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Qualifying for a Home Loan When Self-Employed

Last week we talked about the difference between a jumbo loan and a conventional loan. This week, we’ll answer another common question about mortgages: how do I qualify for a home loan when I’m self-employed?

Most lenders require proof of income for the last two years. If you’re self-employed and don’t have W-2s, you can show this with your last two years of tax returns. The lender will want to verify that you have consistent income and that it is stable and/or increasing. In addition to your income, lenders will also take into account (as they do with all applicants, whether self-employed or not), your credit score, debt-to-income ratio, and down payment amount.

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Qualifying for a home mortgage without two years of income history on your tax returns can be more difficult, but if you’re approaching the two-year mark (e.g. you’ve been self-employed for close to 2 years), you may be able to do if you have a good credit history.

For more information or if you’d like a recommendation for a lender, call or email us today!

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What's the difference between a jumbo loan and a conventional loan?

What's the difference between a jumbo loan and a conventional loan?

The major difference between a conventional loan and a jumbo loan is that conventional loans are limited to dollar amount set by Fannie Mae; Jumbo loans are loans of any amount above that limit. See below for more details...

Conventional Loans

Conventional loans are probably the most common type of mortgage loan. Conventional loan qualification is determined based on income, employment history, debt, and credit score. There are also conventional loan limits. In Oregon, it is currently $484,350 in most areas. Generally, conventional loans require at least a 3-5% down payment. Additionally, if your down payment is less than 20%, you will be required to pay private mortgage insurance (PMI) until you reach at least 20% equity. PMI insures the lender in case of default. Once you reach 80% equity, the PMI goes away.

Jumbo Loans

Jumbo loans are very similar to conventional loans but the criteria for qualifying is stricter because they don’t have the loan limits that conventional mortgages do. In Oregon, any loan over $484,350 is considered a “jumbo” loan. Qualification for a jumbo loan uses the same criteria as conventional loans, but usually requires a higher down payment, income, and credit score due to the higher amount of money being loaned.

Have more questions, or want a referral to a good lender? Contact us, and we’ll be happy to help you!

 

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How to choose the right seller's agent

In a previous post, we talked about how to choose the right buyer’s agent by doing your research and assessing important factors like communication style, knowledge, and negotiation skills. In addition to that advice, we’ve compiled additional tips to help you choose the right listing seller’s agent.

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When choosing a seller’s agent, consider the following:

  • The CMA (Comparative Market Analysis): Does the value of your home seem accurate based on current market conditions, and are the comparable properties used to determine value located in the same neighborhood?

Beware of agents that give you a much higher market value than similar comparable properties and that other agents you’re interviewing have given. This could mean they are just telling you what you want to hear to earn your business, and your home won’t actually sell for that amount. Additionally, overpricing when you first list your home for sale can keep your home on the market longer, and still won’t sell for the asking price. 

  • Marketing Strategy: How does the agent plan on marketing your home? Is this in line with your goals? Is there something specific you want in the marketing plan that you’re not seeing? If so, ask if the agent can add it.

Marketing is more important to some than to others. If you have a specific vision for marketing your home to potential buyers (or, conversely, you want very little marketing), make sure you’re on board with the marketing strategy your real estate agents plans to use.

  • Commission Amount, and Split: How much commission will you be charged? What are you getting for this fee? How is the commission split between your agent and the buyer’s agent?

Often times, agents that charge very minimal commissions do very little to represent you. For instance, an agent may only charge 3.5% to a seller, where 2.5% is going to the buyer’s agent commission and they are only taking 1%. Be sure to ask exactly what this agent will be doing for this commission. Often times, these agents will only be facilitating paperwork – not hiring a photographer, doing marketing, or negotiating on your behalf.

Have more questions? Contact us! We're happy to offer expert advice on selling your home.

 

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How to choose the right buyer's agent

Many first-time home buyers aren’t sure how to choose a real estate agent. The process can seem overwhelming with the thousands of choices available. We’ve gathered together some “insider” tips below to help you choose the right real estate agent.

Do Some Research:

  • Check the agent’s license standing through the state real estate agency. Here is Oregon’s Licensee Lookup.
  • Read reviews from former clients or ask for references.
  • Interview your top 2 or 3 picks.

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Things to Consider:

  • Does the agent’s communication style work well with yours?

Communication is imperative to any good relationship, and your real estate agent is no exception. You want to make sure that your communication styles work well together in order to avoid misunderstandings.

  • Is the agent knowledgeable about the local market (including your specific neighborhood)?

This is imperative. Your real estate agent needs to understand not only the market in your general area, but specifically in the neighborhoods you’re looking to buy. Having knowledge of the homes in specific neighborhoods means that the agent will be better able to negotiate on your behalf, knowing what previous homes in the neighborhood have sold for and how they compare to the home you’re interested in.

