Real Estate Investing

real estate investing

First-Time Homebuyer Programs, Loans, and Grants

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New to real estate and property ownership? Congrats! Buying your first home can be exciting but overwhelming. As you enter this new phase, important decisions await. We’re here to help! In this article, we’ve gathered info on programs, loans, and grants for first-time homebuyers, plus lender requirements, to simplify the process for you.

Many programs assist first-time homebuyers. These include state aid programs, federally-backed mortgages, flexible mortgage qualifications, and tax benefits. To qualify, meet the definition of a first-time homebuyer:

  • Haven’t owned a home as primary residence in past 3 years.
  • Single parent who previously owned home with ex-spouse.
  • Displaced homemaker who only held a house with spouse.
  • Owned non-compliant home more expensive to upgrade than build new.
  • Owned principal residence not permanently fixed to a foundation.

To qualify, good credit score (620+ for conventional loan, 580+ for FHA), minimum 3% down payment, steady income, 2-year employment history, and debt-to-income ratio of 43% or less.

Saving for down payment and closing costs is a challenge. Down Payment Assistance Programs (DPA) offer grants and low-interest loans to cover these costs. Four main types of DPA programs:

  • Grants: Non-repayable gift money (less common).
  • Low-interest loans: Second mortgages with lower interest rates.
  • Forgivable loans: Second mortgages forgiven after specific period if mortgage payments up to date.
  • Deferred loans: Interest-free loans payable when selling or refinancing primary mortgage.

Each state has its own DPA program with specific eligibility requirements.

While 20% down payment gives more equity, many loan programs for first-time homeowners require only 3% down payment. Fixed-rate and adjustable-rate loans available. Good credit score and steady income can accelerate path to homeownership.

Entering homeownership can be overwhelming, especially for first-timers. But don’t worry, there are programs and options to make this journey less daunting. These programs assist based on your circumstances, state, and income restrictions. Let’s explore some common mortgage programs:

  • FHA Loans: Backed by the government, these loans offer lower down payment options and can finance up to 96.5% of the home’s purchase price. To qualify, you’ll need a credit score of 580 or higher and a minimum 3% down payment. Even with a credit score as low as 500, you can still qualify with a 10% down payment.
  • Conventional Loans: These mortgages require a credit score of 620 or higher and a debt-to-income ratio of 43% or more. You can put down as little as 3%, and borrowing limits depend on your location’s costs, with the current cap at $647,200 for a single household.
  • VA Home Loans: Exclusively for veterans, active servicemembers, and eligible surviving spouses, VA loans don’t require a down payment or have a minimum credit score requirement (although 620 is preferred). They also don’t charge private mortgage insurance (PMI) and offer options for seller contributions towards closing costs and prepaid expenses.
  • Freddie Mac and Fannie Mae Loan Programs: The Home Possible Mortgage (Freddie Mac) and HomeReady Mortgage (Fannie Mae) cater to low-income and first-time borrowers, requiring a 3% down payment and a credit score of 620 or higher.
  • USDA Loans: Offered by the United States Department of Agriculture, these loans are for qualified individuals in rural or suburban areas. They feature lower interest rates, no down payment requirement, and the potential for reduced or eliminated closing costs.
  • Native American Direct Loan (NADL): This program helps Native American Veterans and their spouses secure loans for buying, improving, or constructing homes on Federal Trust Land.
  • Good Neighbor Next Door Program: Available to first-time buyers and current homeowners working as teachers, law enforcement officers, emergency medical technicians, or firefighters.
  • Neighborhood Assistance Corporation of America (NACA): A non-profit organization dedicated to bridging the wealth disparity gap, NACA provides access to mortgages regardless of credit score.

Becoming a first-time homeowner is a significant milestone, and with a range of loans and programs available, it’s an achievable goal. Research the assistance options available to you and make an informed decision about the best path forward.

Consider exploring real estate investment today. 

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Mortgage Rates and Real Estate Investing

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Whether you’re an investor or a homebuyer, fluctuating interest rates in today’s market may raise concerns. But don’t panic. Sometimes, increased mortgage costs can benefit investors. In the forthcoming sections, we’ll discuss loan types, the role of the Federal Reserve, and how to determine the best rate.

Currently, mortgage rates are rising, averaging 4.82% for 30-year home loans. This is a surge from pandemic lows. Factors like property location, chosen lender, credit score, and ability to include stable rent as income can affect mortgage rates and loan amounts.

