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Fix And Flip Or Buy And Hold: Which Is Better?

Woman comparing roofing colors to existing roof on home

Real estate represents one of the most profitable investments today. Most investors choose to either be house flippers or buy-and-hold owners. These popular real estate investment strategies provide a path to making considerable money but through different means.

Whether you should fix and flip or buy and hold depends on your investment goals, personality, skill set and personal preferences. Here’s a closer look at both investment strategies, their pros and cons and how to determine the right path for you.

Why Invest In Real Estate?

Most properties increase in value over time. The need for housing will always be there.

Real estate investing allows you to add monthly income, increase your cash flow, build equity and enjoy some tax benefits, too. While there’s still a risk involved, real estate is a stable long-term investment in most cases. Plus, it’s a great way to diversify your portfolio, adding another long-term income stream.

Real Estate Investment Strategies:

Fixing And Flipping

House flipping is where you buy a property at a discounted price, like a foreclosed home. Then, you fix up the house through renovations and sell it for a profit.

Flipping a house requires an initial investment of money and time. The goal is to buy, fix and flip the property as quickly as possible. Turning over a home quickly is one of the keys to making the most profit.

House flippers either hire contractors to fix up the home or opt to do the work themselves. How you go depends on your personal home repair experience and how much time you can devote outside of other career, family and life commitments.

Buy And Hold

Buy and hold real estate investors are looking for long-term profitability and passive income. They purchase property, intending to rent it out to generate monthly income.

Landlords collect rent each month, using it to pay down the mortgage and build up equity. It also allows you to increase cash flow to invest in other properties or other investments.

Many buy and hold investors opt to use a property management company, so they don’t have to worry about day-to-day issues with renters.

Buy and hold investing can be long-term, keeping the rental property indefinitely or for a designated time and then selling it for a profit. Unlike flipping a house, success isn’t solely tied to the property’s sale.

Pros And Cons Of Flipping

Pros

  • Faster gains: Flipping houses is one of the best ways to turn a large profit quickly. Much of this depends on the property’s cost and the upgrades needed to sell it. If most of the improvements are cosmetic, you can quickly turn the home with a lower time and financial investment.
  • Experience: So much goes into flipping houses. From the home buying process to performing home repairs to selling, you can gain a near-complete real estate education. As you continue to invest in new properties, you’ll learn how to spot good deals, avoid bad ones and how to lessen the risks involved.
  • Flexibility: House flipping is more fluid than other investments. In most cases, your money isn’t tied up long term. This allows you to reinvest your money quickly.

Cons

  • Taxes: The profits you make from the sale of your flipped home are subject to tax payments. Depending on how long you hold the home before it sold, you could end up paying expensive capital gains taxes.
  • Risk of loss: Fixing and flipping a house may be less risky than other investments, that doesn’t mean there are zero risks. It’s possible that the purchased home needs more work than you initially thought. Extra repair costs will eat up your profits quickly. Also, there’s no guarantee that the property sells sell quickly, which means additional mortgage payments, utility expenses and more.
  • It’s expensive: Yes, there are costs involved to buy the property and fix it up. But don’t forget that it costs money to sell a home, which cuts into your profits. Closing costs, real estate agent commissions, and other expenses affect your investment too.

Pros And Cons Of Buy And Hold

Pros

  • Passive income: When you rent out the property you purchased; you’ll receive steady monthly rent checks. Finding a renter is often easier than finding a buyer since there’s less commitment needed.
  • Appreciation: As you hold on to your property, appreciation occurs naturally. There’s no need to flip the property quickly. You can enjoy the increased income each month and sell when market conditions are ideal, and your property value has increased.
  • Tax advantages: While flipping a house could lead to expensive tax bills, rental property owners enjoy a host of tax benefits. The list of tax deductions is long and includes mortgage interest, insurance premiums, property management fees, property taxes and more.

Cons

  • Dealing with people: If you can find good tenants, this isn’t as much of an issue. As a landlord, you have to set rent rates, screen potential tenants, collect monthly payments, respond to requests and complaints and more. Also, tenants don’t have as much invested into the property, so there’s a good chance they don’t keep it in as good of shape as you would like.
  • Upkeep: Just like your own home, rental properties require maintenance. Whether it’s simple upgrades or more serious repairs, you’re responsible for whatever was agreed upon in the rental agreement.
  • Vacancies: Rental properties can turn a great profit, but only if they are filled with tenants. The last thing you want is someone to move out, and the property sits unused long term. Then, it becomes like a second home, with mortgage payments and utility costs.

