How to calculate the real estate absorption rate

You do not need an accountant or even an advanced calculator in order to calculate the real estate absorption rate for your area. You just need some information and the ability to do basic math. Follow these steps to perform the calculation:

• Find out the total number of homes that have sold in your area in the past 6 months. You can get this information from a real estate agent or may even be able to get the information online.
• Calculate the average number of sales per month. Just divide the total number of homes that have sold by 6 to get this number. If for some reason you can’t get the information for a full six months or you want to use a longer time period than six months, divide the total number by the number of months that you do have information for. (So if you have information for twelve months, divide the number of sales by 12 months to get the average monthly sales).
• Find out how many homes are currently for sale in your area. Divide this number by the average number of home sales per month that you calculated in the previous step. This is your real estate absorption rate.

What the real estate absorption rate means to you

Okay, so now you have your real estate absorption rate. So what? This number gives you a good idea of how long it’s going to take for all of the homes that are currently on the market in your area to sell. You can use this information to make an educated guess as to how long it is going to take for your own property to sell. For example, if you have calculated that it will take one year for all of the homes in your area to sell then it is a safe bet that your home will be sold within the year. You can use this information to make smart choices about whether you want to buy a property, sell a property or rent a property out before selling it.

The real estate absorption rate is just a guide

This calculation is just a guide to help you in your decision-making process. There are a lot of factors that it doesn’t take into consideration. For example, it doesn’t consider the effect of any new properties that come into the market during the time period when you are selling your home. It also doesn’t consider market issues such as the effect of repossessed homes on the market. And it doesn’t look at the particular benefits and drawbacks of your home, which can greatly affect sales. Nevertheless, it does serve as a good guide to assist you in figuring out how long it will take to sell a home if you put it on the market now.

Knowing what you need…

When a bank is considering you for a mortgage, there are two things that they look at primarily: your debt-to-income ratio and your credit rating. Before going through the stress and hassle of meeting with a bank specialist to see if you can be preapproved for a home, check into it yourself. You’re debt-to-income ratio is the amount of debt you have in comparison to the amount of money that you have coming in. Most banks want to see a 36% or lower ratio before approving you for a mortgage. Your credit rating is always available to you and the higher it is, the better your chances of getting approved.

Having a down payment…

Your down payment can be anywhere between 3.5% and 20% depending on your credit rating and your debt-to-income ratio. The more money that you have for a down payment, the greater your chances of buying a home. More money up front also means that your monthly mortgage payments will be lower.

Factoring in the extras…

Before you buy a house, it’s always a good idea to do a “dry run” for a couple of months. What’s a “dry run”? It’s simple. Figure out how much money monthly you will need when you own your own home. Most real estate sites have a mortgage indicator that can let you know how much a house within your price range will cost monthly. But what about heat? And electricity?  Are you moving further away from work, so you’ll be spending more money on gas? Just because you can afford the mortgage payments doesn’t mean that you can afford to own the house. Lots of people don’t factor in the extras and end up being house poor. Or, their house ends up being one of the many foreclosed homes in the country. If you have enough money to cover all of the costs of living in your own home and still have some money left over in case of an emergency or unexpected expense, then you can comfortably afford to own your own home.

Make sure…

With so many bank foreclosures happening every day, you want to make sure that you can afford your own home. You also want to make sure that your job is fairly secure so that you can make your mortgage payments. With houses selling at such a low cost, now is the perfect time to buy a home.

Benefits of Buying Rental Properties

Let’s look at the good news first. A significant number of people choose to invest in rental properties because for them the benefits outweigh any drawbacks. Some of the benefits of investing in rental properties include:

• Buying a rental property can provide you with income every month. Landlords can rent out their spaces at a price higher than the cost of the mortgage and gain a profit each month. Once the property is paid in full, almost all of the rental income is going to be profit. If you get a bank owned property at a low cost then you can start generating income fairly quickly.
• A rental property is generally a stable long-term investment. As a rule, real estate values go up. This means that you can sell the property later on and generate a profit that way. In the meantime, you get that rental income.
• It can help with your taxes. Even if you take a loss on your rental property right now, it may end up benefitting you financially. The loss counts as a deduction on your taxes so you reduce the taxes you pay on other income. Later on, hopefully, you will sell the property and recoup those losses.
• You can feel proud about owning a home. In a time there are so many foreclosed homes for sale, the American dream of home ownership can really seem like just a dream. People who purchase properties and become homeowners, including people who opt to be landlords, can feel pride in the ownership of a home.

