Tips for homebuyers fall into a variety of categories. The advice a young, first-time homebuyer needs might not be relevant to an older homebuyer who is purchasing their third, fourth or fifth property. However, there are some universal best practices that make purchasing a home or getting a mortgage easier and more affordable. These tips include things like:
- Build a good credit history and maintain optimal credit scores
- Consider signing up for a credit monitoring service to be apprised of errors, potential fraud or inconsistencies
- Try to put down as much money as possible to reduce your principal and subsequent interest accrual and to avoid needing mortgage insurance (PMI)
- Be honest with the lenders you approach for pre-approval
- Budget for closing costs
- Shop around for the best mortgage options
There’s also a separate set of tips and tricks for retirees, soon-to-be retirees and people who are thinking ahead and looking into rental properties. Rental properties can be an effective option for people looking for steady supplemental income in retirement and a reliable store of value and inflation-adjusted wealth.
Depending on your expenses and the number of properties you’re thinking about purchasing, you might be able to support your lifestyle on rental income or at the very least supplement your other retirement income (pensions, 401(k)s, IRAs, etc.). Some common tips for investment property purchases include:
- Learn about rental law before you purchase any investment property
- Think carefully about whether it’s more advantageous for you to buy or finance
- Know what you’re in for as a landlord or investigate property management companies
- If you do hire a property manager, make sure you understand their fee structure
- Do the math and budget for potential vacancies or maintenance expenses
Your approach to investment properties will likely depend on your age and where you’re at in life. Property management companies can potentially take on many tasks like finding tenants, collecting rent and maintaining the property. Alternatively, you could take on those duties yourself to avoid management fees. It all depends on how much supplemental income you need or want and the amount of time and effort you want to invest into being a landlord.
Things do break in rental properties and eventually need to be replaced. If you buy three rental properties, that’s an extra three HVAC systems, roofs and landscapes to maintain. Significant unexpected costs can arise and it’s important to budget for those things.
What Type of Mortgage Should You Get?
People who are buying a home have many financing options. Rental home shoppers can potentially get a single loan to finance the purchase of multiple investment properties. That often ends up be being easier than obtaining separate mortgages for multiple properties at the same time, which can make lenders leery.
Both Fannie Mae and Freddie Mac have investment property programs that let you buy multiple properties (usually up to 10). You might also qualify for an FHA or VA loan for investment properties if you meet eligibility requirements.
If you’re buying a home to be your primary residence, you have even more potential options. You can apply for a conventional mortgage through private lending institutions like your credit union, bank or independent mortgage lenders.
In Phoenix, Scottsdale and Tempe, the current conforming conventional loan limit is $647,200. Any financing over that amount is considered a non-conforming jumbo loan. The conforming loan limit is higher in high-cost areas, and the conforming amount can vary depending on the number of properties being purchased.
How Should You Prepare for Your Mortgage Application?
- Sign up for credit monitoring before you apply so you’re aware of your credit before potential lenders check it
- Monitoring your own credit is a “soft pull” and won’t negatively affect your credit score
- A “hard pull” performed by a lender during a loan application might have a negative impact on your credit score
- Don’t hesitate to dispute inaccuracies in your credit report that are negatively impacting your score
- Know what you can afford before you apply (most families budget about 30 percent of their income for housing)
- The higher your down payment the better (a 20 percent down payment may let you avoid mortgage insurance)
- Learn about prepayment penalties before you agree to a mortgage
- Do your research before starting your loan application process to minimize the number of companies performing hard pulls of your credit report
Are You Looking for a Reliable Retirement Investment Strategy or Long-Term Financial Plan?
Phoenix retirement savers and investors may benefit from a free consultation with financial advisors at Fullerton Financial Planning. We would be happy to discuss ways you can save for retirement or establish supplemental income to sustain your lifestyle during your golden years. Call us at (623) 974-0300 to get started.
