sometimes very good ones).

It’s also important to use any discounts you have coming your way. Are you in AAA? Does someone in the family have a trade association membership that offers special deals? Check and you might unlock a special deal. Use these “work smarter, not harder” strategies when it comes to saving money on your next vacation, and you won’t have vacation debt lingering for months after your return.

–By Amanda Grossman

Source: pennypinchinmom.com

Shaquille O’Neal Recruits a Buyer for a Luxury $1.85M Spread in SoCal>

Rumor had it that the NBA superstar Shaquille O’Neal was dabbling in the art of home flipping, when he put his luxurious home in a gated equestrian community in Bell Canyon, CA, on the market for $2.5 million in late 2019.

The big man purchased the place in February 2018 for $1,815,000, and owned the home for only a little more than a year before he decided to sell.

However, if Shaq harbors dreams of an HGTV spinoff show, he’ll have to improve his return on investment. He recently let the home go for $1.85 million.

The five-bedroom, 4.5-bathroom, traditional-style home is on a fenced and gated acre lot, ideal for an owner who craves privacy.

Shaquille O'Neal's SoCal spread
Shaquille O’Neal’s SoCal spread

realtor.com

Overhead view
Overhead view

realtor.com

O’Neal perked up the 5,217-square-foot home with new carpeting, fresh paint, customized closets, and improved landscaping. The home was originally built in 1990, and its HVAC system, garage door, and some of the plumbing were also updated.

Living room
Living room

realtor.com

There’s plenty of proof of the property’s provenance. O’Neal’s images, trophies, and mementos greet visitors the second they set foot in the grand black-and-white, two-story formal entry, with a large staircase and circular gallery.

Grand entry hall
Grand entry hall

realtor.com

The home has a number of highlights: a wide-open floor plan, beamed ceilings, and hillside views. The kitchen, however, is the true showstopper, according to the listing agent, Emil Hartoonian of The Agency.

“Buyers loved the kitchen and its brightness. They also loved the open living space, with no shortage of natural light and flow,” he says.

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Watch: NBA’s Blake Griffin Nets Another Home In Los Angeles

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The kitchen has marble counters, a large center island, built-in stainless steel appliances, and designer cabinetry.

Kitchen
Kitchen

Other luxe features in the residence include a wine closet and wet bar in the great room, a media room with a convenient kitchenette, a screening room, and a spacious office with splendid views.

Home office
Home office

realtor.com

Plush screening room
Plush screening room

realtor.com

The luxury spills into the outdoor spaces as well. Out back, there’s a rock-rimmed heated pool and spa, a fire pit, multiple seating areas, and manicured lawns.

Pool and spa
Pool and spa

“We presented this property in the light it deserved, and helped buyers see the true value of a premier updated property behind guard-gates,” Hartoonian says.

He co-listed the property with Nicholas Siegfried, also of The Agency. Gary Keshishyan Pinnacle Properties represented the buyers.

But wait—there’s more. O’Neal’s sale in Southern California isn’t his only recent real estate success.

The famous “Shaq-apulco” in Windermere, FL, which has been on and off the market at varying prices over the past couple of years, appears to have found a buyer.

Shaquille O'Neal's Florida estate
Shaquille O’Neal’s Florida estate

realtor.com

O’Neal first put the massive estate on the market in 2018, for $28 million. It was most recently listed at $16.5 million, and a sale is now pending on the 4-acre waterfront property, with its 31,000-square-foot mansion.

O’Neal, 48, is reportedly spending more time in Atlanta with his NBA on TNT gig. The Hall of Famer won four NBA titles during his 19-year NBA career.

  • For more photos and details, check out the full listing.
  • Homes for sale in Bell Canyon, CA
  • Learn more about Bell Canyon, CA

Source: realtor.com

VA Loan Myths


Tim Lucas

Posted on: December 12, 2020

Because of their complexity relative to other mortgage programs, VA loans are the subject of plenty of different myths. Some of these myths are based on truths, but what you hear can end up being very misleading, and it could be entirely untrue.

If you were to take these myths at face value without doing your own research, you might miss out on one of the best mortgage products available. Here’s the truth to some of the biggest myths surrounding VA loans:

Click to check today’s VA rates.

Myth #1: VA loans can only be used once

Because of how useful VA loans can be, some people believe they’re too good to be true. The myth VA loans can only be used once is completely false, but it’s easy to see where this mistaken idea might have come from. If you currently have a VA loan, you are not eligible for a second one.