Drawbacks of Buying Rental Properties

With all of those great benefits, why wouldn’t you buy an investment rental property if you could? Well, it’s not all peaches and cream. There are drawbacks and you need to be realistic about them if you are considering buying a rental property. Major drawbacks that may deter you include:

• A rental property means that you will have tenants. This can be wonderful but it can also be a hassle. You need to find tenants that will pay their rent on time and keep your property in good working order. If they don’t do this, you will need to go through the process of evicting them and finding new tenants.
• A rental property may also mean that you do not have tenants. If the rental market gets bad, it may take you several months to even find a tenant. You will still have to pay the mortgage on the property even though you aren’t gaining an income from it, which can be taxing on your finances.
• You have to keep the property maintained. If your own heat goes out on a holiday weekend, you can opt to layer up and get in front of the space heater until the more affordable weekday rolls around and you can get a maintenance guy. If your tenant’s heat goes out, you need to deal with it immediately. Having a rental property means that you must be available at nearly all times for your tenants (or hire a property manager to do so) and invest the time and money to keep the property maintained.

The best way to think of it is that buying rental properties is a part-time job. It requires some work and sometimes you don’t want to do it. However, it usually pays off in the end. Looking for Arizona real estate properties? Or how about Texas real estate owned properties? Be sure to check out GoHoming.com.

Do you own real estate? Have any advice for someone looking to purchase properties?

Make sure you can afford it

Before you start the search for your new home, make sure that you can get pre-approved for a mortgage. Make an appointment to talk to a mortgage specialist. There’s no sense in starting to look if you can’t afford to buy a house. Getting pre-approved will also give you a ballpark figure to work with when looking.

Do up a budget first

Before buying your home, do up a budget including all expenses associated with owning a home. Some of these are heat, lights, sewage, water, property taxes and parking. The last thing you want to do is have your home end up one of the many foreclosed homes across the country because you miscalculated your monthly costs.

Be realistic

Every potential home owner has a wish list of things they want in their dream home. For most of us, this wish list is not only too expensive, but also highly unrealistic. While a Jacuzzi bathroom and wine cellar may be nice, they may not be possible. Before you start looking at listings, come up with your wish list and then narrow it down to a would be nice list then narrow that down to a need list. If you start off realistically knowing what you need in a house you can save yourself a lot of time and effort not to mention heartache when searching for your home.

Find a great real estate agent

While you can look for your new home on your own, having a real estate agent at your disposal can speed the process up. Plus, agents get access to listings immediately, a lot of the time before they are even technically listing. They have more time to dedicate to finding you the house that you want. After all, it’s their job. They also have access to real estate owned properties, which are quite often a steal.

Know your terminology

There’s is a lot of financial terminology associated with buying a home. Mortgage, escrow, leans, principle payments, the list goes on. Make sure that you understand what everything means, especially before you sign any documents. Buying a home can be hectic, especially if you are involved in a bidding war. Knowing ahead of time what everything means can save you precious time in the heat of the offer.

Enjoy yourself!

Looking at houses that you might want to buy should be fun. So make sure that amid the search for your home, that you have fun. After all, you only buy your first house once.

Have any suggestions for our readers? What other suggestios do you have for first time home buyers entering the world of home ownership?

Helping clients buy a home? We share some lending tips you should know.

With the recent increase in the number of foreclosed homes and repossessed homes it is important for a new home buyer to know their options when it comes to deciding how to purchase a new property. Quite often potential home owners will turn to their realtor when they have questions, even ones of a financial manner. While their banks will be the ones dealing primarily with the money aspect of home buying, realtors should have a basic understanding of their clients lending options in case they are asked.

Where can clients get their mortgage?

There are essentially two options for potential home owners when it comes to obtaining a mortgage.

They can go directly to the bank and speak with a mortgage specialist who will help decided if they are approved for a mortgage and how much.

