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Costs More – Takes Longer

The one experience that homeowners can agree upon after completing a remodeling project is that it costs more and takes longer than expected. It doesn’t really matter that you researched, planned, and received multiple bids, it will, invariably, cost more and take longer than you originally anticipated.96303159-250.jpg

Replacing floorcovering or painting is a project that a homeowner can easily get bids and contract with the workmen directly. A new level of complexity occurs when the project involves more specialized contractors, like plumbers, electricians, carpenters, counters, and others.

Now, a homeowner is faced with dealing with one general contractor who will run roughshod over the sub-contractors or make the decision to do it themselves. Typically, you’ll pay more for a general contractor, but the trade-off is that they have the contacts and experience to make things go smoothly.

Subs are notorious for wanting to finish their “part” of the project and move onto to the next job. Sometimes, they’re not interested in the “big picture” enough to consider doing things in a way that are best for the overall outcome.

When you start tearing out some things, you find out that there may be unexpected expenses involved. Another common occurrence is that during the project, you get a new thought about changing something else “since it is already torn up anyway.” This will add time and money to the job.

There can be the situation that the homeowner doesn’t even know the right questions to ask or what to consider when trying to coordinate the different workers. The most detailed timetable can be thrown off track if one set of workers don’t show up or finish on time. At best, it delays the project for a few days. At worst, it can delay it for a few weeks because the individual workers may have committed to other jobs that don’t allow them to reschedule.

Once the work is done in a professional manner, you’re probably going to live with it for years. If it is something you’ve wanted to do and it will allow you to enjoy your home more, it is worth doing. Just be patient and enter this adventure with the understanding that it will cost more and take longer than you expect.


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Case Study – Housing Decision During Retirement

A couple is planning to tour the United States in a travel trailer during their first few years of retirement. They are going to sell their current home now and purchase another home when they finish their travels. 30349530-250.jpg

An interesting exercise is to determine the optimum time of selling the home: now or when they’re ready to buy their replacement home.

If they intend on traveling for more than three years, then, it may be a good decision to sell prior to the sojourn to avoid paying taxes on the gain in their home. IRS allows for a temporary rental of a principal residence while still keeping the $250,000/$500,000 capital gains exclusion intact. A homeowner must own and use a home for two out of the previous five years which means that it could be rented for up to three years, but it would need to be sold and closed before that three-year window expires.

If the travel will be less than three years, there is an option of selling now or later. Using the example below, the homeowner sold the home, paid their expenses and invested the proceeds in a three-year certificate of deposit until the replacement home was purchased.

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As an alternative, if the homeowner rented the home, not only would they have income, the home would continue to appreciate and the unpaid balance would go down resulting in larger net proceeds. Based on a 5% appreciation and continued amortization of the mortgage, the net proceeds could easily be $40,000 more.

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Obviously, there are a lot of considerations that affect the decision to sell now or later but in an appreciating real estate environment, being without a home for several years could affect the financial position of the owner in the replacement property. It is certainly reasonable to look at various alternatives before making a decision. Call me at to help you look at the different possibilities and talk to your tax professional.


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Waiting Period After Distressed Sale

“How long do we have to wait to qualify for another mortgage” is the question concerning people who’ve had a foreclosure, short sale or bankruptcy. The loan types for the new loan will differ in amounts of time to heal credit scores based on the event.43296989-250.jpg

The following chart is meant to be a general guide for how long a person might have to wait. During this waiting period, it’s important that the person be current on all payments and maintains a history of good credit.

A recommended lender can give you specific information regarding your individual situation and can make suggestions that will improve your ability to qualify for a mortgage. This process should be started before looking at homes because of the time constraints listed here can vary based on current requirements and possible extenuating circumstances of your case.

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We want to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between. Call us at for lender recommendations.


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PCSing to Hawaii, Should I Buy a Home in Hawaii?

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Part of military life is the high percentage of receiving your permanent change of station orders.  This is also called PCS orders for short.  PCS is the military version of a job relocation over 50 miles away.  At least a benefit is that the military will pay for the move in these cases.  Typically, military families are given 2 – 3 months notice of the duty station change.  In order to have a smooth PCS transition, start planning and acting immediately.

After PCS Orders, 3 Decisions to Buy a New Home

For the end result of buying a new home, there are important decisions to make.  First of all, what should you do with the current home?  Renting or selling the home will affect the new home purchase in several ways, but either could work.  Next, is to choose an experienced Realtor local to the new duty station.  It is very helpful to work with a real estate agent who is experienced in the military PCSing process.  Finally and equally as important, is to choose a VA mortgage lender experienced in the PCS process and the VA loan options available for every scenario.  So let us help in explaining the VA loan options for PCS’d service members, plus how these options work.