Check the table below for average rates and APRs (Annual Percentage Rates) for fixed-rate mortgages:

| Type of Mortgage | Interest Rate | APR |

|————————|—————|——-|

| 30-year fixed-rate | 3.92% | 4.0% |

| 30-year fixed-rate FHA | 3.14% | 3.95% |

| 30-year fixed-rate VA | 3.33% | 3.6% |

| 20-year fixed-rate | 3.62% | 3.75% |

| 15-year fixed-rate | 3.15% | 3.30% |

| 10-year fixed-rate | 3.14% | 3.34% |

| 7-year ARM | 3.80% | 3.27% |

| 5-year ARM | 3.43% | 2.96% |

| 3-year ARM | 2.94% | 3.20% |

Data sourced from Zillow on June 24, 2022.

When considering rates, pay attention to the terms and any fees advertised. These can affect your mortgage’s interest rate. For example, if you’re purchasing a $250,000 house with a 10% down payment of $25,000, a 30-year mortgage at a fixed interest rate of 3.5% would result in a monthly payment of $1,344.

The Federal Reserve’s decisions primarily determine the broad range and base level of rates. In a robust economy, rates tend to be higher, while during times of economic instability or global concerns, rates may decrease as the Fed aims to stimulate growth.

However, other factors also impact the rates offered to you. Your credit report, down payment amount, and total loan amount can influence the rates. A strong credit score can help secure lower rates, while a down payment of less than 20% may require mortgage insurance.

If you’re applying for a mortgage exceeding $500,000, it falls under the category of a “jumbo loan.” Jumbo loan rates have begun to level off, and some lenders offer lower rates.

Understanding the factors influencing mortgage rates and exploring your options will help you secure the best rate for your situation.

What makes a mortgage rate attractive? Mortgage rates change daily and have been steadily rising this year, though they remain relatively low compared to historical standards. According to data from Freddie Mac, the average interest rate for a 30-year fixed loan in May 2022 was 5.23%. In contrast, rates in the late 70s and 80s were much higher, often in double digits. To determine if you’re getting a fair rate on a mortgage, it’s advisable to compare offerings from different lenders. Platforms like Nerdwallet and Bankrate provide resources to compare rates, fees, and benefits.

It’s important to note that predicting future rate fluctuations is difficult, but refinancing for a lower interest rate is a possibility. However, refinance rates can sometimes be higher, especially for cash-out refinancing against a property’s equity to fund a new acquisition.

How do mortgage rates affect real estate investments? Increasing mortgage rates, while potentially stressful for borrowers, generally indicate a strong economy. As the economy strengthens, interest rates increase as a measure against inflation. When borrowing becomes more expensive, there is less money in circulation, theoretically curbing rapid price increases.

For investors, this situation has implications. While loans may be more expensive, it also leads to higher rental costs as fewer people can afford to buy homes. This could potentially increase short-term rental income for investors.

Rising mortgage rates can shift the market from favoring sellers to buyers. As single-family home prices have risen over the past two years, current homeowners are less likely to sell when financing options become more expensive. At the same time, buyers tend to focus on more affordable homes as additional interest costs impact their budget. However, the lack of supply generally maintains prices instead of causing a decrease.

Mortgage rates significantly affect housing affordability and the ability of new buyers to enter the market, which in turn influences rental prices. Higher interest rates mean higher monthly payments and more spending over the life of the loan. Mortgage calculators can help determine the impact of interest rates on your monthly payment.

Typically, higher mortgage rates coincide with inflation, leading to an increase in property values. While future predictions are uncertain, higher mortgage rates have generally been associated with property value appreciation over time, according to the Urban Institute’s analysis of Freddie Mac’s decades’ worth of data.

Invest in High-Value Vacation Rentals

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Please note, the views expressed in this document are for general information only and should not be considered as specific advice or recommendations for any individual or investment product. These views are subject to change without prior notice. Refer to Foothold’s disclaimers for more information.

How to Use Your Solo 401k to Buy Real Estate

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Successful real estate ventures rely on external funds to boost investment power and generate wealth over time. Aspiring real estate investors must understand this lesson early on to navigate a stable investment landscape and mitigate risks.

Many investors purchase real estate through retirement accounts, where it serves as an alternative investment option. Using a Self-Directed Individual Retirement Account (SDIRA) for real estate investment is a popular tax strategy. Profits from these investments remain untaxed until retirement, maximizing benefits.

For self-employed individuals or those running solo businesses, the Solo 401(k) plan offers a suitable avenue for real estate purchases. Unlike traditional company-sponsored 401(k) plans, Solo 401(k) retirement plans provide exclusive benefits of real estate investment. These plans allow diversification of retirement savings into various investment options, including real estate, precious metals, stocks, bonds, mutual funds, tax liens, and tax deeds.