The other option is to go to an independent mortgage broker. A mortgage broker has numerous banks and other non traditional lending business at their disposal. If a client has less than perfect credit or any financial issues at all, then a mortgage broker may be their best bet.

Different kinds of mortgages

A fixed rate mortgage will almost always have a higher interest rate than other types of mortgages but does the advantage of being locked in at the same regular payment each month so there are no surprises.

An alternative to the fixed rate mortgage is the adjustable-rate mortgage. This type of mortgage generally offers a lower interest rate than a fixed rate mortgage. There are even some adjustable-rate plans out there that let you have a fixed rate for a certain period of time before you mortgage becomes adjustable. This could be useful for a new home owner who wants to take advantage of interest rates which are low at the time of purchase but have a chance of dropping even lower at a later date.

One thing to be aware of is adjustable-rate mortgages are tied directly to the prime rate plus a certain margin; if the base rate increases or decreases so too will your mortgage rate. This will mean people with this type of mortgage will have to keep a close eye on their monthly payments as the rate fluctuations will be seen on their monthly statements. Different economic periods may decide whether fixed rate or adjustable is the right choice. No one buying a new home wants to believe theirs could someday be on a list of foreclosed or repossessed homes, but not taking the time to decide what the best kind of loan for their situation could could result in some incorrect choices by your clients.

While it might not exactly be in the realtors’ job description to give clients financial advice, quite often that happens. And in order to help clients in the best manner, having some basic financial knowledge that can be passed on can be a huge help. REO homes and repossessed homes all once belonged to people who believed they were able to keep a mortgage and pay for their homes. Giving clients some guidance, even if it’s helping them to find out more information, can help to ensure that they stay out of foreclosure.

With the recent increase in the number of foreclosed homes and repossessed homes it is important for a new home buyer to know their options when it comes to deciding how to purchase a new property. Quite often potential home owners will turn to their realtor when they have questions, even ones of a financial manner. While their banks will be the ones dealing primarily with the money aspect of home buying, realtors should have a basic understanding of their clients lending options in case they are asked.

Even though home values seemed to skyrocket over the last decade, the real estate mortgage crisis has caused a significant correction in prices, especially in markets like San Diego, Phoenix, Las Vegas, Los Angeles, and parts of Northern California. In certain parts of the country, like Detroit, it may take decades for real estate values to recover their value, and for those regions and cities. That’s not to say you can’t find a great deal in that market, just be prepared to find sellers that might be under water and are holding strong to an inflated price. The question you always have to ask yourself is this: will this property hold its original value and increase in value, or will I have a hard time recovering what I paid for it?

• Look at comparable sales in the area. How much have homes in the area sold for?
• Look up public records of recent sales and foreclosures.
• Get an appraisal from a certified professional.
• Talk to a broker if you have questions about a specific area.

Cities all over the country are full of homes and commercial properties that have simply been abandoned by owners who are unwilling or unable to maintain them. This is a phenomenon you’ll see in just about every city or town in America. All you have to do is drive around and you’ll see closed or abandoned properties. In some neighborhoods, so many people have walked away from homes that they could no longer afford that some blocks only have a single home occupied by the original owners. Everyone else has either moved away or been foreclosed upon. So, if you’re thinking of buying foreclosed homes as investment properties, give careful consideration to the neighborhood where you’re buying.

• Drive by the homes in the area, how well are those homes being kept?
• Look at public records: are there other homes that are in the process of being foreclosed on, or homeowners holding bank notes that are extremely high?
• Ask your potential neighbors what has been going on in the area for the past few years. This might be a good indicator of how the market will be in the future.

Take your time when purchasing a property. It can be easy to fall in love with a home because of its charm, and because it’s a great deal; but consider all your options first. Not doing so could potentially put you in the same position the previous homeowners were in. Consider all of the ramifications and pitfalls of any potential purchase.

• If you lost your job, how much money would you need to have on hand to make your housing payments for six months?
• Have you accounted for all maintenance, warranties, taxes, insurance, and dues for the home?
• How would you afford major expenses such as replacing the roof on your home, dealing with a flood, or burglary in your home?

