Your First Investment

The first real estate investment you should make is your own home. It doesn’t make sense to make real estate investments when you are paying rent. Make your money work for you and purchase your first real estate investment. It doesn’t have to be the perfect house, it just has to work for your needs. Keep in mind, other people will be living there, so make upgrades but you don’t have to go too crazy.

Proper Financial Management

If you don’t have the cash to pay for your Lehigh Valley real estate investment right away, that’s ok! You just have to work on getting your finances in order to save up for a down payment and apply for a loan. There are a handful of first time home buyer assistance programs that can help you get a loan with a lower down payment necessary than traditional loans. Once you get qualified and have the down payment, it’s time to locate your first investment!

Research

It is important to do research on your first and successive Lehigh Valley real estate investments. Make sure the neighborhood is in demand; this will help you find renters when you’re ready. Check out the schools, entertainment, access to shopping and groceries. You will want to make sure you choose an investment that would work for multiple family types. This will give you the best chance to find a good renter in the future. 

Also, check into each available property. Check that the taxes are paid, check the zoning, verify if the property is in a property owners association, this will cost you over time and eat into your rental profits. Make sure you conduct an inspection of the house you are interested in, most lenders will require this anyway. You want to make sure you pick a house with a good structure, a comfortable floor plan, and some curb appeal.

Begin Investment Cycle

Once you have purchased your first house and moved in, keep on top of your payments and find ways to make extra money. Pay off your house as soon as you can. The more principal you pay on top of your minimum monthly payment, the faster the loan will decrease and you will pay less interest over time. Once your home is paid off, it is time to look for your next Lehigh Valley investment. 

Buying Your Second Investment

Now that you are only paying homeowner’s insurance and utilities, you will have a lot more money to save up for your next down payment. You will not qualify for the same first time home buyers loan, so you will have to come up with at least 20% of the purchase price of your next investment. Once you have the down payment and are qualified for the loan, you can research and purchase your next investment. You can now rent that home, or move into it, depending on how you feel about your first home. Make sure you charge enough rent to cover the payments and continue to pay off large chunks of the loan principal. And this is how anyone can get started with a Lehigh Valley real estate investment. You get to the point where your rental income pays for the investment. Save up more money for the next down payment, become qualified for the loan, purchase the next one, and so on and so on. Now you have a portfolio of homes that are paying for themselves, and you will have residual income. 

Reach out, and send us a message to discuss these methods and other ideas of how anyone can get started with buying a real estate investment property in the Lehigh Valley, PA and surrounding areas.

Are you in the market to buy low priced distressed properties? There are some things you should know about buying foreclosures in the Lehigh Valley.

Kinds of Foreclosures

First of all, it is important to understand that foreclosure is a process. The first step is called pre-foreclosure. This means that the property is in default and the bank may or may not foreclose on the property. The second step is a short sale. This is where the owner is trying to sell the property before the bank forecloses, but the market value is a little short of their balance due on the loan. Depending on the bank, they may or may not accept offers less than the balance due at this point. If the owner can get the bank to short sell, it is much better for their credit. The third step is the foreclosure auction. This is when the bank is trying to get the most money for the property in a short amount of time. The fourth step is an REO, which stands for real estate owned. If the property does not sell at auction, the bank then repossesses the property and places it on the market for sale.

Highest and Best

You may have to make a higher bid if other foreclosures are selling fast. This means other people are buying up Lehigh Valley foreclosures quickly, and if you really want to get in on this action, you may have to start off with an offer that is close to, or at asking price. If there are multiple offers, you may have to offer higher than asking price and try to keep the contract contingencies to a minimum if you really want that foreclosure. Remember, location and amenities matter, other foreclosures may be selling quickly if they’re in a great spot.

Prepare Yourself for “As-Is”

In most cases, the seller of a Lehigh Valley, PA foreclosure is a bank, so there is not a traditional seller to make repairs before closing. The bank will not likely fix anything wrong with the home. They are selling it to try to make as much money back on their investment as possible. Make sure you include an inspection contingency so you can hire an inspector if you are making an offer on a foreclosure, that way you will know exactly what you are getting into if the bank accepts your offer. 