However, this doesn’t mean you aren’t eligible for a second VA loan ever again.

Once you pay off your current VA loan, you’re eligible to use the program again. There are some small differences after the first time, such as a slightly higher cost at closing. But aside from the small differences, your second VA loan will be similar to the first one that you paid off.

Myth #2: VA members are guaranteed a mortgage

Nobody is guaranteed any type of mortgage, regardless of which mortgage program they’re applying for or whether they’re veterans. You must be approved for a mortgage, which means — depending on which program you choose — meeting credit requirements and having a specific debt-to-income ratio, among other factors.

When a lender says a VA loan is “guaranteed,” they mean the VA backs the loan. The VA guarantee is there to tell veterans they can get a mortgage with no required down payment, competitive mortgage rates and other benefits.

You can learn more about what “guaranteed” means here.

Myth #3: VA appraisals are impossible to pass

It is true that VA appraisals can be stricter than an appraisal with a different mortgage type. But that doesn’t mean they’re impossible to pass, and many VA home buyers don’t have any trouble with the VA appraisal at all. Because the VA is backing the home, they want to confirm it’s in good and livable condition before they approve any type of loan.

If you are applying for a VA loan and want to have a quick, speedy appraisal process, check here for some tips on how to pass the appraisal.

Check your VA eligibility.

Myth #4: Today’s home prices require a higher down payment

There’s no denying home prices have increased over the past decade. This has made homes harder to afford for many would-be home buyers, since down payments are usually used to lower the costs of monthly payments. The higher the downpayment, the lower the monthly payments.

Here’s the truth: with a VA loan, you don’t need to make a down payment and you can still afford a house. The key to buying an affordable home isn’t the size of the down payment, but finding a home within your means.

Many VA members purchase a home without a large down payment. In March, the average down payment for a VA loan was just two percent – below the minimum 3.5% required by FHA loans, and much lower than the traditional 20%.

While a larger down payment will lower your monthly costs, you probably don’t need to make a larger downpayment to be eligible for a VA loan.

Myth #5: VA loans take forever

When comparing FHA loans, conventional loans and VA loans, VA loans are typically the slowest program. According to mortgage software giant Ellie Mae’s October 2020 Origination Report, VA loans took an average of 54 days to close.

By comparison, FHA loans took 52 days to close, and conventional loans took an average of 54 days as well.

So yes, a VA loan is likely going to take longer to close than another program. However, a difference of 2-3 days is small when you consider how much lower VA rates are.

VA loans are slower than other mortgage types, but they do not take forever.

Click to start the VA home buying process.

Myth #6: Surviving spouses don’t qualify for VA mortgages

Actually, many spouses of veterans can qualify for a VA home loan.

Generally, the spouse must be un-remarried and the veteran must have died during service or from service-connected causes. But there are exceptions and other ways a surviving spouse can be eligible.

And, surviving spouses are exempt from paying the VA funding fee. To confirm your eligibility, your VA loan officer will request your Certificate of Eligibility (COE) and verify that it has Entitlement Code 06.

Myth #7: All realtors are good VA home loan advisors

There is no VA loan certification for real estate agents. As a result, you shouldn’t look to your real estate agent for reliable information about VA loans. And an underinformed real estate agent can unintentionally push VA-eligible borrowers towards programs that might be less advantageous for them.

Instead, you should get your VA loan facts from a VA specialty lender whose primary product is VA-backed loans.

The VA loan facts are hard to beat

The proliferation of myths about VA loans can obscure the fact this is simply one of the best loan products available to aspiring home buyers.

The VA loan rates available to eligible buyers — combined with the low down payments — are hard to beat with a conventional or FHA loan. But with a little research and a well-informed VA lender, you could be on your way to a VA home loan.

Click to check today’s VA rates.

Source: militaryvaloan.com

Former Dollar General CEO’s 45,000-Square-Foot Mansion Is Built for Entertainment

A megamansion that Dollar General built possesses everything a family would need for a retreat.

Owned by Cal Turner, Jr., the former CEO and chairman of Dollar General, the home on Evans Ridge Road in Parker, CO, is on the market for $12.9 million.

“It is a very unique property, and certainly one of the larger homes in the country,” says the listing agent, Liza Hogan.

The family built the 45,000-square-foot house in 2001 as a retreat, and it’s in pristine condition two decades later.

“It has never been used as a primary home, so it’s in beautiful condition,” added Hogan.

The mansion occupies 35 acres of land about 45 minutes from Denver. An adjacent 35-acre parcel is also up for sale, offering the potential for 70 acres of fenced-in privacy.