No matter what situation you are in, it’s best to look at all angles when purchasing a home. Mostly importantly of which is to ensure you don’t purchase a home that is overpriced and has no hope of recovering in value.

What advice do you have for prospective homeowners on ensuring they don’t purchase a home that is overpriced?

The housing market, however, is not like it used to be. In many cities, the main source of home sales has been foreclosed homes, bank owned homes, and short sales. The market is improving, but it requires realtors to adapt to a vastly altered business landscape, one that requires flexibility, ingenuity, patience, and a stronger than ever desire to succeed.

The existing market conditions require realtors to be more knowledgeable than ever about changes in mortgage lending laws and to stay on top of rapidly-changing market conditions in various markets all over the country. The housing market is different in various regions, even within a single state. One city can have stagnant or falling home prices and very full inventories of homes for sale, while an adjacent community can experience a brisk sales rate and prices that are actually increasing. Overall, however, it looks like home prices are continuing to fall in several formerly very active markets, such as Las Vegas, Nevada, Phoenix and Scottsdale in Arizona, in Orange County in California, and also in the Northeast. Interestingly, many parts of Texas have remained stable when it comes to home prices and the rate of sales, with some cities showing a slow, steady increase in sales and prices.

However, despite isolated pockets of good news, one factor remains relatively constant all over the country: large inventories of unsold homes. So, even in areas where home sales are picking up, there still remains substantial numbers of bank owned homes and short sales on the market. The Obama Administration’s tax incentive program helped to move many unsold homes out of inventories, but since this program finally expired at the end of April, most realtors will probably see a slackening of home sales no matter what area they live and work in. The home sales picture for the rest of 2010 will likely be less dynamic than the period during which the home buyer tax credit was being offered, but many experts feel that by 2011, home sales will begin increasing again in response to improvements in the overall economy. This will have the effect of keeping home prices stable.

Despite the declines in pending home sales in the Northeast, the other regions of the U.S. seem to be doing pretty well. In the Midwest, the Pending Home Sales Index (PHSI) appeared to increase a couple of points and is almost 20 percent higher than it was a year ago. The South, which had been very strong until the mortgage crisis hit, has shown an increase in the PHSI of almost 13%, and is nearly 30% higher overall than it was last year. Gains in the West, which was particularly hard-hit in Arizona, California, and Nevada have shown noticeable growth, and the PHSI is almost 9% higher now than it was a year ago.

Looking at the big picture nation-wide of the current state of the Real Estate market, the situation for realtors is not as bleak as it was two years ago. Realtors are selling a lot more foreclosed homes, walking clients through the hassles of buying a short sale, but it looks like home inventories are finally moving again. It’s safe to say that things are looking up!

Are you a realtor? How have you been affected?

If you have purchased real estate in the past, you probably already know about the good faith estimate.  What you might not know is that, as of January 1, 2010, a new good faith estimate has gone into effect.  Now all estimates must follow a standard format specified by HUD, which is designed to make loan estimates easier for the consumer to read, understand, and compare.

The new good faith estimate and the new RESPA (Real Estate Settlement Procedures Act) rules are definitely for the benefit of the consumer, not the lender or the broker.  Whereas there was a little more flexibility before, now the lender is bound to what the good faith estimate says.  Some fees can change, but there is a limit on how much, protecting buyers from there being any surprises at closing.  This means that lenders and brokers have to put forth a little more effort in order to ensure the information on the good faith estimate is correct.

The new good faith estimate is broken down as follows:

Page 1:

• Initial loan amount
• Loan term
• Initial interest rate
• Initial monthly payments
• Whether any of the above can change over time
• Balloon payment information
• Escrow account information

Page 2:

• Origination charges
• Charges for required services, selected by the lender
• Title services and lender’s title insurance
• Owner’s title insurance
• Estimated charges for required charges, selected by you
• Government recording charges
• Transfer taxes
• Initial escrow deposit
• Daily interest charges
• Homeowner’s insurance
• Total charges

Page 3:

• Which fees can change, and by how much
• An optional (for the broker/lender) table that compares the same loan with lower settlement charges and a lower interest rate
• A table to help you compare loan estimates from different lenders

Don’t feel intimidated by this 3-page estimate!  The simple layout of information and the breakdown of charges enables you to compare loans, apples to apples.  It also presents the whole picture and helps you to see where you can save money.