A Solo 401(k) permits the acquisition of different types of real estate properties, such as apartments, single-family homes, commercial properties, condos, and mobile homes. However, note that using personal funds for real estate-related expenses incurs tax implications. All costs must be sourced from the Solo 401(k) bank or brokerage account. Depreciation from real estate owned by a retirement account is not permitted.

To utilize your Solo 401(k) for real estate investments, ensure that your plan offers alternative investment options. Qualifying for a Solo 401(k) requires being self-employed, generating income through self-employment activities, owning a small business without employees other than yourself or a spouse, or working as an independent contractor with part-time employees.

Investing in real estate through a Solo 401(k) offers benefits such as tax deferment, access to non-recourse business loans, and leveraging opportunities. Tax deferment allows tax-free growth, while non-recourse business loans provide additional financing options. Leveraging borrowed capital can amplify investment returns, and Solo 401(k) plans are exempt from the Unrelated Business Taxable Income (UBTI) tax, making them ideal for real estate investments. Moreover, the Solo 401(k) offers asset protection against bankruptcy and creditor claims.

There are various ways to purchase property through a Solo 401(k), including all-cash purchases, non-recourse loans, Limited Liability Companies (LLCs), and Tenants in Common purchases. Each method has its advantages, allowing you to choose the approach that aligns with your investment strategy.

Unlock Real Estate Investment Potential with Solo 401(k)

The Solo 401(k) is an excellent way to finance real estate investments, especially for individual entrepreneurs or small companies. It provides tax deferment and leverage, allowing you to climb the property ladder and generate a steady income from real estate. 

At Foothold, we believe in making property ownership accessible to everyone, regardless of their financial background. With our platform, you can start investing in vacation rentals properties with as little as $200, and grow your portfolio while earning consistent rental income. Check out our available properties here.

What is a Gross Rent Multiplier?

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Acquiring an investment property requires careful consideration. The ideal property is located in a favorable neighborhood with good schools and low vacancy rates, ensuring high demand. Buying below market value is crucial for generating income. Various investment strategies and calculations evaluate a property’s potential value. One important metric is the gross rent multiplier (GRM), which quickly compares rental property opportunities. This article aims to provide a comprehensive understanding of GRM and its role in making intelligent investment decisions.

So, what exactly is the gross rent multiplier? It’s a formula that divides the property’s market value by the annual gross rental income. Commercial real estate investors use it to categorize and compare property profitability.

The formula for the gross rent multiplier is: Market Value of Property / Gross Annual Rental Income = GRM. The gross annual rent refers to the total rental income over 12 months, excluding vacancies or operating expenses.

Let’s consider an example. Property A is priced at $200,000 with a monthly rent of $1,500, and Property B is priced at $250,000 with a monthly rent of $2,000. The GRM for Property A would be 200,000 / (1,500 x 12) = 11.1. For Property B, it would be 250,000 / (2,000 x 12) = 10.4. Property A has a lower GRM, making it a better investment despite having a lower rent.

Why is the gross rent multiplier significant? It offers a quick way to compare potential investment properties, especially in different markets. A higher GRM indicates a less promising investment, while a lower GRM suggests a higher return on investment.

However, the GRM is just one of many metrics to consider when investing in property. Factors such as property price, budget, and investment objectives should also be taken into account. The GRM can help screen different properties and narrow down options.

The GRM doesn’t account for expenses like vacancies, marketing, capital expenses, property taxes, or long-term appreciation. It also doesn’t provide a measure of an investment’s pay-off time. Despite these limitations, the GRM serves as a starting point for analyzing potential investment properties and should be used with other methods to assess rental investment profitability.

IIs there a perfect GRM? No specific GRM value can be considered ideal as it depends on the rental market. Generally, a GRM between 4 and 7 is good, but it may vary based on local housing market conditions. To determine a good GRM for your market, compare it with similar properties. A lower GRM indicates a faster return on investment property loan.

How is GRM different from capitalization rates? Both metrics are used in property investment evaluation, but they’re not the same. GRM considers only gross rental income, while cap rates factor in the property’s net operating income (NOI). Cap rates do not include mortgage payments or debt service.

What are other applications of GRM? It can predict future rent prices and determine fair market value. It can also monitor changes in property values based on gross rents.

What are the limitations of GRM? Consider other metrics and potential costs. GRM does not account for income loss or future gains.

