How to Avoid Being Loft Poor

27 Mar 2015 · by Virtual Results PubSub

Buying a Loft is exciting. If you’re young, it gives you the sense of finally stepping into the adult world. If you’re at some other life change (marriage, starting a family, empty-nester) the idea of a larger (or smaller) space of your own gets those possibility juices flowing.

But … in the heady rush into new Loft ownership, the temptation to bite off more than you can chew financially is strong enough that potential Loft owners ignore that niggling unsettled feeling, or even the warning bells clanging in their heads. Once the deal is done and move-in day is a dim memory, the reality of monthly expenses takes over.

Does that mean you shouldn’t buy a Loft? Of course not! What is means is that Loft ownership can change your lifestyle in ways that you may not anticipate. If you’re looking at buying a Loft, try incorporating those changes into your life beforehand to see if they are livable.

Higher monthly payments

For some buyers, the actual mortgage payment is less than they pay for rent. In fact, many would-be buyers consider this as the basis of their potential move into ownership, and marketers promote the idea as well. But, ownership requires more than just making the mortgage payment. Other monthly outgo includes:

  • Insurance: Loftowner’s insurance is much more costly than renter’s insurance. If you own a single-family Loft, the cost of your coverage is based not on the Loft’s market value, but on the cost to rebuild it after a destructive event. If your Loft has special architectural details—a Victorian or Craftsman, for example—your insurance may be higher because replacing damaged detailing may require specialty products. If you live in a storm-damage area (hail, tornados, wind) or flood plain, you’ll need to cover those instances as well. Your insurance also includes coverage for your furnishings. When you more to a larger Loft, you have more furnishings.
  • Private Mortgage Insurance: If your mortgage arrangement requires the payment of private mortgage insurance (you made a smaller than conventional downpayment or your credit is less than stellar, for instance), the amount of your monthly payment may be increased to pay PMI. Just so you know, PMI is not for your protection, it is for the lender’s protection. You’ll pay between $75 and $250 to cover your lender should you default on your mortgage.
  • Association Dues: Loft ownership nearly always requires payment of monthly or yearly association dues. These dues pay for exterior and building and pool maintenance, landscaping, liability coverage for community property and other responsibilities.  Association dues can run into several hundred dollars each month.
  • Property Taxes: Unlike renters, property owners pay the taxes used to operate cities, school districts and other municipalities. Your tax money maintains roads and pays for street-sweeping or snow removal, clearing of drainage systems, installing and maintaining street lamps, building and caring for parks and recreation facilities. In cases of newer construction, there may be special assessment taxes to cover new roads and sidewalks, traffic lights, and other new installation required by the city. Typically, special assessments end after a certain number of years.
  • Local services: Often, services such as trash, water and sewerage are covered in a renter’s monthly payment. Loftowners typically pay for these services individually, so their cost must be included into the monthly outgo.
  • Maintenance: An owner is responsible for maintaining the property. That means the costs to replace light bulbs and repair dripping faucets or plugged toilets falls to the owner.

Have a plan

Before purchasing a Loft in a given area, find out an average of these other costs. To figure out interest and PMI, check out a mortgage calculator. For property taxes, search the local county records or ask your real estate agent to find out the prior year’s assessment. Add the monthly extra for all of these items to the potential mortgage payment. If it is more than you pay for rent, try living for three to six months paying the difference into a savings account that you do not access.

You may be willing to make sacrifices to afford the Loft of your dreams, but remember that you need to live with those sacrifices for a very long time. Giving up cable, not eating out and delaying buying new clothes seems doable in the first few months, but eventually, you may tire of the restrictions to your lifestyle. That’s why it is important to know before you buy a Loft how much monthly outgo fits into your lifestyle.

A real estate professional knows how to help you gather this information. We want you to be happy in your new Loft. After all, we want you to recommend us to others, so if we don’t help you determine the best situation for you, we only hurt ourselves.


Is Seller Financing a Good Idea?

23 Mar 2015 · by Virtual Results PubSub

Is Seller Financing a Good Idea?In this current market, with Loft prices trending up, but access to financing is more difficult post housing bubble. So, if you want to sell your Loft, is it a good idea to offer seller financing?

What does seller-financing mean?