“The location is fantastic. You have beautiful, panoramic views of the Rocky Mountains,” Hogan says.

It’s approached by a long driveway that dramatically circles up to the house.

“When you come through the main gate, you can’t see anything of the property,” she adds.

Exterior of mansion in Parker, CO
Exterior of mansion in Parker, CO

Estate Photo Video/ Michael Hefron

Entry
Entry

Estate Photo Video/ Michael Hefron

Living space
Living space

Estate Photo Video/ Michael Hefron

Entertaining space
Entertaining space

Estate Photo Video/ Michael Hefron

Bowling alley
Bowling alley

Estate Photo Video/ Michael Hefron

Bar
Bar

Estate Photo Video/ Michael Hefron

Theater
Theater

Estate Photo Video/ Michael Hefron

Pool
Pool

Estate Photo Video/ Michael Hefron

Conceived as an ideal spot for a family getaway or corporate retreat, the massive house was built with fun and entertainment in mind.

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Watch: Frank Lloyd Wright Home Is a Rare Find in Indiana

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“It’s got a complete entertainment wing, with everything from a heated pool that looks like it was designed for a Roman emperor, Jacuzzi, steam room, and sauna room,” Hogan explains. “There’s also a home theater, a dance floor with a stage, a bowling alley, a billiard table, a pingpong table, arcade room, and a home gym. Outside, there are ponds that are stocked with fish.”

Bedroom
Bedroom

Estate Photo Video/ Michael Hefron

Bedroom
Bedroom

Estate Photo Video/ Michael Hefron

Bedroom
Bedroom

Estate Photo Video/ Michael Hefron

Bathroom
Bathroom

Estate Photo Video/ Michael Hefron

Guests who are exhausted after all the activities on tap will have plenty of places to sleep and recharge.

The main house offers six bedrooms, including a master suite as well as a one-bedroom apartment with a separate entrance. Two other apartments are on the property.

“You can go outside to get there, but they do connect to the main house. One is a two-bedroom apartment, and the other one is a three-bedroom apartment. That adds five more bedrooms,” Hogan says.

A large caretaker’s residence has two bedrooms. With this much space, there’s room for all guests to spread out and enjoy themselves.

Hogan tells us that the mansion’s layout is ideal for long-term guests.

“If you have guests that are staying for an extended period of time, whether it’s friends, family members, or business associates, they can have their own quarters,” she says.

Kitchen
Kitchen

Estate Photo Video/ Michael Hefron

Kitchen
Kitchen

Estate Photo Video/ Michael Hefron

Dining space
Dining space

Estate Photo Video/ Michael Hefron

Dining space
Dining space

Estate Photo Video/ Michael Hefron

Each apartment has its own kitchen, and the main house has a large main kitchen with a catering kitchen nearby. There are also two large dining areas, one more formal than the other.

Owners and guests will have plenty of places to park, thanks to a 29-car garage with space enough for an RV.

Garage
Garage

Estate Photo Video/ Michael Hefron

Garage
Garage

Estate Photo Video/ Michael Hefron

Garage
Garage

Estate Photo Video/ Michael Hefron

The house is being sold fully furnished, with the exception of a few personal items.

“We have had a complete inventory of all the furnishings done by a professional. It’s approximately 60 pages long, with every item, and photos,” Hogan adds.

Wine cellar
Wine cellar

Estate Photo Video/ Michael Hefron

Living space
Living space

Estate Photo Video/ Michael Hefron

Living space
Living space

Estate Photo Video/ Michael Hefron

The sale also includes all of the artwork and all the bottles in the extensive wine cellar.

The home has been on the market for a couple of years and was once listed for more than $20 million.

Hogan says the pool of possible buyers who want this size of house at this kind of price tag in the Denver area is limited.

“This is toward the upper end in Denver,” she says, adding that the current price reflects what the market can bear, rather than its true value.

“The seller probably has at least twice the current asking price into the property. You have to be realistic, and a property has to reflect the market.”

Living space
Living space

Estate Photo Video/ Michael Hefron

The Turner family isn’t using the house as much as they used to, so it’s time to sell.

“Lives changed, and people go in different directions. Kids grow up, and all the things that we see happen with these large, legacy homes,” Hogan says. “They still use the property, but not the way that they did for many years. It’s just time to move on.”

Although the house is huge, Hogan says it still feels warm and welcoming.