Should You Fix And Flip Or Buy And Hold?

Both fix and flip and buy and hold can be profitable investment strategies. The right choice for you, if any, depends on your investment goals. Here are four questions to ask yourself to determine which investment lines up with your needs the best.

Are You Looking For Active Or Passive Income?

Flipping a house has a simple premise – get in and get out. It can require considerable work upfront to flip a house, though, especially if you opt to fix it up yourself. However, you get your money faster than if you bought a property and rented it out.

If you plan to buy and hold, you may find a turnkey or other property that requires little work. You could quickly find a tenant and start making passive income each month.

How Much Money Do You Have To Put Into The Home?

Regardless of which path you choose, the amount of money you have to put into your investment will determine what you can afford. Flipping a house requires more capital upfront when you include in any repairs and other expenses. Make sure you have enough capital to finish the flip.

What’s The Risk And Return Ratio?

There’s an element of risk with any investment. It’s essential to decide how much you’re willing to risk and how much you desire to get back in return with real estate investments. Your risk and return ratio compares your investment’s expected returns and the amount of risk required to achieve that return.

Can You Build Your Portfolio To Do Both?

As you invest in real estate, you may get to the point where both options are feasible. Then, it’s a matter of whether it makes sense to do both. Each comes with its own set of risks, time commitments and potential for significant returns.

There’s a reason that real estate is a popular investment strategy – it works. Whether you choose to fix and flip or buy and hold, spend time researching and focus on a game plan going forward. You’ll likely run into issues regardless of which one you choose. Determine your investment needs and how much money and time you have to invest in a real estate project and go from there. Both options require your commitment and energy to turn a profit.

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6 Hidden Costs of Buying a House

6 Hidden Costs of Buying a Home

Buying your first home is an exciting time. You’ll finally have a place to call your own and can start building equity in it. However, it’s important to remember that the costs of owning a home go beyond your down payment and monthly mortgage payment. Here are several expenses you should consider when creating your budget for buying a house:

1. Home Inspection Fee

After you put an offer on a home and it’s accepted, you should get a home inspection before moving forward with your purchase.

After you put an offer on a home and it’s accepted, you should get a home inspection before moving forward with your purchase. After all, you don’t want to spend thousands of dollars only to learn there’s a significant problem with the house. The price of home inspections varies based on the type of inspection, the location of the home and its square feet. Most inspections cost anywhere from $200 to $400, according to HomeAdvisor.

Other inspections you may want to consider are well, septic and radon, which tests for radioactive gas that comes from the natural breakdown of uranium in soil, rock, and water.

2. Property Taxes

When you’re getting ready to buy a home, you’ll also want to factor in the property tax. While property taxes vary based on your location, most of the country is seeing a property tax increase due to many home values rising. Not to mention, your neighborhood’s property tax can make a huge difference in the cost of housing in the area. But keep in mind, home sales can often trigger a tax reassessment.

Luckily, as a homeowner there are several tax deductions you can take that are associated with your mortgage and the property itself. It’s a good idea to speak with a tax advisor to learn more.

3. Homeowner’s Insurance

Another thing you’ll need to consider is homeowner’s insurance. This helps protect your possessions as well your home in the event it gets damaged in a severe event. Plus, your lender will require it, so it’s an expense you must factor into your budget.

Your homeowner’s insurance premium will vary depending on where you live. There are certain states where insuring a home is riskier than others. For example, if you live in an area prone to hurricanes, you’re likely going to pay more.

Connect with a local insurance agent to help determine just how much coverage you’ll need and if it’s in your best interest to bundle your insurance policies together (which is just using the same carrier for multiple types of insurance, such as home and auto). For some folks, this can help save hundreds of dollars!

4. Private Mortgage Insurance

Typically, Private Mortgage Insurance, or PMI, is included in your monthly mortgage payment. This protects your lender in the event you default on your loan. Home buyers usually pay PMI when they have a conventional loan and put less than 20 percent down.