  • Does the agent possess good negotiation skills?

Your agent should have knowledge of the specific market that you’re buying in. Your agent should be able to use this knowledge to negotiate skillfully on your behalf. Alternately, you don’t want someone that doesn’t negotiate with respect and fairness, because it could cost you the home of your dreams, or the ideal buyer.

  • Is the agent working alone, or with a team? Who will you be working with directly?

This is one question most people don’t consider. A lot of agents work with a partner or a team of people, and clients can be surprised when the majority of the communication comes from someone other than the agent they interviewed. Sometimes this can be a great thing – more people means more attention to detail, but sometimes it can be a disappointment if you prefer dealing with only one person.

Have more questions, or want expert advice on buying a home? Contact us, and we’ll be happy to help you!

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

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Out of State Investment Property

Many real estate investors wonder if it’s worth the hassle of investing in property outside of the state that they reside. The short answer is yes… but you need to be aware of the different regulations other states may have for purchasing investment property.

For instance, loan limits can vary by area. One example is that Oregon’s conforming loan limit is about $484,350, while some areas of California are as high as $726,525. Additionally, the lender and real estate agent you plan on using will both need to be licensed in the state where you’re purchasing property (not where your home base is). Being able to find professionals you trust is of key importance, since you will primarily be dealing with them remotely. If you need recommendations for out-of-state resources, we can help!

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It’s also a good idea to buy property in an area that you’re familiar with so you know what different neighborhoods are like, and can narrow down exactly where you’d like to purchase your investment property.

Another thing to consider when buying investment property in another state is how easily you can travel there. The upside of traveling for your out-of-state investment property is that it can be tax-deductible. Keeping this in mind may encourage you to purchase an investment property somewhere you actually enjoy visiting!

Have more questions, or want a referral to a professional in another state? Contact us, and we’ll be happy to help you!

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

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Pros and Cons of Tiny Homes

Pros of living in a tiny home:

  1. Tiny homes are less expensive.

Tiny homes are much less expensive than traditional homes, starting at about $25,000. Of course, this does not account for the cost of land to place your tiny house, which would need to be leased or purchased as well.

  1. Tiny homes use less energy.

Tiny houses are generally about 100-400 square feet. Less space means less energy usage. Additionally, since only 1-2 people can live in a tiny house comfortably, this means modest water, sewer, and garbage waste. This will also bring your utility expenses down.

  1. Tiny homes can be mobile.

Since tiny homes are so small and are usually built with wheels, they are easily transportable. That means if you decide you want to move somewhere else, it’s relatively easy to move your house with you.

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Cons of living in a tiny home:

  1. Zoning laws may restrict where you can place a tiny home.

Depending on your area, there are restrictions to where you can or can’t put a tiny home. Since most tiny houses are considered vehicles rather than residences, it can be tricky to find land to permanently place your tiny home.

  1. Tiny houses have little, if any, storage space.

Since tiny houses are so small there isn’t much storage space. If you’re not used to such a confined space, or are hoping to downsize, you’ll probably have to get rid of many of your belongings or rent a storage unit for them (which can be expensive).

  1. There’s no room for entertaining in your tiny house.

Again, since tiny homes have very little square footage, it’s difficult to have more than 1-2 people in one at the same time. This highly limits your ability to host any indoor gatherings or even host a small dinner.

  1. You can’t finance a tiny home with a mortgage if it’s mobile.

Traditional mortgage financing is not available for tiny homes that are movable because they are considered “recreational vehicles”. This means if you don’t have the cash to purchase one, you’ll likely need to take out a personal loan or an RV loan at a higher interest rate.

One way to own a tiny home without so many restrictions is to have it built on a foundation on land that you own or purchase. There is usually a minimum size requirement for homes built this way (depending on your area) but it may be the best option for those who desire a tiny home and aren’t concerned with mobility. Another upside to this option is that it could also make your tiny house eligible for a traditional home mortgage, or allow it to qualify as an ADU (additional dwelling unit) on your current property.

Still have more questions about tiny homes, or want to know your options for buying one? Contact us

 

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Real Estate for Retirement

There are several ways to use real estate to your advantage if you’re starting to think about retiring, even if you’re years away. Here are three great options to consider:

1.    Downsize your home.

One of the simplest ways to save for retirement is to downsize from your current home to a smaller one. Doing this will increase your savings, lower your utility bills, and could reduce or eliminate monthly mortgage payments. If you don’t need all of the space in your current house, this is a great option.