“There are many intimate areas within the house,” she says. “Every time I show it, people remark on the fact that they’re able to find spaces where they don’t feel like they’re overwhelmed with the size, and they can have privacy.”

Gym
Gym

Estate Photo Video/ Michael Hefron

Boardroom
Boardroom

Estate Photo Video/ Michael Hefron

Living space
Living space

Estate Photo Video/ Michael Hefron

Game room
Game room

Estate Photo Video/ Michael Hefron

Outdoor space
Outdoor space

Estate Photo Video/ Michael Hefron

Game room
Game room

Estate Photo Video/ Michael Hefron

Living space
Living space

Estate Photo Video/ Michael Hefron

Outdoor space
Outdoor space

Estate Photo Video/ Michael Hefron

Living space
Living space

Estate Photo Video/ Michael Hefron

Outdoor space
Outdoor space

Estate Photo Video/ Michael Hefron

  • For more photos and details, check out the full listing.
  • Homes for sale in Parker, CO
  • Learn more about Parker, CO

Source: realtor.com

Which Debts Should You Prepay First? A 6-Step Plan

Hooray, you have some extra money each month to pay down debt! This 6-step process will help you decide how to use that money wisely to reach your financial goals.

By

Laura Adams, MBA
May 13, 2020

10 Things Student Loan Borrowers Should Know About Coronavirus Relief

6 Steps to Decide Whether to Pay Off Student Loans or a Mortgage First

Let’s take a look at how to prioritize your finances and use your resources wisely during the pandemic. This six-step plan will help you make smart decisions and reach your financial goals as quickly as possible.

1. Check your emergency savings

While many people begin by asking which debt to pay off first, that’s not necessarily the right question. Instead, zoom out and consider your financial life’s big picture. An excellent place to start is to review your emergency savings.

If you’ve suffered the loss of a job or business income during the pandemic, you’re probably very familiar with how much or how little savings you have. But if you haven’t thought about your cash reserve lately, it’s time to reevaluate it.

Having emergency money is so important because it keeps you from going into debt in the first place. It keeps you safe during a rough financial patch or if you have a significant unexpected expense, such as a car repair or a medical bill.

How much emergency savings you need is different for everyone. If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

A good rule of thumb is to accumulate at least 10% of your annual gross income as a cash reserve. For instance, if you earn $50,000, make a goal to maintain at least $5,000 in your emergency fund.

You might use another standard formula based on average monthly living expenses: Add up your essential costs, such as food, housing, insurance, and transportation, and multiply the total by a reasonable period, such as three to six months. For example, if your living expenses are $3,000 a month and you want a three-month reserve, you need a cash cushion of $9,000.

If you have zero savings, start with a small goal, such as saving 1 to 2% of your income each year. Or you could start with a tiny target like $500 or $1,000 and increase it each year until you have a healthy amount of emergency money. In other words, it might take years to build up enough savings, and that’s okay—just get started!

Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

Unless Maya’s brother has enough cash in the bank to sustain him and any dependent family members through a financial crisis that lasts for several months, I wouldn’t recommend paying off student loans or a mortgage early. Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

If you have enough emergency savings to feel secure for your situation, keep reading. Working through the next four steps will help you decide whether to pay down your student loans or mortgage first.

2. Reach your retirement goals

In addition to saving for potential emergencies, it’s critical to save regularly for your retirement before paying down a student loan or mortgage early. So, if Maya’s brother isn’t contributing regularly to meet a retirement goal, that’s the next priority I’d recommend for him.

Consider this: If you invest $500 a month for 35 years and have an average 8% return, you’ll end up with an impressive retirement nest egg of more than $1.2 million! But if you wait until 10 years before retirement to start saving, you’d have to invest over $5,000 a month to have $1 million in the bank. When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

A good rule of thumb is to invest at least 10% to 15% of your gross income for retirement. For instance, if you earn $50,000, make a goal to contribute at least $5,000 per year to a tax-advantaged retirement account, such as an IRA or a retirement plan at work, such as a 401(k) or 403(b).

For 2020, you can contribute up to $19,500, or $26,000 if you’re over age 50, to a workplace retirement account. Anyone with earned income (even the self-employed) can contribute up to $6,000 (or $7,000 if you’re over 50) to an IRA.

The earlier you make retirement savings a habit, the better. Not only does starting sooner give you more time to contribute money, but it leverages the power of compounding, which allows the growth in your account to earn additional interest. That’s when you’ll see your retirement account value mushroom!