If you get an FHA loan for your home, you’ll pay a Mortgage Insurance Premium (MIP). With FHA loans, you pay this regardless of your down payment.

In addition to the amount of your down payment, other factors that go into your mortgage insurance premium are your credit score and your assets.

According to ValuePenguin, most mortgage insurance premiums cost anywhere between 0.5 percent and as much as 5 percent of the original amount of the mortgage loan per year.

5. Closing Costs

Another key consideration when you’re buying a home is your closing costs. These are fees that lenders charge to the buyer for services that must be performed to close the loan. However, many of your mortgage closing costs go to a third-party for services necessary to complete the transaction.

A few of the possible costs involved in the average loan transaction are:

  • Appraisal: This is required to determine the fair market price of the home.
  • Credit Report: Lenders will review your credit report to see your borrowing history and determine if they should lend you the loan amount.
  • Closing Fee: This is paid to the title company or attorney who conducts the closing.
  • Title Company Title Search or Exam Fee: This goes to the title company that searches the property records of your home to ensure there are no liens or problems associated with the property.
  • Title Insurance: This protects you in the event someone challenges your ownership of the home.

Additionally, closing costs can vary depending on your mortgage option and amount. For example, a 30-year rate fixed may not have the same closing costs as a 5-year adjustable rate, according to Quicken Loans. Plus, in some negotiations, the seller may agree to cover all or some of your closing costs, potentially saving you thousands of dollars with seller concessions.

On average, home buyers can expect to pay anywhere from 2 percent to 5 percent of the home’s purchase price in closing costs, according to SmartAsset.com. And as a reminder, closing costs are paid upfront.

6. Utilities and Maintenance

If you’re going from renting a place to owning a home, you may have to adjust your budget to start paying for utilities such as electricity, gas and water. In most cases, these expenses will put you back several thousand dollars annually, but keep in mind, as soon as you buy your home, you start building equity in it.  And while it may not feel like you’re saving any money by making mortgage payments each month, you are building up the value of an asset, just like putting regular deposits into a savings account. Remember, the more equity you have in your home, the better!

As for maintenance costs, you also should consider extra expenses such as yard care, gutter cleaning, snow removal (if applicable), air conditioning, washer and dryer, hot water, heater, and carpet cleaning. Also, if you’re moving to a new area, you’ll want to shop around for internet and cable services. Where you live may impact what service you get.

While these are a few of the hidden costs homebuyers typically encounter, every experience is different! Knowing what expenses you’ll need to include in your budget will help you tremendously in your planning. As long as you factor in a bit of wiggle room, you’ll be just fine!

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How Can ForSaleByOwner Help Me Find My Dream Home?

dream home

You’ve searched and searched to find the house of your dreams, the one that draws you in with every defining detail like it was destined to be yours. And then you find it, but it’s sporting a striking red and white sign with “For Sale By Owner” emblazoned on it.

To some, this statement can be off-putting. Others may be confused about what it means for their home-buying experience. ForSaleByOwner can help. Because understanding these words and their ability to help you is the first step to defusing your fear of the unknown and getting you into your fantasy home.

How to buy through FSBO?

FSBO refers to when owners sell their houses directly to the buyers without getting a real estate agent involved, eliminating the need for Realtor fees. Most of us don’t come from a background in real estate and aren’t accustomed to the process of buying and selling houses. To feel ready, ForSaleByOwner offers several resources to help you get started.

  1. Before diving in, take some time to define your dream house, considering cost, location and amenities. After you have an idea of what kind of a house you want, you can start searching for it on the ForSaleByOwner search page.
  2. Compare homes and get an idea of the cost of recently sold houses in your desired neighborhoods with a valuation report. Making an informed offer goes a long way toward eliminating needless back-and-forth with the seller.
  3. It’s also a good idea to obtain a Comprehensive Loss Underwriting Exchange (C.L.U.E) report, which reveals insurance claims sellers have made on a property within five years. A C.L.U.E report is essential in helping you predict and prepare for future problems that may arise.
  4. Go ahead and get a pre-approval letter from a mortgage company. Presenting a pre-approval letter to the seller makes a great first impression — like that you can afford to buy the house. It can definitely help make the process smoother.
  5. It’s not a bad idea to engage the services of a real estate attorney, who can review the offer and help you close the deal with a contract. Negotiating is an art, one that most attorneys have mastered, so lean on their expertise should the situation necessitate.