What should be considered when using GRM? Use it in familiar markets and compare similar properties. Use it alongside other tools like cap rates and cash flow analysis.

In conclusion, GRM is a beneficial tool for real estate investors, but remember it’s only one of several tools available for property investment analysis.

Are you seeking a stress-free method to diversify your portfolio? 

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What is Section 8 Housing?

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The Federal Section 8 program, also known as the Housing Choice Voucher Program, assists low-income families, the elderly, and disabled individuals in renting housing from the private sector based on their income and family size. Approximately 4.5 million people in the US, including nearly 2 million children, reside in Section 8 housing. This article will discuss Section 8 housing, eligibility requirements, and the application process.

Section 8 housing is a federal initiative, administered by local Public Housing Agencies (PHAs) that establish eligibility criteria. To qualify, an individual’s gross annual income should not exceed 50% of the median income for that area. Additionally, 30% of vouchers are allocated to families with a gross income below 30% of the median income. Research shows that 80% of households under Section 8 housing earn less than $20,000 per year.

Eligible individuals contribute 30% of their monthly income towards rent and utilities, with the PHAs covering the remaining amount. Applicants can apply for the Section 8 Housing Choice Voucher (HCV) program through their local PHA. Once approved, individuals or families receive vouchers to rent private housing units. Only properties accepting Section 8 vouchers and meeting specific criteria can be rented. Applicants typically have 60 to 120 days to find a home, with extensions available under certain circumstances.

Landlords, after screening and accepting the applicant, receive a portion of the rent directly from the PHA. However, obtaining Section 8 housing can be challenging due to paperwork requirements and waiting lists. Not all landlords accept Section 8 tenants, as it is not mandated by law, and rising rental rates have made many landlords reluctant to participate.

Section 8 housing comes in two forms: Tenant-based and Project-based. The Tenant-based program, also known as the Section 8 Housing Choice Voucher program, allows applicants to use their voucher anywhere in the United States as long as the property accepts these vouchers and complies with Housing Quality Standards (HQS) established by the Department of Housing and Urban Development.

Project-based vouchers, on the other hand, are tied to specific properties. Private property owners receive these vouchers from the PHA to reserve units for Section 8 tenants. Unlike tenant-based vouchers, which can be used anywhere in the United States, project-based vouchers remain with the property and are utilized by the next tenant once the previous one moves out.

To qualify for the Section 8 housing program, applicants must meet specific criteria set by their local Public Housing Authority (PHA). These criteria include considerations about income, family size, citizenship status, eviction, and criminal history.

Income eligibility requires applicants to earn less than 50% of their area’s median income at the time of application. This includes all sources of income like overtime, child support, retirement funds, welfare, and disability benefits. If income increases during the subsidy process, support can still be received as long as it remains below 80% of the area’s median income. Income eligibility is reviewed annually by the local PHA.

Family size is also a factor. The local PHA considers the number of people living in the household, especially if there are minor children, disabled individuals, or persons over 62 years old. Even individuals can apply, and their personal and living circumstances will be evaluated.

To avail the Section 8 housing voucher, applicants must be either U.S citizens or immigrants meeting certain criteria. Proof of citizenship or legal immigration status is required, and each family member must comply with all citizenship requirements. Undocumented immigrants cannot apply for housing assistance.

Applicants with a history of eviction from public housing or any Section 8 program due to serious lease violations, like drug-related criminal activity, will be ineligible for the Section 8 housing program for at least three years from the eviction date. Any prior evictions, especially from public housing authorities, require checking specific requirements with the local PHA.

A criminal background check is mandatory for all applicants. Having a criminal record doesn’t automatically disqualify an applicant, but it’s recommended to check with the local PHA about their specific criteria and how it may affect eligibility.

Participating in the Section 8 program offers benefits for landlords like guaranteed rental income, income reduction protection, reduced vacancy rates, potential for long-term tenancy, property maintenance, and access to support services.

Section 8 tenants can also consider buying a house through the Section 8 Housing Choice Voucher Homeownership program, available since 2000. However, this option isn’t widely used due to landlords’ ability to rent at above-market rates and their reluctance to sell to Section 8 Homeownership program participants.

To participate in the homeownership program, additional criteria must be met, such as being a first-time homeowner, having full-time employment of at least one household member, specific savings account balance, and completion of a pre-assistance homeownership course and a housing counseling program. Assistance is limited to 15 years, even if the mortgage period is longer.