3. Have the right insurance

In addition to building an emergency fund and saving for retirement, an essential part of taking control of your finances is having adequate insurance. Many people get into debt in the first place because they don’t have enough of the right kinds of coverage—or they don’t have any insurance at all.

Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

As your career progresses and your net worth increases, you’ll have more income and assets to protect from unexpected events. Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

Make sure you have enough health insurance to protect yourself and those you love from an illness or accident jeopardizing your financial security. Also, review your auto and home or renters insurance coverage. And by the way, if you rent and don’t have renters insurance, you need it. It’s a bargain for the protection you get; it only costs $185 per year on average. 

And if you have family who would be hurt financially if you died, you need life insurance to protect them. If you’re in relatively good health, a term life insurance policy for $500,000 might only cost a couple of hundred dollars per year. You can get free quotes for many different types of insurance using sites like Bankrate.com or Policygenius.com.

If Maya’s brother is missing critical types of insurance for his lifestyle and family situation, getting it should come before paying off a student loan or mortgage early. It’s always a good idea to review your insurance needs with a reputable agent or a financial advisor who can make sure you aren’t exposed to too much financial risk.

4. Set other financial goals

But what about other goals you might have, such as saving for a child’s education, starting a business, or buying a home? These are wonderful if you can afford them once you’ve accounted for your emergency savings, retirement, and insurance needs.

Make a list of your financial dreams, what they cost, and how much you can afford to spend on them each month. If they’re more important to you than paying off student loans or a mortgage early, then you should fund them. But if you’re more determined to become completely debt-free, go for it!

5. Consider your opportunity costs

Once you’ve hit the financial targets we’ve covered so far, and you have money left over, it’s time to consider the opportunity costs of using it to pay off your student loans or mortgage. Your opportunity cost is the potential gain you’d miss if you used your money for another purpose, such as investing it.

A couple of benefits of both student loans and mortgages is that they come with low interest rates and tax deductions, making them relatively inexpensive. That’s why other high-interest debts, such as credit cards, personal loans, and auto loans, should always be paid off first. Those debts cost more in interest and don’t come with any money-saving tax deductions.

Especially in today’s low interest rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio.

But many people overlook the ability to invest extra money and get a higher return. For instance, if you pay off the mortgage, you’d receive a 4% guaranteed return. But if you can get 6% on an investment portfolio, you may come out ahead.

Especially in today’s low-interest-rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio. The downside of investing extra money, instead of using it to pay down a student loan or mortgage, is that investment returns are not guaranteed.

If you decide an early payoff is right for you, keep reading. We’ll review several factors to help you know which type of loan to focus on first.

 

6. Compare your student loans and mortgage

Once you have only student loans and a mortgage and you’ve decided to prepay one of them, consider these factors.

The interest rates of your loans. As I mentioned, you may be eligible to claim a mortgage interest tax deduction and a student loan interest deduction. How much savings these deductions give you depends on your income and whether you use Schedule A to itemize deductions on your tax return. If you claim either type of deduction, it could reduce your after-tax interest rate by about 1%. The debt with the highest after-tax interest rate is typically the best one to pay off first.

The amounts you owe. If you owe significantly less on your student loans than your mortgage, eliminating the smaller debt first might feel great. Then you’d only have one debt left to pay off instead of two.

You have an interest-only adjustable-rate mortgage (ARM). With this type of mortgage, you’re only required to pay interest for a period (such as several months or up to several years). Then your monthly payments increase significantly based on market conditions. Even if your ARM interest rate is lower than your student loans, it could go up in the future. You may want to pay it down enough to refinance to a fixed-rate mortgage.

You have a loan cosigner. If you have a family member who cosigned your student loans or a spouse who cosigned your mortgage, they may influence which loan you tackle first. For instance, if eliminating a student loan cosigned by your parents would help improve their credit or overall financial situation, you might prioritize that debt.

You qualify for student loan forgiveness. If you have a federal loan that can be forgiven after a certain period (such as 10 or 20 years), prepaying it means you’ll have less forgiven. Paying more toward your mortgage would save you more.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end.

As you can see, the decision to eliminate debt and in what order, isn’t clear-cut. Mortgages and student loans are some of the best types of debt to have—they allow you to build wealth by accumulating equity in a home, getting higher-paying jobs, and freeing up income you can save and invest.

In other words, if Maya’s brother uses his excess cash to prepay a low-rate mortgage or a student loan, it may do more harm than good. So, before you rush to prepay these types of debts, make sure there isn’t a better use for your money.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end. Only you can decide whether paying off a mortgage or student loan is the right financial move for you.