FSBO isn’t for everyone, but it’s an option to consider for people who desire the freedom to buy or sell their house on their own time. It introduces a certain intimacy to the business of real estate that’s refreshing and, in some case, invaluable. Because it involves only you and the seller, there’s a distinctly human element and a bond often forms between the two people who are most connected to this home.

Make the most of ForSaleByOwner’s resources and research to discover the dream house you’ve envisioned. It exists, and we can help you find — and buy — it.

 

 

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Things Homebuyers Should Never Say During an Open House

28075301 - real estate open house directional sign with pointing arrow in a flower garden in front yard of a resale house for sale by realtor broker

Touring open houses in a quest to find your new home is exciting for any homebuyer. And while it’s necessary to ask questions while checking out a home, there are some comments potential buyers should keep to themselves.

First, real estate agents, the home’s sellers and the neighbors all have a vested interest in what you say during a tour. Some agents and sellers have even been known to plant recording devices to capture your opinions on the home. This can be a problem for candid buyers, whose comments may leave a bad impression on the seller. The owner could retaliate by being less cooperative or less likely to sell to you based on your opinions.

Second, it can be dangerous to state your opinion of the price of the home. Claiming that the home is too expensive or asking about a specific price before making an offer will give the seller and listing agent more power in the negotiating process. It’s best to discuss a home’s price once you’ve left the property and are with people you trust with that information. Once you’ve made up your mind, making an official offer is the best way to proceed.

Last, don’t forget that the property you’re touring is still the seller’s home. Don’t offend the seller with negative comments about their home’s decor, furniture or personal effects. Focus on the layout and imagine how your own furniture and design elements would look instead. This is a professional transaction, so it’s best to act accordingly and avoid transmitting negative feedback to the seller.

Once you’ve figured out what questions to ask and what comments to keep to yourself, you’ll be able to navigate open houses successfully and, with any luck, find the home of your dreams.

Read the full list of things buyers should never say during a tour, here.

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5 Easy Ways to Pay Off Your Mortgage Faster

Do you dream of the day you pay off your home loan? You can realize that dream three, five, ten or even fifteen years faster with a few alternatives. Here’s how.

1. Refinance and Reinvest
The average mortgage rates in 2014 have been about four percent for 30-year fixed loans; 15-year fixed loans and 5/1 ARMs have been around three-percent. Suppose you’ve been paying on a 7.25 percent $200,000 30-year mortgage for four years at approximately $1,364 per month, and can get a refinance rate that’s at 5.5 percent. By refinancing to the lower rate, but continuing to make the same payment, you could shave five years off your mortgage, and save $82,080 in interest. However, if you can get a 15 year fixed at three percent, your payment will increase by $17 to $1,381 per month and you’ll save $242,560 over the life of the loan while shaving nine years from your repayment period.

2. Double Up
One of the most frustrating things about paying a mortgage is how slowly the balance goes down in the early years. Suppose your $200,000 mortgage has an interest rate of 4.00 percent. After paying $955 a month for an entire year, your balance will still be $196,478. That’s because after paying the interest owed, not much goes toward reducing the principal balance. However, what if you paid extra each month – doubling the principal payment? The advantage of this strategy is that your extra payments start out low and then grow over time as (hopefully) your income increases. The result is that you pay off a 30-year mortgage in approximately 17 years.

3. Dedicate Savings
One risk of prepaying a mortgage is that if you need the money, it is already gone to prepayments. Speak with a qualified financial advisor for options; two products are a must to ask about:

  • CD (Certificate of Deposit)
  • Money Market Savings

When your principle balance and your savings balance match, it could be time to think about an early mortgage payoff.

4. Refinance to a Shorter Term
Perhaps the most direct way to accelerate your mortgage repayment is to refinance into a shorter-term loan. The biggest advantage of this method is that shorter loan terms usually come with lower interest rates. Take the previous example discussed earlier in the article; by refinancing a $200,000 30 year fixed loan at 7.25 percent to a 15 year fixed at three percent, you could save $242,560 over the life of the loan.

