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Many buyers inquire about the rules for getting gifts or assistance or seller concessions when qualifying for a mortgage. There are three types of mortgages: 1)conventional mortgages; 2)FHA mortgages which are insured by federal government and 3)VA mortgages which are guaranteed by federal government.
The down payment requirements are different for each mortgage. Buyers must put a minimum 3.5% down for an FHA loan and 5% down for a conventional mortgage. Veterans who qualify for a VA loan can finance 100% of the sales price and are not required to put money down. All three types of mortgages permit the seller to pay a portion of buyer's closing costs and prepaid expenses ranging from 3% to 6% of the sales price. Borrowers must have the down payment in bank at time of application.
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Texas is a very landlord friendly state. Unlike other states, we can usually evict a tenant within 3-4 weeks from the filing date. This article will discuss how and when you should file an eviction in Texas. This article is not intended to provide legal advice. It simply outlines the processes for filing an eviction. If you have any questions, please contact an attorney.
In Texas, there is no defense for non-payment of rent. I have never been in a case or heard a case where a tenant provided a legal reason for non- payment of rent. The plaintiff must sign a military affidavit confirming to our knowledge the tenant(s) were not in the military and on leave. Other than that, a judge will always rule in favor of the landlord plaintiff as long as paperwork is filed properly.
Our office only evicts a tenant in a worst case scenario. It really is a lose lose situation both for landlord and tenant. It is always best to try and work out a payment plan if possible. Even if tenant pays late every month, it makes more business sense to keep a paying tenant than evict a tenant and have to turn the property. As long as tenants do not go a month in arrears, it may be more cost effective to have tenant stay in property and simply not renew the lease. Read more...
It is becoming harder and harder to qualify for a mortgage these days. It is bad enough lenders do not allow state income mortgages anymore, and most will not allow a borrower to have more than four mortgages. Starting this month, most lenders are now requiring a borrower's total debt ratios to be less than 45%, and the minimum fico score must be 740 to get the best interest rate for a conventional mortgage. What does this all mean for home buyers?
If a borrower's gross income is $60,000 per year, or $5,000 per month, the total monthly debt including mortgage payment must not exceed 45% of $5,000 monthly income, or $2,025 per month. If the mortgage payment is $1,200 for the subject property, the borrower must not have more than $825 in other monthly debt payments. Monthly debt considers car payments, student loans, and minimum payments on all revolving debt. For borrowers who can only put 5% or 10% down, some lenders are requiring the debt ratios to be less than 41% for conventional loans. In the past, a borrower with good credit score could get a mortgage with a debt ratio up to 50% or more. That is no longer the case. This makes it especially hard for first time borrowers, self employed applicants, and owners with multiple mortgages.
One of the greatest tax deductions offered to landlords is depreciation expense. The IRS allows landlords to depreciate the improvement of a rental property (single family residence) over 27.5 years. So, if you purchase a rental property for $125,000 and the land is worth $25,000, you can deduct the $100,000 improvement ($125,000 - $25,000 = $100,000) over 27.5 years, or $3,636.36 per year.
Depreciation is an invisible expense. The depreciation expense is added to yearly property taxes, mortgage interest, insurance, property management fees, and repairs. Below is a year 1 sample mortgage analysis with purchase price of $125,000 and financing $100,000 at 7% with a 30 year note:
| Principle payment | $84 |
| Interest payment | $581 |
| Property Taxes | $250 |
| Insurance | $50 |
| Management fee | $50 |
| Total Payment | $1,015 |
Assuming a monthly rent of $1,000, you can deduct all above expenses except the $84 principle payment. Your total monthly deductions are $931 ($1,015 - $84 = $931). This calculates to a monthly gain of $69, or yearly gain of $828. Now apply yearly depreciation of $3,636, and your property shows a yearly loss of $2,808. Depreciation is a very powerful tool. If you owned eight properties with this scenario, you could deduct $22,464 against ordinary income. The IRS allows landlords to write off up to $25,000 in rental property losses against ordinary income. Read more...
Investors frequently inquire about the best type of investment property to purchase? I always respond and say, "it depends." Every investor has different goals and should choose a property based on goals. Some investors will leverage rental property for monthly cash flow and tax benefits, while others purchase for future appreciation. This article will focus on properties that can produce positive cash flows, build wealth, provide lower cost of ownership, and reduce owner risk.
When analyzing a rental property, you must estimate market rent and mortgage payment. I know this sounds silly. You would be shocked how many times I get a call from an investor who has already closed on a home and never reviewed leasing data. He or she used a Realtor who promised a rent range without providing documentation. I can't stress how important it is to use a professional who is experienced in leasing investment properties.
Assuming there are no defects with property (home not on busy street, in good neighborhood with good resale values, schools, etc.), and rent covers debt service and even cash flows, it is a probably a pretty good deal. It can be challenging to find a cash flowing property. However, investment property mortgage rates are now below 6%. Record low interest will help you find a property that produces positive cash flows. If you need help with a mortgage or an option on an investment property, call our office. We provide real estate sales, leasing, mortgage and property management services. Read more...
Using a minimum FICO score is a sound practice when evaluating an application and determining the risk of the tenant's ability to pay rent in a timely manner. However, it is important to understand how a FICO score is calculated. Many owners and landlords make poor conditions in denying a rental application without understanding how a credit reports are scored.
A credit report is only one consideration for analyzing a renal application. FICO scores range from 400 to 850 and consider payment history, amounts owed on active trade lines (percent of credit being used), length of credit history, establishment of new credit, and type of credit. An applicant's fico score will drop if he or she has a recent slow payment, collection, bankruptcy, multiple inquiries, judgment, or fully utilizes current trade lines (maxes out credit line). It is best to keep outstanding balances below 50% of your available credit.
We process many applications with low FICO scores. We frequently see credit reports with medical collections and no active credit lines. In these scenarios, a low FICO score is are a poor measurement in determining the tenant's ability to pay rent. You must have active trade lines with recent payment activity to increase your credit score, and many tenants cannot afford or do not have health insurance. Strong employment and good rental history are much better metrics in analyzing the risks for a prospective tenant. Read more...