Funding Your Foreclosure

Most buyers purchase foreclosures in the Lehigh Valley with cash because of their frequently “below market” sales price. Cash is also the easiest and fastest closing, so banks often prefer cash buyers. There are a handful of banks that will provide financing for this purchase. They will require an appraisal of the property and this takes time, so if you are up against cash offers, make sure your offer is a competitive one. If the foreclosure doesn’t appraise as high as your offer, you will have to make up the difference. 

Additional Costs

Buying foreclosures in the Lehigh Valley may come with additional costs above and beyond the purchase price and closing costs. If the owner couldn’t make the mortgage payment, you can probably assume he or she did not pay the real estate property taxes or homeowners association fees if the foreclosure is in a community. You might also become responsible for any utility bills, home equity lines of credit, or other liens on the property. Make sure the title company takes these factors into account when preparing the title commitment. 

You will also have to take into consideration the additional cost of making the necessary repairs or cleaning when you buy a foreclosure. There is no cleanup requirement when these properties are seized, and the previous owners might be a little upset about the bank foreclosing on them and take it out on the property. Repairs to the home might also increase the assessed value and raise the taxes.

If you are looking for homes for sale in the Lehigh Valley, PA we are will continue to bring you the latest listings here on the home page of Lehigh Valley Listed everyday!

What Is A Rent To Own Property?

Buying a rent to own property in the Lehigh Valley simply means that it is a lease-option agreement with a traditional lease and an option to buy the property by the end of the lease period, typically three years. The lease-option agreement is not to be confused with the lease-purchase agreement, where you are required to purchase the property at the end of the lease term whether you really want to or not. You pay rent to the current owner/landlord through the duration of the lease, and a portion of it may even be applied towards the down payment of the house, or “rent credit.”

Buying The Property

You will most likely have to pay an option fee which is an upfront, non-refundable consideration for the ability or “option” to purchase the property in the future. This fee is negotiable but is usually between 2.5% and 7% of the purchase price. Your rent to own agreement should also specify when and how the final purchase price will be determined. Some buyers prefer to lock in the final purchase price when they sign the lease. This will help them if the house prices in the Lehigh Valley are on the rise, but it might also be higher than the current market price. Other buyers will decide to determine the purchase price at the end of the lease to reflect a price more comparable to the current market price. 

Who Is Responsible For Taxes and Repairs?

The current owner is responsible for any property taxes, homeowners association fees, and insurance. Before you agree to anything, make sure the property taxes are paid current. Depending on the terms of the rent to own lease agreement, you may be responsible for maintaining the property and paying for repairs. Typically, the current owner handles major repairs on the home, but you may be responsible for lawn maintenance, pool cleaning, pressure washing, etc. Make sure your lease is extremely clear on who would be responsible for items such as large appliances, structural repairs, and routine maintenance. Keeping the lawn mowed is way different than having to replace all of the old plumbing.

When The Lease Ends

Now that the lease is over, you either have to buy the property, or you get to decide if you are going to buy the property. It all depends on your rent to own agreement. If you chose the lease-option agreement, it is now time to secure funding if you decide you would like to purchase the property. If you are unable to secure funding, or you do not want to buy the property anymore, you are not obligated to buy the property. On the other hand, if you chose the lease-purchase agreement, you are now obligated to buy the property. The owner may file a lawsuit against you if you do not come up with the funding. 

Search the latest on market listings anytime at here on the homepage of Lehigh Valley Listed.

Low Down Payment Mortgages

There are a few programs to help first time home buyers that require very little down payment in regards to the total purchase price. This option will get you to your down payment goal a lot faster than the traditional mortgages. There are VA loans, backed by the Department of Veterans Affairs, and USDA loans, backed by the Department of Agriculture, which may not require any money down on a mortgage at all as long as you meet certain criteria. FHA loans, backed by the Federal Housing Administration, only require at least 3.5% down. Conventional loans, backed by private companies, may only require at least 3% down, but those loans usually rely on good credit. These low down payment options might be a great way to quickly get into a house and start building equity. A big drawback of this strategy is that the lower the down payment is, the more interest you are likely to pay over time which costs you more money in the long run. Additionally, some of these low down payment programs have extra fees associated with them such as large origination fees that are rolled into the payments or required mortgage insurance.