5. Bi-weekly Payments
Another easy way to accelerate a mortgage payoff is to divide the monthly payment in two, and make half of it on the first of the month and half before the 15th of each month. This works especially well if you get paid every two weeks. Instead of making 12 monthly payments, you’d make 26 bi-weekly payments; this is like making an extra payment each year. On a 30-year mortgage at 4.0 percent, those interest savings would shorten your mortgage by just over four years. Remember, you may have to make one full payment prior to setting up bi-weekly payments, so ask your lender what is required for this setup.

Before You Pre-pay Your Mortgage
While becoming mortgage-free is a good goal, there may be smarter uses for your money. If you have high-interest credit card debt, for example, you’ll save more by paying it off than you will by making extra mortgage payments. Remember credit card debt typically carries a much higher interest rate and is not usually tax-deductible. You should also have an emergency fund – enough to cover three-to-six months of living expenses. Finally, make sure your retirement account is fully-funded, especially if your employer matches your contributions.

By using any of these tips, or by combining two or more of them, you may move up your mortgage payoff by years. Speak with your tax professional and your financial advisor and compare mortgage rates for refinancing to find the best scenario for you.

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3 Things Millennial Home Buyers Want

Young Millennial couple home buyers

What can sellers do to appeal to Millennial home buyers? Karen Lawson of LendingTree looks at what members of Generation Y want from their new home and why sellers should market to those desires.

Millennials (loosely-defined as those individuals born between 1981 and 1996, also known as Generation Y) face obstacles to home ownership that their Baby Boomer or Gen X parents did not. The Brookings Institution reports that Millennials will account for one in three adults by 2020 – a force to be reckoned with. However, the National Association of Realtors® reports that although the “leading edge” Millennials aged 25 to 34 want to buy property, they can’t without stronger job markets and a wider choice of affordable residences.

Challenges Faced By Millennials

The main hurdles faced by Millennials are affordability, jobs, and inventory.

Affordability
Millennial home buyers face a double threat of low wages and staggering student loan debt. According to a report by the Economic Policy Institute, student loan debt grew by an average of six percent annually between 2008 and 2012. High levels of student loan debt can make it impossible to qualify for a mortgage, and as property prices rise, owning a home becomes a moving target.

The Economic Policy Institute reports that 2013 college grads earned an average annual salary of $34,500; this was the lowest average pay since 1998. Which areas are most affordable for these grads? The National Association of Realtors® named Austin, Texas and Salt Lake City, Utah among areas with “relatively affordable” properties.

Jobs
Millennial buyers face subdued (but improving) job markets, and the available jobs are likely to come with fewer employer-paid benefits like health insurance and pensions. Employees who pay for these things themselves have that much less cash available to buy homes. The National Association of Realtors® identified Austin and Dallas, Texas and Grand Rapids, Michigan as cities with the strongest job growth within metro areas identified as attractive to Millennials.

Inventory
The National Association of Realtors® reported that the Ogden and Salt Lake City, Utah and the Minneapolis-St. Paul Bloomington MN-WI metro areas had the highest increases in available houses between May 2013 and May 2014. Wherever Millennials look for their next homes, they prefer a good selection of properties and neighborhoods to choose from.

Millennial Home Buyers: Savvy Shoppers
Millennials have morphed from shopaholics into careful consumers: Bloomberg-Businessweek reports that today’s Millennials are responsible and resourceful buyers who no longer deserve their earlier reputation as tech-toy-crazed materialists. The Great Recession changed all of that.

According to Bloomberg, Millennials currently spend about $200 billion a year and make up about 25 percent of the workforce; by 2020, they will comprise the majority of the workforce and their spending will double.

The National Association of Realtors® says that Millennials value their neighborhoods as much as their homes. Millennial home buyers prefer open single-story floor plans, wood or tile flooring and environmentally-friendly “green” features.

Millennials shop online for everything — including homes. In addition to searching the web for homes, Millennials can educate themselves on every step of the home buying process and even get personalized mortgage rates online.