Should I Rent Out or Sell My Home After Receiving PCS Orders?

Service members need to make some key decisions within a short timeframe after receiving PCS orders.  Often to purchase another property, buyers need to rent or sell the current home.  In order to make this decision, there are several factors to consider.

  1. Is there equity in my home so I can sell it?
  2. How quickly can my home sell?
  3. If bringing money to the sale, can I do it?
  4. Do I want to be a landlord?
  5. How does renting or selling my home affect buying a new home?

While making the decision to sell, it is paramount to choose a listing agent that is familiar with this PCS process.  Additionally, look for real numbers on your house.  A reputable Realtor will show you documentation to back up a listing price, plus expected sales turnaround.  Of course, not all markets support a fast closing.  Plus, there may not be enough equity in the home to sell.  One of the worst things would be to plan on selling at a certain figure to find out in a few weeks, there must be a drastic price reduction.

If selling is not an option because of a slow market or limited equity, renting could work.  Maybe the rental market is strong for the area and becoming a landlord fits the military family’s goals.  Check out a recent article “How to get into real estate investing and build wealth“.  The article discusses potential for starting a real estate portfolio.

Conversation with your VA Loan Officer

Lastly, speak to your mortgage loan officer for the new purchase.  Thoroughly discuss how renting or selling the current home affects the VA entitlement and VA loan qualification.  VA will allow 100% of the new contract rent payment to offset the mortgage payment inclusive of principal, interest, taxes, and insurance.  This could help a service member use VA again to buy a home, which we discuss in more detail below.

Choosing a Real Estate Agent at the New Duty Station

Beginning the home buying process from afar is tough.  Plus it takes a lot of trust and nerves.  Starting the process by looking at pictures online but not knowing anything about the area is difficult.  So that is where a local, experienced real estate agent needs to be your eyes and your guide!  Begin with creating a list of your wants, needs, and a budget.  Next, interview agents in the new PCS’d area and see which one exceeds the others in your opinion.  Relay your list to the agents and once the Realtor is chosen, the agent should start sending houses which meet your criteria.  Because of the relocation situation, Realtors in these cases are depended on more than a traditional purchase.  This is especially important on a fast moving market as the buyers may go under contract without even seeing the house in person.  Talk about trust!  That’s why choosing an agent that is experienced and fully understands your family’s needs is so important.

Keep in mind that a buyers agent will require a prequalification letter from a reputable lender.  Plus it is very important for the buyers agent to have a detailed discussion with the loan officer.  The agent, loan officer, and buyer will have thorough discussions to organize a plan.  Part of this plan is deciding on VA loan options to meet the overall goals and path of the prior home.  So let’s discuss those.

VA Home Loan Options After PCS Orders

Luckily military families have access to probably the best mortgage loan type available.  Because of the no money down option and no monthly mortgage insurance, it is a very attractive option.  But often it is not as easy as “Just give me the VA loan option”.  Especially in the case of a PCS scenario as there is usually another property in the mix.  How much the prior home rents or sells for plays a huge role in the new VA approval.

How to Use a VA Loan While Renting Out Prior Home

One of the first questions an experienced VA loan officer will ask would be the plan for the current home.  In this case, if the home will be rented, VA treats this very favorably for the buyer.  Let’s say the current home has no equity and the total mortgage payment is $1000 per month.  Then if the PCS’d family rents out the current home for $1000, VA considers the payment covered.  We would not have to count a payment in a VA buyer’s debt ratio or residual income.  Therefore, it is much easier to qualify.

But if the current home has a VA loan on it, then a portion of the Veteran’s entitlement will be tied up.  Don’t worry though, because many are still able to purchase with no money down up to a certain amount.  The amount depends on the basis and bonus entitlement available.  Learn more about how VA Entitlement works which is displayed on the Certificate of Eligibility.  Plus we will request the COE for the buyer which is usually obtained online within a few minutes.

Renting Current Home and Using Another VA Loan

Many do not realize that it is very possible to have 2 VA loans at once.  So renting out the current home and having two VA loans at once could be done.  Having two VA loans at once requires accessing the buyer’s bonus entitlement or 2nd Tier entitlement.  Basically if the prior VA loan will not be satisfied prior to the new closing, part of the Veteran’s entitlement is tied up.  Therefore, a VA lender would use a calculation to determine the total entitlement available for the new purchase.  The entitlement and the purchase price will determine the amount of down payment if any at all.  Check out another article to learn more called, “Rent your current home and buy your dream home with no money down“.  Keep in mind this is for the conversion of a primary to a rental.  Once a home has already been a rental property for a bit, the tax return numbers must be used.