When buying bank owned foreclosures, also known as REO (real estate owned) homes, it is important to be sure that you have all your ducks in a row.  Getting estimates from several different lenders not only tells you how much house you can afford, but also allows you to shop for the most affordable loan — made all the easier now, thanks to the new good faith estimate!

Why would first-time home buyers be interested in REO properties?

First-time home buyers, including recent graduates fresh out of college, are usually buying their home on a tight, price-sensitive budget. REO properties, which are homes that have made their way through foreclosure and into bank ownership, offer discount-minded buyers an ideal way to save on their next home.

What makes REO properties the ideal way to buy a discounted home?

Buying REO properties allows the purchase of a home using a more traditional mortgage process, in sharp contrast to the high cash payment that may be needed to buy a home via foreclosure.

Buying an REO home also represents less risk. Traditional foreclosure homes often times find themselves still filled with tenants and unwanted liens. Buying directly from the banks allows for a smoother process.

Vacation home buyers have the opportunity to save thousands by buying REO.

Whether you’re buying a ski condo in Colorado or a winter home in South Florida, GoHoming.com’s large inventory of REO homes gives vacation home buyers great options for home buying all across the country. Vacation home buyers now are much more sensitive to home prices than they were just a few years ago. If you’re interested in saving on your second home purchase, make sure to check out GoHoming.com

With REO properties in sunny locations – California, Florida, Nevada and Arizona to name a few – and ski-friendly locations as well, GoHoming.com helps vacation buyers find their ideal home and spend wisely.

Imagine a Los Angeles couple that enjoys spending more weekends than they’d like to admit in Las Vegas. Rather than spend money on hotel rooms every weekend, why not invest in an REO home and invest that hotel expense in home ownership? REO properties from GoHoming.com allow you to still vacation in your favorite locale, but do it in your new home-away-from-home.

Just think about how much you can upgrade your lifestyle in a home. Most likely, a free-standing home will provide more privacy and quieter surroundings if you’re in school, have a baby in the family, or just want an escape from the noise that comes from sharing walls with your neighbors. You’re also much more likely to have enough space to host overnight guests, have a fenced-in backyard for a pet, etc.

In your own home, you can make all kinds of improvements that you can’t make when you rent. Not ready to live in a home alone? You can still have a roommate, and that person can pay you rent that you can put toward your home improvements or your monthly mortgage payments. In this scenario, someone else is helping you invest in your economic future, instead of the other way around.

Speaking of home improvements, a great thing about buying an REO home is that you can apply for FHA financing that includes the cost of the home and any repairs that may be needed. This allows you to take advantage of the incredible deals you can get when purchasing a fixer-upper without having to worry about how you’re going to pay for repairs. This type of FHA loan is called a  Section 203(k) loan, the amount of which is based on the projected value of the home after repairs. And with a newly renovated home, you often get new warranties on things that needed to be upgraded.

If you’re a first-time home buyer, and especially if you’re paying for a college tuition, you may not have the money to make a hefty down payment on your own. With an FHA loan, you’re allowed to use money that’s given to you as a gift for your down payment. Plus, the down payment required on an FHA loan is usually less than what is required for a conventional loan. If you’re a first-time home buyer, you can also benefit from a government tax credit of $8,000 if you purchase a home as your principle residence prior to December 1, 2009.

Think you don’t have time to participate in an REO home auction? Today, even the busiest of people can benefit from the kinds of bargains only found at auctions. That’s because you no longer have to drive to an auction and spend an afternoon or an entire day bidding on a home. You can bid on properties and even see what others are bidding for those same properties on real estate auction websites like GoHoming.com.

Making regular monthly payments on a home that’s in your name is a great way to build your credit. And with great deals on REO homes, many people can afford to purchase homes now who otherwise could not have afforded it.  So, if you’re paying rent every month on a home that will never truly be yours, consider looking into REO homes. When you do, you’ll be pleasantly surprised by what you find, and you can rest easy knowing that you’re taking steps toward saving money, upgrading your lifestyle, and investing in your future.