BOB UPTON, Realtor®, CBR's Blog
Often, when discussing ways to get out of debt, the subject of “mortgage versus investments” comes up. If you have a mortgage, your monthly budget likely revolves around paying it first, meaning investment ideas take a back seat. One way to free money up to invest is to pay off the mortgage, and many financial planners advocate for paying off the mortgage if you can with any available funds. Others suggest that by not investing extra cash, you miss the benefit of compounding interest your investment can earn over those same years. So, which is better? That depends.
How It Works
Ultimately, the question comes down to how it affects your bottom line. But when it comes to investing versus mortgage payments, the first place to investigate is how it changes your tax return. Find an online tax calculator to calculate which one saves you more or if you break even.
Next, look at the concept of “opportunity cost” to determine which could save you more. An opportunity cost is a comparison of what you could gain by using a specific amount to pay down your mortgage or invest that same amount. If you have $500 extra to either invest or apply to your mortgage, for example, you might earn four percent on the investment, or $20. After taxes, those earnings would be $15.
If you use the $500 to make an extra payment on your mortgage and your loan is at three percent interest, it saves you $15, and after taxes you might have $12.50. In this case, the investment would net you more. Of course, each of these numbers adjusts based on your true rate of return compared to the interest rate paid, and the tax bracket it puts you in for the year. That means that while this year it’s better to invest, next year might be better to pay on the mortgage.
Remember These Guidelines
- If your mortgage rate is low, the long-term benefit from paying it off early decreases.
- When the choice is between your mortgage and adding to your 401(k), often the retirement plan is better because of compounding interest over time.
- If you move into a lower tax bracket, it’s better to pay off the mortgage.
- If your investment returns decrease, such as in the 2008 downturn, it’s better to pay off the mortgage.
- Calculate your level of risk tolerance. If increasing risk to get a greater return causes stress, concentrate instead on paying down the mortgage. That way, your home is never in jeopardy due to your investment risk.
Even if a plan seems perfect this year, revisit your decision every year or two to see if you need to switch out your plan.
For those who want to enjoy a quick, seamless homebuying experience, it helps to prepare as much as possible. In fact, those who plan ahead may be better equipped than others to avoid various challenges throughout the homebuying cycle.
From struggling to obtain home financing after a seller accepts your offer to purchase to struggling to find the right home in one of your preferred cities and towns, myriad issues may make it tough for you to achieve your desired results on the homebuying journey. Fortunately, we're here to help you minimize risk as you pursue your dream residence.
Now, let's take a look at three tips to help you avoid a homebuying fiasco.
1. Establish Homebuying Criteria
If you enter the housing market with criteria in hand, you can narrow your house search. As a result, you may be able to accelerate your journey from homebuyer to homeowner.
Think about where you want to live. Then, you can hone your home search and focus exclusively on houses in specific cities and towns.
It also may be beneficial to establish a list of home must-haves and wants. This list can help you determine exactly what you want to find in your dream house so you can map out your home search accordingly.
2. Get Pre-Approved for a Mortgage
There is no need to wait to get a mortgage. Thankfully, lenders are available that can help you get approved for a mortgage before you kick off your home search.
Meet with a variety of banks and credit unions – you'll be glad you did. This will allow you to learn about the ins and outs of different mortgage options.
Furthermore, don't hesitate to ask questions about all of the mortgage options at your disposal. Because if you understand exactly how a mortgage works, you can make an informed mortgage decision.
3. Collaborate with a Real Estate Agent
When it comes to avoiding problems during the homebuying journey, it generally is a good idea to hire a real estate agent. This housing market professional will offer comprehensive support at each stage of the homebuying journey. By doing so, a real estate agent will ensure you can quickly and effortlessly navigate the housing market.
For example, if you want to find a house in a small town, a real estate agent will help you explore residences that match your expectations. He or she will set up home showings and keep you informed about open house events. Plus, if you identify your dream house, a real estate agent will help you submit a competitive offer to purchase.
Let's not forget about the housing market expertise that a real estate agent possesses, either. If you ever have concerns or questions as you pursue your dream house, a real estate agent is happy to address them at any time.
Want to discover your dream residence? Use the aforementioned tips, and you can reduce the risk of encountering problems as you search for your ideal residence.
When it’s time to sell your home, it’s important to make sure it’s done right. Certain selling mistakes could lead to less money for your home than you wanted or other problems that make this process more complicated than it needs to be. Before you put your home on the market, keep these common home selling mistakes in mind, so you can avoid them.
Setting a Price That’s Too High
Although you’ll want to get as much as you can for your home, setting a listing price that is too high could keep buyers away. The price you set for your home should be based on different factors, such as how much similar homes have been selling for in your area or whether or not you’ve made any upgrades that boost the value of your house. Keep in mind that according to the National Association of Realtors (NAR), the typical home stayed on the market for just 3 weeks before being sold. Having a listing price that is too high could lead to a much longer time on the market for your home.
Skipping Major Repairs
If you’re eager to sell your home, you might be tempted to skip major repairs. While this saves you time and money now, it can make it much more difficult to sell your home. You might also end up having to lower your price considerably, since buyers will factor in the cost of these repairs when making their bid.