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How to Estimate Repair Costs with a Fix-and-Flip Investment Property

You’re new to flipping houses, and you’ve already heard your share of warnings about one of the biggest pitfalls in the business: underestimating repair costs.

Those warnings are true. Unexpected repair costs are going to find their way out of the woodwork when you flip a house, regardless of how careful you are. But that doesn’t mean you can’t enter the house-flipping battlefield with a foolproof plan of attack.

If you’re looking for a checklist that will help you anticipate all the repair costs of a fix-and-flip investment property, you’ve found it. Read on to arm yourself against the worst known budget-saboteurs in house flipping—and the unknown ones, as well.

The House
The first thing most of us think of when we think “repair costs” is the house itself. That’s the easy part. The less-than-easy part is this: What exactly do you need to fix?

The answer literally runs the gamut from “almost nothing” to “almost everything,” whether that means a simple cosmetic paint job, changing out a few fixtures here and there, or gutting the entire 1970s-era kitchen. And sometimes the things you need to fix aren’t always the things you can see. We’ve all seen that house-flipping episode on HGTV where they take a sledgehammer to the wall and find ten years of mold lurking in the shadows beyond it. Your fix-and-flip investment will probably have its own share of surprises. So how do you make sure you haven’t overlooked anything?

You create something called a “budget repair sheet.”

Budget repair sheets are also called “cost estimate forms.” They are basically spreadsheets that keep track of what needs to be repaired in different areas of your house. With your budget repair sheet in hand, you do a walk-through of the property with your general contractor (who will help you figure out what to put on the list), making note of the things that need to be fixed.

It might still be tricky to spot the mold in the walls, but as far as estimating physical repairs goes, a budget repair sheet is definitely your safest bet.

The General Contractor (GC)
You probably noticed that, in the example above, you weren’t walking through your investment property filling out the budget repair sheet by yourself. You had a general contractor with you. And there’s a good reason for that. When you’re new to flipping houses, sometimes “you don’t know what you don’t know” about construction. Usually, trying to wing it on your own will end up costing you more money than if you just hired someone who knew what to do in the first place.

Keep in mind that you’re not looking for just any GC. You want a general contractor who will get the job right and stick with your project to the very end. Ask around your social network to get some recommendations, or contact the local public works and building department for some reliable names. You can also check online referral sites for promising reviews.

A good general contractor will make your life a lot easier, and will also free up your time so that you can start hunting for your next investment property. Just don’t forget to add the GC’s salary to your estimated total repair costs for the flip.

The Subcontractors
You’re also going to need to pay a few different subcontractors to take care of the specific repairs in your fix-and-flip. Your subcontractors are your painters, plumbers, electricians, and so forth. If you have a general contractor, then you’ll have some help getting fair quotes from all of the subcontractors that you’ll need when you flip your house. Many GCs will even find the subcontractors for you so that you don’t have to deal with the hassle of it yourself. But you’re still going to have to foot the bill.

Carrying Costs
New fix-and-flip investors sometimes overlook carrying costs. Repairing your investment property is probably going to take a few months, and during that time, you’re responsible for basic upkeep. That means that you will have to pay utility bills (gas, water, electric), as well as insurance and property taxes. Depending on what kind of property you have, you could also have to pay HOA or condo fees.

So, not surprisingly, the timeframe is key when it comes to estimating your carrying costs. You and your general contractor will want to keep an eye on the subcontractors to make sure they’re finishing their jobs on time and on budget. Create a schedule that everyone agrees to in advance, and then follow up on it to make sure that your subcontractors are sticking to the plan. If one subcontractor falls behind a couple weeks, it could cause a domino effect of delays—and carrying costs could sabotage your budget.

Expect the Unexpected.
Even when you’re careful, it’s almost guaranteed that part of your renovation will throw you a “surprise party”—and then send you the bill. Always expect the unexpected, and build a buffer into your total estimated repair costs. After you’ve calculated everything you can according to the checklist above, set your budget to be 10% more than the number you come up with.

You might not always see the sneak attack coming. But if you account for what you know, and plan for what you don’t know, you’ll come out on top at the end of your fix-and-flip experience.

Looking to find a great investment property in your area? Search homes for sale from by owner sellers and save thousands in commission. 