Selling Current Home and Using VA Loan on New Home

What if the current home is sold?  This will at least free up the VA entitlement towards the new purchase.  Keep in mind that both the sale and the purchase can happen on the same day.  Our underwriters would verify the eligibility would be freed up by the simultaneous sale.  But what if the PCS orders came not long after buying the prior home?  The family may have to bring some money to closing or maybe breaks even.  Again, at least VA offers a no money down option.

Using Seller Paid Costs and Sales Concessions After Receiving PCS Orders

Unlike other mortgage loans, VA allows the seller to pay all reasonable closing costs without setting a percentage limit.  In addition, VA will allow for the seller to pay up to 4% of the sales price towards sales concessions.  If buying after receiving PCS orders, there could be a creative strategy to help the closing happen.  The buyer may lack funds for some painting that needs to be done.  Maybe the buyer needs to pay off a debt in order to qualify or just feel comfortable enough to buy the new home.  That is where a knowledgeable realtor and lender, plus a willing seller could help make a closing happen for everyone.  Learn more about using sales concessions creatively here.

Additional Benefits of a VA Home Loan

  • Loans up to $1,000,000
  • Higher debt ratios allowed to 55%
  • 600 minimum credit score
  • Seller may pay all closing costs
  • Flexible guidelines for recent short sales, foreclosures, bankruptcy
  • Purchase VA approved condos
  • Favorable guidelines for deferred student loans

If your PSC orders have you relocating to a Hawaii contact our VA experts to discuss your PSC and mortgage strategy.


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Waiting Will Cost More

With the first quarter of 2018 in the books, the 30-year fixed rate mortgage is nearing what Freddie Mac predicted it would be in the second quarter. If this pace continues, rates will exceed the five percent mark expected by the end of the year.42814186-250.jpg

The Fed has had its first of an expected three raises for this year and two more are expected in 2019. While these rates are not directly related to mortgages, they certainly have an effect.

Delaying the decision to purchase or refinance could be an expensive missed opportunity. A $270,000 mortgage at 4.44% has a principal and interest payment of $1,358.44 per month. If the rate were to rise one-percent in the next twelve months, the payment would be $1,522.88.

The $164.44 increase would cost a homeowner an additional $13,812.97 in seven years and close to $60,000 over the full term of the loan.

The question facing people is “what would you spend $164.44 each month if you had acted sooner to get the lower rate?”

If you’re curious to know what your “missed opportunity” could be costing you, try this Cost of Waiting to Buy calculator . Use 0% increase on price change if you are refinancing a home you already own.


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FHA Advantages

The Federal Housing Administration, operating under HUD, offers affordable mortgages for tens of thousands of buyers who may not qualify for other types of programs. They are popular with both first-time and repeat buyers.

The 3.5% down payment is an attractive feature but there are other advantages:fha3.png

  • More tolerant for credit challenges than conventional mortgages.
  • Lower down payments than most conventional loans.
  • Broader qualifying ratios – total house payment with MIP can be up to 31% of borrower’s monthly gross income and total house payment with all recurring debt can be up to 43%. There is a stretch provision taking it to 33/45 for qualifying energy efficient homes.
  • Seller can contribute up to 6% of purchase price; this money must be specified in the contract and can be used to pay all or part of the buyer’s closing costs, pre-paid items and/or buy down of the interest rate.
  • Self-employed may qualify with adequate documentation – two year’s tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
  • Liberal use of gift monies – borrowers can receive a gift from family members, buyer’s employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
  • Special 203(k) program for buying a home that needs capital improvements – requires a firm contractor’s bid attached to the contract calling for the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
  • Loans are assumable at the existing interest rate with buyer qualification. Assumptions are easier than qualifying for a new mortgage and closing costs are lower.
  • An assumable mortgage with a lower than current rates for new mortgages could add value to the property.

Finding the best mortgage for an individual is not always an easy process. Buyers need good information from trusted professionals. Call for a recommendation of a trusted lender who can help you.


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Standard or Itemized

Taxpayers can decide each year whether to take the standard deduction or their itemized deductions when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions.Standard or Itemized-250.png

Beginning in 2018, the standard deduction, available to all taxpayers, regardless of whether they own a home, is $24,000 for married filing jointly and $12,000 for single taxpayers.

Let’s look at an example of a couple purchasing a $300,000 home with 3.5% down at 5% interest. The first year’s interest would be $14,630 and property taxes are estimated at 1.5% of sales price would be $4,500.

The interest and property taxes would provide a combined total of $19,130 which is less than the $24,000 standard deduction. Unless this hypothetical couple has other itemized deductions like charitable contributions that would make the total exceed $24,000, they would benefit more from taking the standard deduction.

If the mortgage rate were at 8%, the combined total of taxes and interest would be almost $28,000 which would make itemizing the deductions more beneficial.

Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most. For more information, see www.IRS.gov and consult a tax advisor.