2.    Invest in a rental property.

Another way to use real estate for retirement is by investing in a rental property. You’ll receive monthly income from renters and can potentially make a large profit once you decide to sell it. Additionally, if you invest while you’re still working and making an active income, it can serve as a tax shelter and eventually provide passive income after you retire. Rental income is also a good way to reduce debt over the long-term. Of course, this option should only be considered as a long-term investment in order to avoid any short-term tax repercussions or a fluctuating real estate market.  

3.    Rent out extra space.

If you have extra space, especially if it’s an ADU (additional dwelling unit), there are many ways to make additional income for retirement. You can rent it out short-term through sites like Airbnb.com or lease it out to tenants for longer periods of time. This is a great way to increase income and savings.  

If you’d like more information on any of these options, please Contact us! We’re happy to help explain your options. 

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

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How to Start a Commune

Communes or communal housing is more commonly known today as “co-housing”. Co-housing, according to Wikipedia is “is an intentional community of private homes clustered around shared space. Each attached or single family home has traditional amenities, including a private kitchen. Shared spaces typically feature a common house, which may include a large kitchen and dining area, laundry, and recreational spaces”. Co-housing may also be in the form of apartments in a building or portion of a building, such as the “Commonspace Community” in Syracuse, New York. As with any housing community, there are both challenges and benefits to living in a co-housing. Members of co-housing communities site health benefits thanks to the decreased loneliness, while others find the increased socialization daunting.

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            While most people seem apprehensive about joining an existing co-housing community, a lot of people want to know if it’s possible to start their own “commune”. While it may sound ideal, it’s also quite complex! Once you have 3 or 4 households that want to create a co-housing community, there are a lot of steps involved – in addition to finding the land or space you want to buy. According to co-housing.org, these are just the first steps you’d need to take in order to start your own co-housing project:

  1. Create a vision/goal statement to define the intentions and directions of the community.
  2. Create a group decision and communications process.
  3. Create a financial structure.
  4. Form an LLC (limited liability company) or incorporate.
  5. Create bylaws for the community.
  6. Open a separate bank account for the community.
  7. Collect assessments from members.
  8. Do your research and learn from already-operating co-housing communities.

Additionally, there are steps to register your community, various tax laws for co-housing, and of course, developing and building on the land or space you have purchased. So, if you do plan on creating your own co-housing community, be sure you know what you’re getting into! For more information, you can visit cohousing.org.

Have more questions? Feel free to Contact us

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Property Tax Appeals

The statewide average of error on assessed property value is a whopping 11%! This means you may be paying more property taxes than necessary on your home.

Why is there such a high percentage of error? Multnomah, Clackamas, and Washington counties have dedicated staff that search through home listings looking for recently-improved properties in order to raise assessed values and collect more taxes. Typically, they are looking for “assumed remodels.” When they find an assumed remodel, they will look at the final occupancy permit (issued by the contractor once the remodel is complete and the home is move-in ready) for the increased value of the property. Unfortunately, remodeling contractors will often erroneously include costs on the final occupancy permit that are not associated with home value, such as dumpster rentals, porta-potty rentals, or remodeling materials. If you are remodeling your home, make sure to ask the contractor not to include these costs on the occupancy permit.

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When you get your tax bill in November, look over it carefully to make sure the numbers are accurate. Check to see if an increased assessed value is correct and not due to any sort of “maintenance improvement”. For example, new paint or carpet, a roof replacement, or new furnace should not count as added value. What should be included as added value are structural changes like a bedroom addition, a kitchen/bath remodel, or finishing a basement. If you find errors in your assessed value, you have one year to contest it, and can only argue one year’s worth of taxes (unless the increase is 20% over the market value, in which case you can contest the past two years of taxes).

How do you contest your home’s assessed value? The best way to appeal your assessed value is by using comparable (similar) properties in your neighborhood that are more representative of your property’s current value. Have this information prepared and outlined before your scheduled hearing because you will only have 10-15 minutes to make your case. Make sure your evidence is strong and to the point! In all cases, the property assessor is assumed correct unless you can prove otherwise. And, of course, reach out to us if you have questions! We have great professionals that can help you contest your property taxes.

 

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Preparing for Tax Season

Tax season is upon us! If you're gathering all your documents together to file your taxes, you're not alone. We've compiled a list of documents you'll need for you or your tax preparer to file this year:

  • Your W-2 or 1099 from your employer.
  • A copy of your property tax bill for 2018.
  • 1099s from all your mortgage holders (lenders). Remember, mortgage interest is deductible for up to $750,000 in mortgage loans. 
  • A copy of your settlement statement for any property bought or sold in 2018. There may be other deductions here!

 

For more information, check out our "Dear Claire" Facebook Live series.

 Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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