This information was originally published on Auction.com, the nation’s leading online real estate marketplace. Kristine Serio is a writer and editor specializing in business and real estate. Her real estate roots stretch back to her grandfather, who launched a profitable second career as a real estate investor during the 1950s. Kristine’s authors and entrepreneurs have been featured in The New York Times, O: the Oprah Magazine, and the San Diego Union Tribune.

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The Reverse Mortgage, Baby Boomers and Downsizing

Baby Boomer couple in front of new home

57 percent of Baby Boomers plan to move out of their current home, according to a recent survey from Better Homes and Gardens. How will almost 44 million Boomers afford moving into the home they believe will be the best they have ever lived in? Peter Andrew of LendingTree shows how downsizing and reverse mortgages can help this generation make the most of their retirement years.

Should the reverse mortgage form part of baby boomers’ retirement plans? As always with financial questions, the answer depends entirely on personal circumstances.

Baby Boomers and Downsizing
The AARP estimates that between now and 2029, younger Baby Boomers will be reaching the magic age of 65 at a rate of roughly 8,000 a day. Some Boomers can look forward to retirements that really will be their golden years. Others may face the opposite: decades of grinding poverty. Any of them might find downsizing (moving to a smaller home) an attractive prospect for many reasons, including:

  1. A smaller home might mean a smaller mortgage — or no mortgage at all.
  2. Selling an expensive home and buying in a cheaper area could beef up bank balances.
  3. Moving somewhere with a kinder climate could provide a more pleasant retirement — and reduce heating bills.
  4. Potential mobility issues can be headed off with a move to a single story home with wide doorways.
  5. Not having to spend their retirement cleaning and maintaining family-sized homes and yards.

Reverse Mortgages and Downsizing

Baby Boomers wishing to downsize have a couple of options — they can sell their homes, move and use the proceeds of the sale to purchase a home outright, or they can take out a reverse mortgage for purchase. This is a not-widely known use for a reverse mortgage — here’s how it works.

  • The homeowner sells the old home, banking the proceeds.
  • Next, he or she buys a new home, making a substantial down payment (perhaps 50 percent), and financing the rest of the purchase with a reverse mortgage.
  • No mortgage payments are required as long as the homeowner lives in the residence, keeping it maintained and paying property taxes and homeowners insurance.

Why Purchase with a Reverse Mortgage?
Why would anyone take out a mortgage instead of paying cash for the new home? Here are a couple of examples.

  • Suppose a couple sells their old residence for $400,000 and nets $200,000 from the sale. They want to buy a condo for $200,000. If they pay all cash, after the purchase, they’ll have nothing left. Unless they have substantial other sources of cash, that’s a risk many are not comfortable with. By taking out a reverse mortgage for purchase, they can keep $100,000 in the bank and buy a $200,000 home with no mortgage payments.
  • If this same couple wants to upgrade to an ocean view condo for $400,000 and can’t qualify for a traditional mortgage, a reverse mortgage for purchase could make this golden dream real. With $200,000 down, they get a $400,000 condo and make no mortgage payments. The actual amount they can borrow depends, like all reverse mortgages, on the age of the youngest spouse and the reverse mortgage interest rate.

Reverse Mortgages and NOT Downsizing
Finally, for Baby Boomers who wish to age in place, a “regular” reverse mortgage can help them do just that by supplementing their income. If they need help around the house or want to travel to visit family or escape harsh weather, the extra money can make it happen. In that case, a reverse mortgage can allow Baby Boomers to stay in the homes they love, but more comfortably.

Interested in a reverse mortgage for purchase? Compare rates on a reverse mortgage to compare competitive offers in minutes.

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2015 Mortgage Rate Forecast: Fasten Your Seat Belts!

Whether you plan on buying or selling a home in the coming year, insight from an expert on where mortgage rates are heading can help you prepare for success in 2015. Gina Pogol, Senior Marketing Manager for LendingTree forecasts what the New Year has in store for the mortgage industry.

Predicting mortgage rates is a challenge in both the short term and the long term. In fact, mortgage rates change continually, just like the prices of stocks and bonds, all day long. Like stocks, they can be affected in a heartbeat by events far away, like a developing conflict in Ukraine or an earthquake in China.