Unlike a traditional bank mortgage where a lump sum is given to the buyer to purchase the Loft, seller-financing means that the seller allows the buyer to make payments directly back to the seller. Most often, the Loftbuyer signs a promissory note with the seller that outlines the selling price, the interest rate, repayment schedule and even the consequences if the buyer defaults.

In most cases, a seller-financed note is short-term. Since most sellers don’t want to carry a note for 15 to 30 years, the typical note is for around five years with a balloon payment at the end where the buyer secures a standard loan for the remaining balance.

Is it good for the seller?

Sellers may choose to offer financing for any number of reasons, but some include:

  • Being able to sell “as is.” If your Loft requires costly repairs, selling through owner financing may allow you to pass those costs on to the buyer instead.
  • Potential investment income. Buyers looking for owner financing may be willing to pay a higher interest rate to you than you would receive through any other type of investment. Typically, you must own the Loft free and clear, and the buyer takes on taxes, insurance and any association dues so all income from the payments goes to the seller.
  • Opening up the purchase to additional buyers. Potential Loftowners that were hit with difficulty during the housing bubble may not be able to get traditional financing even though they are now able to make mortgage payments. Self-employed or contractor may not be able to get favorable loans due to tighter underwriting requirements and may desire purchasing through seller financing.

Some possible pitfalls include what happens if the buyer defaults. If the promissory note is executed correctly, the seller gets the Loft back along with all of the monies paid to date. At that time the seller is free to sell the Loft again, but the “buyers” may leave behind damage and the need for costly repairs.

Some things to consider

If you are new to owner financing, make sure to work with a real estate attorney and a professional real estate agent to make sure the sales contract and promissory note fully protect you. There may be tax ramifications to seller financing, so be sure to contact your CPA or tax professional.

Since it is in your interest for your buyer to be able to refinance at the end of the note, offer to report the payments to credit reporting agencies to help build your buyer’s credit score. While individuals typically cannot report directly to these agencies—they have strict lender guidelines—services like Virgin Money can manage and report payments for you to alternative credit reporting companies such as PRBC, that many mainstream lenders now refer to for information on potential mortgagees.

If you’re considering selling your Loft, and wonder about seller financing, talk to us. We can help connect you with professionals to guide you through the process while we market your Loft.


When to Get Pre-Approval for a Mortgage

13 Mar 2015 · by Virtual Results PubSub

When to Get Pre-Approval for a MortgageIf you’re even considering purchasing a Loft in the next year, the time to start the pre-approval process is now. Why so early? Here’s some advice to get you on track to a smooth purchase transaction. While you don’t want to actually apply for the loan until your are ready to make an offer on a Loft, working on the pre-approval process allows you to address any concerns that crop up on your credit report, save for extra downpayment, and know how much you can afford before you fall in love with that out-of-reach Loft.

Shop smart

Loft hunting without knowing how much mortgage you can be approved for is like a novice making a cake without following a recipe. It might turn out okay, but more likely it will be a disaster.

In a competitive market, you might find the perfect Loft, but can’t make an offer on it because you don’t know if it’s even in the ballpark of what you can afford. That Loft could slip through your fingers because other—more prepared—buyers know what fits their budget or overall financial situation, and can make the offer at once. Many sellers, or their agents, reject offers from potential buyers that do not have a preapproval letter from their bank. When the buyer has a preapproval letter, the lender has already verified the borrower’s information, documentation, employment history, income and credit. Even though the preapproval is not an actual loan commitment, it is farther along than without it, and can shorten the underwriting process and loan approval process.

Know yourself

Just because a friend, co-worker or family member got approved for a certain amount, that doesn’t mean you’ll qualify for the same amount, even with a similar credit profile. In fact a survey by NeighborWorks America discovered that while 40 percent of new Loftbuyers seek advice from family, friends and acquaintances, only about 16 percent seek advice from a real estate professional early in the process.