Additionally, the HUD-Veterans Affairs Supportive Housing (HUD-VASH) program provides rental assistance for homeless veterans, supplemented by clinical services from the Department of Veterans Affairs. For more information and FAQs about the program and affordable housing opportunities, please visit the program’s official website.

Empowering Low-Income Families: Section 8 Housing and Real Estate Opportunities

Section 8 housing is advantageous as it doesn’t solely rely on public housing. It offers low-income families the chance to access clean and secure accommodation in the private rental sector. Additionally, this program allows many qualifying families to participate in the rent-to-own scheme, helping them become homeowners. 

At Foothold, our goal is to make real estate accessible to people of all backgrounds and income levels. Our platform allows you to fractionally invest in vacation rentals starting with just $200, kickstarting your journey towards building a portfolio and earning rental income. Check out our available property listings here.

How To Buy Real Estate With Your Self Directed IRA

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Many seek investment opportunities beyond conventional realms due to the large sums in retirement accounts. IRAs hold around $11.7 trillion in US retirement assets (Investment Company Institute, Q2 2022). While the stock market has been profitable, the volatility of publicly-traded stocks feels unpredictable. Real estate investment gains popularity as a way to diversify retirement portfolios, offering long-term appreciation and stability compared to stocks, bonds, and mutual funds.

A powerful tool for this strategy is the Self-Directed IRA (SDIRA), allowing investors to buy real estate. With an SDIRA, gains and rental income are tax-free until distributions occur, making it enticing. It also provides control over investments and the ability to select properties aligning with objectives.

So, what is a Self-Directed IRA? Also known as a Checkbook IRA, it’s a retirement savings account that allows broader investments beyond stocks and bonds. This includes real estate, private firms, tax liens, and precious metals. You can use pre-tax funds from a traditional IRA or after-tax dollars from a Roth IRA to buy real estate. Essentially, you act as your own investment manager, but understanding different investments and mechanisms is crucial.

Investing in real estate through a self-directed IRA requires all revenue and costs to flow through the retirement account. Profits can be withdrawn upon reaching retirement age, allowing for tax deferment or tax-free gains. The 2023 contribution limit is $6,500 ($7,500 for those aged 50+). Both traditional and Roth self-directed IRAs are available, with the same pre-tax and post-tax contributions set by the IRS. Investors often finance SDIRAs with retirement funds rolled over from different accounts due to these limits.

Using a Self-Directed IRA for real estate investments has pros and cons. It offers potentially higher returns and greater control over investment choices compared to traditional retirement accounts. However, balancing risks and rewards is crucial.

Benefits of incorporating real estate into a self-directed retirement portfolio include rental income and tax advantages. It offers diversification beyond traditional financial products and the potential for higher returns through tax-deferred income and gains. Drawbacks include strict regulations, penalties for accessing profits early, and the challenge of finding approved custodians.

When setting up an SDIRA, two main options are available: custodial and checkbook accounts. Custodial accounts involve a third-party trust company handling account details, providing insulation but less control. Checkbook SDIRA accounts give more control but require compliance with IRS rules and thorough record-keeping.

Using a self-directed IRA (SDIRA) for real estate investment is just the beginning. Follow these steps for a smooth transaction:

  1. Find a suitable custodian or trustee based on fees, portfolios, and service.
  2. Open your SDIRA by providing necessary documents like identification and financial records.
  3. Start investing in real estate by determining property type, location, and potential value appreciation.
  4. Find investment opportunities online or with a broker specializing in SDIRA investments.
  5. Understand local laws, secure a non-recourse loan if needed, and finalize the purchase.
  6. Use SDIRA funds exclusively, staying compliant with IRS regulations.
  7. Manage your investment property according to IRS rules by filing paperwork, submitting tax returns, and keeping records.
  8. Remember to only use SDIRA funds for purchases and avoid transactions with disqualified persons.
  9. Pay expenses like management fees and property taxes from your IRA funds.
  10. Partner with a trustworthy IRA custodian and conduct due diligence on investments.
  11. Resist the urge to withdraw funds early and hold onto your property for long-term appreciation.

Concluding Remarks on SDIRAs

Self-directed IRAs (SDIRAs) offer a promising opportunity for real estate investment, but they also bring their own challenges and rewards. If you’re considering using your SDIRA funds to purchase a residential or rental property, conducting thorough market research and seeking advice from a seasoned financial advisor is crucial. 

Please note that the views expressed in this article are for general informational purposes only and do not provide specific advice or recommendations for any individual or investment product. The opinions expressed in the commentary are subject to change without prior notice. For more information, please review Foothold’s disclaimers.