State and Local Down Payment Assistance

Many states have assistance programs to fund down payments for Lehigh Valley real estate sponsored by government agencies, nonprofits, foundations, and even some employers. These programs can have a varying degree of geographical focus which can range from the whole state, city, neighborhood, maybe even down to one house. The assistance may come as a grant or a no-interest forgivable loan. These programs are usually partnered with competitive interest rates or tax breaks. Sometimes, home ownership classes are required. One drawback of this strategy is that there might be a purchase price or income restrictions. 

Down Payment Gifts or Loans From Family or Friends

One of the most accessible sources of down payments for real estate are gifts or loans from family members or friends. Make sure you write down your payback agreement if you agree to a loan, and pay it back! You do not want to ruin personal relationships over your house! One drawback to using a gift as a down payment for real estate is that it’s not quite as simple as it seems. The person who gave you the money must verify they gave the gift and also prove that they were able to make the gift. If you do have to rely on gifts for the down payment of a house, you might not be prepared for the full cost of home ownership and are statistically likely to default on the loan. Another drawback is if your down payment for Lehigh Valley, PA real estate is a personal loan, that loan must also be calculated into your income to debt ratio to make sure you can still qualify for the loan. 

Crowdfunding your Down Payment

There are a few sites that enable you to crowdfund your down payment. There are some sites that work like a registry where contributions to your down payment are funneled into your bank account. This scenario works well for situations like engaged couples or newlyweds. Other sites require you to become pre-approved for a loan before they will allow you to raise money for your down payment for Lehigh Valley real estate. Possible drawbacks to this strategy are credit card processing or other fees and the potential inability to shop around for lenders.

Retirement Account Withdrawals or Loans

Depending on your retirement plan, you may be able to withdraw funds or request a loan from your balance for your down payment for Lehigh Valley real estate, but this strategy should be used with discretion. There are a lot of fees surrounding early withdrawal from retirement accounts. Make sure you consult with your account director before choosing this strategy. 

Improve Your Credit

First of all, you need to know your credit score. Request a copy of your credit report from all three bureaus. Double-check that all information is correct and make sure to dispute any errors with the respective bureau. If you have any accounts in collections, try to negotiate with the debt collectors to work out how much it would be to delete the collection account. A paid collection account that stays on your record works against you. Make sure you keep up on your payments because lenders like to see that you have no late payments for at least the past 12 months. This helps show them that you will continue to make payments on time. A low debt to income ratio will also convince a lender that you are able to handle the additional mortgage payment. Pay down credit cards as much as possible, preferably to maintain a 30% utilization ratio or better. This usually indicates that you are using your credit lines responsibly.

Make A Large Down Payment

If you make a larger down payment than required, it will cut down on the total principle of the loan. The less money you borrow, the more likely the lender is to accept your application. With a large down payment, good payment history, and low utilization ratio, a lender may not place quite as much weight on your less than perfect credit score, but that all depends solely on the lender.

Private Lender

A different way to buy a house with bad credit in the Lehigh Valley is to secure a private loan. You may have a family member or friend that can provide the funding for your house and you can make a private arrangement for repayment. You should still draw up a mortgage agreement and follow it to make sure you do not ruin any relationships over unpaid money.

You may also find a property owner that believes in you and is willing to take a chance and provide an Owner Financing situation. This usually means the current owner will keep the deed in their name until you finish repaying the loan.

Co-Signer

Another way to buy a house with bad credit would be to obtain a co-signer. Having a co-signer with a better credit score than yours will significantly increase your chances of obtaining a more traditional mortgage. This may lead to a slightly increased interest rate, but probably not any higher than if you had secured the loan with your own credit. This gives the lender someone else to fall back on to receive payments in case you default on the loan.

FHA Loan

The most popular way to buy a house with bad credit in the Lehigh Valley is the Federal Housing Administration (FHA) loan. This is backed by the government and has much more lenient terms than traditional private loans. The minimum credit score to qualify for an FHA loan is 500. This score requires a 10% down payment. If your credit score is 580 or higher, only a 3.5% down payment is required. The FHA loan also requires a stable employment history and a debt to income ratio of less than 43%. 

Here at Lehigh Valley Listed we would love to help you buy a house, reach out to us anytime via the contact button, or call Lynne Kounoupis with Remax Unlimited at 610-704-8826