Fix errors

Going through the preapproval process allows you to take a look at all the potential impediments to getting approved for the loan you need for the Loft you want. Here are some potential pitfalls to getting approved:

  • Past credit history — a prior bankruptcy, foreclosure or short sale will hamper your new purchase. If you disclose this information to your lender up front, they can direct you toward special loan types, information or instructions that can improve your chances.
  • Shopping for additional credit — applying for a vehicle loan, credit card or other form of credit can lower your credit score by adding so-called “hard inquiries.” Actually obtaining credit after you have received a pre-approval letter is unwise as well, since lenders often check your credit again prior to the actual loan approval. Adding new debt count against you qualifying for a mortgage.
  • Undocumented deposits — since part of the approval process involves 60 to 90 days of bank statements, any large, out of the ordinary deposits made into your bank accounts must be accounted for. This means that a family member cannot “temporarily loan” you money to give the appearance that you have more money on hand in order to get a loan approval. If your family intends to “gift” you with money toward your down-payment, they will need to provide a letter as affidavit that the funds are a gift and not a loan that will have to be repaid.
  • Changes in employment — changing positions, employers, compensation structures (from hourly to commission, for example), or other situations can affect final approval for a loan. Make sure to keep your lender in the loop if your boss offers you a different position, or an invitation to your dream job comes at the same time you’re shopping for a new Loft.
  • Any other changes to your finances can affect your mortgage approval either positively or negatively. The one that affects it the most, however, is being less than truthful with the lender. If they discover the untruth — and most likely they will — your chances of getting a loan plunge drastically.

Seek professional advice

As your real estate professional, we can steer you in the right direction before you get too far in the process of Loft shopping. We know lenders that can meet your needs and give you direction on which types of loans might work for your situation. Call us to get started today.


Loan Options with Low Down payments

3 Mar 2015 · by Virtual Results PubSub

Loan Options with Low Downpayments

U.S. economists expect 2015 to be a strong year for housing. What this means to you is that more Lofts are selling and the supply of available Lofts is decreasing. This also means that prices likely will increase.

If you’ve been thinking of buying a Loft, now might be the time even if you haven’t saved up that full 20% down payment yet.

Low mortgage rates

Mortgages rates have been at their lowest since 2013, with APRs in the three and four percent rates. With VA and FHA loans beating out conventional rates, even Loft buyers with less money saved up can get into a Loft.

Misconceptions about the “twenty percent down” rule:

  • Many potential Loftbuyers believe that 20% down is required to get any mortgage. They will delay buying a Loft because they haven’t been able to save up enough for that large of a down payment.
  • They may believe that with 20% down they are guaranteed a loan. Potential first-time buyers sometimes get the idea that once they have that large of a down payment it will cover over any blemishes in their credit report or past credit history.
  • They believe they will get a better rate with 20% down.

What 20% down does:

  • Improves the chance you will get a conventional mortgage. Regular lenders ask for a 20% downpayment because it improves their ability to sell your loan.
  • When the downpayment is as high as 20% it meets some of the rules issued by the Consumer Financial Protection Bureau. In addition, the Loftbuyer will need to meet a 43% debt-to-income ratio, so it doesn’t necessarily mean you can get a bigger loan.
  • When you pay 20% or more down, you are not required to buy private mortgage insurance (PMI). This reduces your monthly outgo and saves you a bundle.

Options with less than 20% down:

You don’t have that twenty percent saved up. So can you still get into a Loft? Yes! Being able to afford a Loft is not about how much money you can put down; it is about whether or not you can make the monthly payments. Larger down payments mean that your monthly outgo is lower. But there are other options:

  • FHA Mortgage: A FHA insured mortgage requires just 3.5% down payment. FHA loan guidelines have a liberal approach to both downpayments and credit scores. In fact, borrowers with a lower FICO score can still get an FHA loan if there is a reasonable explanation for why their score is lower.
  • Conventional 97: Available from Fannie Mae and Freddie Mac, the Conventional 97 is a fixed-rate loan that requires just three percent down, and the down payment can come completely from gifts by blood-related or marriage-related donors. A Conventional 97 loan cannot be greater than $417,000 and can only be used on a single-unit dwelling.
  • VA Loans: Members of the active duty and honorably discharged U.S. Military and surviving spouses are eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans offer a zero downpayment and in higher cost of living areas can be made for up to $1,094,625.
  • USDA Mortgage: This no-money-down, 100% financing option is available to non-military borrowers and is offered through the U.S. Department of Agriculture. Known as the Rural Housing Loan, it is also available to buyers in suburban neighborhoods as well. Often, the USDA loans are the lowest cost option for borrowers.


Not everyone will qualify for a lower cost or low downpayment loan because that was a big contributor to the housing bubble, but if you are interested in Loft ownership, one of these options may be for you.