Grabbing the Highest Offer
While the highest offer might seem like the right one to take, this isn’t always the case. Buyers who are offering the highest bid might include contingencies that make their offer more costly than it seems in terms of money or time. For example, they might include a contingency that they need to sell their own home before buying yours. Rather than focusing on the highest offer, it’s better to look for the best offer, which depends on different factors, such as how soon you want to sell or how much you’re willing to include for seller credits toward repairs.
Deciding Not to Hire a Real Estate Agent
Working with a real estate agent provides you with guidance and expertise while selling your home. Your agent can help you get a better price for your home and attract potential home buyers with open houses and home staging. According to NAR, 91 percent of sellers hired real estate agents to assist them with selling their home. These sellers were able to sell their homes for 99 percent of their listing price. Choosing to sell without a real estate agent could significantly affect how long it takes to sell your home and how much you get for it.
If you have decided to sell your home and it’s going on the market, you may have mixed feelings. It’s not unusual to feel stressed, nervous, and excited about listing your house — all at the same time.
The selling process might create anxiety and worry about what is to come because you have little or no control over the market. Fortunately, you can do things that will put your mind at ease and ensure your home gets noticed and sells quickly.
Before you list your property for sale, consider the following:
Hire a Selling Agent
The best option for selling your home is to hire an experienced listing agent. A selling or listing agent is one that represents the homeowner in all sales negotiations. Their expertise is in properly marketing the property to potential buyers, and preparing the seller with information about the process.
Spread the Word
Even if your property has not hit the market yet, that doesn’t mean you cannot start creating awareness about the ‘for sale’ status. The more interested individuals you can get before the house gets into the market, the higher the chances of you selling quickly. Let friends and family know that you plan to sell and give them your agent’s information to share.
Clean Out Your Excess
Just before you list your home, clean up and get rid of unwanted stuff. Getting your things organized, aside from making moving day easier for you, also declutters your home. Fewer personal items in the home allows buyers to see themselves occupying the property. Find a place to store family photos and heirlooms, important documents, and other items you need to protect when your home is open for buyers to view.
An excellent way to get buyers interested in your property is to accentuate its best features, which is part of the staging process. Staging is an essential part of the house selling process and one you should not ignore. Allow your agent to offer suggestions about what furniture should remain and what to put in storage during the selling period.
Plan for Your Pets
It can be stressful to have pets around when your home showing begins. Before your home is listed, have a plan for occupying your pets during a home showing. It could be helpful to find a local pet sitter or friend that can take your fur-buddy when your agent calls.
Set Expectations with Your Realtor
Before your property goes live, you should speak to your realtor about any expectations you might have concerning the home selling process. You should also ask questions about what to expect and inform your realtor if you have rules for buyers and their agents when they come to look at your property.
Improve Your Home’s Curb Appeal
Putting effort into the exterior of your home goes a long way to create a great first impression. After staging the interior of your home, spend some time on the exterior. Great curb appeal can decrease the time it takes your property to leave the market. Your agent can suggest curb appeal options that are trending in your selling market, seek their advice as you plan for improvements.
The period before listing your home is the time for you to get organized. As soon as your house gets into the market, you might be too busy to get things fixed. Let your agent guide you on the best use of your pre-selling efforts.
When you’re buying or selling a home, you may hear the terms, “assessed value” and “market value.” There are few things that you should know about these terms. First, they cannot be used interchangeably. The assessed value is generally much less than the market value. If you’re buying a home, you probably would rather see the assessed value of the home as a price! If you’re selling, the same holds true for the market value of the home for you.
Market Value Is Used Differently Than Assessed Value
The market value is how much your home is worth on the market currently. The definition is exactly as the term sounds the home is looked at by an assessor and given a value. The assessed value is used to determine property taxes, among other things. As you can imagine, the assessed value can become a point of contention for many homeowners especially when it comes to paying their tax bills. Many homes end up being assessed at a higher price than their current value, bringing tax bills to higher levels. The market value is what the home will sell for when it is listed for sale.
Be careful when searching for a home to buy. Many sites list the assessed value along with the price of the home or estimated market value of the home. You don’t want to get these numbers confused when budgeting and searching for the perfect house.
If you’re getting ready to sell your home, pay little attention to the assessed value of the home. That is not what your home will sell for.
The market value is a good reason to hire a realtor to help you sell your home. Realtors are experts in finding the market values of homes. They will even do something called a CMA (comparative market analysis) for you to help you determine the right price for your home to sell at. This is where comparable properties in the area are examined for their selling prices and all the perks of your home and neighborhood are considered. The market value is determined by the price of the homes that have recently been sold in the area based on the location of the home and how close it is to certain amenities like schools, parks, and the probability of future construction.
Finally, know that the market value and the appraised value of a home have a lot to do with how much a lender will give you to buy the property. Every home that is being bought must go through an appraisal, to protect the lender from overpaying for a home.
Whether you’re buying or selling a home, knowing your value terms can really be a help in understanding the sweet spot for pricing a property