As daunting as the exercise is, however, investors and companies do try to predict mortgage rates, and here are some forecasts from the most prominent experts.

Fannie Mae Lowers Rate Forecast
Mortgage clearinghouse Fannie Mae, one of the biggest players in the mortgage market, recently reduced its 2015 mortgage rate forecast. The financing giant’s latest housing-market analysis put the 2015 rate for the 30-year fixed-rate mortgage at about 4.3% — a drop of .2 percent from Fannie’s previous prediction for the rate in 2015.

“The housing market continues to grind its way upward, but we don’t expect a breakout performance in 2015 as the fundamentals remain somewhat muted,” explained chief economist Doug Duncan. “We believe that mortgage activity in 2015 will be very similar to 2014.”

If Fannie Mae is right, there would appear to be less urgency for those considering a home purchase or refinance.

Mortgage Bankers Association Expects an Increase
On the other hand, the Mortgage Bankers Association recently released its own forecast, which shows mortgage rates hitting five percent in 2015. If they are right, nailing down a lower interest rate today would look like a very smart move tomorrow.

Why would the MBA differ so sharply from Fannie Mae? They have essentially the same information, but they could be interpreting it differently.

Freddie Mac Weighs In
Freddie Mac, the “other” mortgage major mortgage buyer in the US, disagrees with big sister Fannie Mae, asserting that it expects rates to hit five percent in 2015. Freddie Mac has been tracking mortgage rates since 1971 with its Primary Mortgage Market Survey.

No Crystal Ball for 2015
One major factor that’s been keeping mortgage rates low for American citizens is the fact that US Treasuries are widely considered “safe havens” by investors around the world. When economic or political instability threatens, investors are less concerned with the return on their investments than they are with keeping their money safe. When that happens, they buy US Treasuries, which pushes bond prices up and interest rates down.

In addition, in some parts of the world, deflation is a real concern — the European Central Bank, for example, began paying negative interest this year — effectively charging investors to leave their money in its care. For those investors, even a tiny return is better than nothing, and once again, US bonds become popular.

For these reasons, predicting mortgage rates in 2015 is similar to predicting what ISIS will do, or what Putin will do, or what economic leaders in Greece, Germany or Italy will do.

However, the one thing that almost no one is predicting is that mortgage rates will go down.

Looking to buy a home? Get the most up to date mortgage rates in your area and compare offers to find the right rates for you.

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5 Key Questions Home Buyers Forget to Ask

Young couple looking at homes

There’s more to a home than the specs and listing details. Whether you work with an agent or talk directly to the owner, knowing the answers to these questions before you make an offer will help you evaluate properties and get to closing faster.


1. “What are the neighbors like?”
Are your neighbors friendly? Are they mostly retired? Are they young with a love of partying late into the night? Knowing if you’re joining a tight-knit community of people in the same stage of life as you or if your neighbors are solitary members of a different generation is just one important step in evaluating your neighborhood.

2. “Why are you moving?”
Asking the home seller why they are moving may give you a better idea of the area. They may tell you that they’re looking to relocate closer to work or that they’ve been offered a new job in a new location. While it’s unlikely that the seller will disclose that their move is due to poor schools or an unsafe community, asking this question can help you read between the lines and determine if you should continue your search for homes.

3. “On average, how much are the utility bills?”
You’ll want to have an idea of how much more (or less) you can expect to budget for your electric, gas and water. If you plan on updating the house after you buy, you might be able to cut your monthly budget with energy efficient home improvements that are eligible for a tax credit.

4. “How old are the appliances?”
Knowing the age of appliances will help you determine if you’re at a greater risk for flood damage due to the failure of an old water heater, dishwasher or washing machine. You may want to purchase a home warranty to cover repair or replacement of the appliances if they break down after you buy the home.

5. “What is your timeline?”
It can be easy to get swept up in a buying frenzy, especially if there are multiple competitive offers for the home. If you aren’t prepared to move quickly on a sale you may be unable to secure a mortgage or may end up with two mortgages while you wait for your home to sell. Knowing a seller’s timeline can give you time to figure out how to clean up your credit, sell your home, or budget for a quick sale.

These basic questions are an important part of purchasing a home. Do you have the tools, tips and checklists to successfully buy a home directly from the owner?