Ethan Roberts, Author at Benzinga

Best REITs to Buy Right Now

Ethan Roberts — Wed, 05 Nov 2025 08:08:12 +0000

The post Best REITs to Buy Right Now by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Investing in Real Estate Investment Trusts (REITs) is one of the easiest ways to gain exposure to real estate without directly owning property. REITs are companies that own, operate, or finance income-producing real estate across sectors like apartments, offices, retail centers, warehouses, and even data centers. By law, they must distribute at least 90% of their taxable income as dividends to shareholders, making them popular for steady income.

Investors can buy REIT shares through the stock market, just like any other stock, which provides liquidity, diversification, and accessibility with relatively low capital requirements. While REITs offer attractive dividends and potential for long-term appreciation, they are still subject to market volatility, interest rate risks, and property sector performance.

This article explores the best REITs that you can buy right now.

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Best High-Yield REITs
Best Growth REITs
Best Value REITs
Recent REIT Analysis
What to Look for When Choosing the Best REITs
Investing in The Best REITs
Frequently Asked Questions

Best High-Yield REITs

When selecting REITs to purchase, investors shouldn’t choose high-yielding stocks without considering the overall recent performance, safety, and reliability of the dividend and the company.

NewLake Capital Partners (OTCMKTS: NLCP)

NewLake Capital Partners (OTCMKTS: NLCP) is an internally managed specialized industrial REIT in New Canaan, CT, with 33 properties totaling 1.6 million square feet across 12 states. It specializes in triple-net leasing to cannabis companies and provides capital when necessary.

NewLake was founded in 2019 and had its IPO in August 2021. Its tenants include the largest companies in the cannabis industry, such as Curaleaf, Cresco Labs, and Truelieve. As of November 2025, it has a market cap of nearly $272.5 million and a dividend yield of 13.21%.

Alpine Income Property Trust (NYSE: PINE)

Alpine Income Property Trust (NYSE: PINE) is a Daytona Beach, FL-based retail REIT that owns and operates 129 high-quality net-leased properties of 3.8 million square feet across 34 states. 65% of its tenants are investment-grade companies such as Lowes, Dollar Tree, Walgreens, Walmart, Advanced Auto Parts, and Dick’s Sporting Goods. It has a market cap of nearly $227.6 million and a dividend yield of 7.71%.

TPG Real Estate Finance Trust (NYSE: TRTX)

TPG Real Estate Finance Trust (NYSE: TRTX), a subsidiary of TPG Real Estate, is a mortgage REIT that originates, acquires, and manages commercial mortgage loans and other commercial real estate-related debt instruments in the United States. It has a portfolio of $3.5 billion first mortgage loans with an average loan size of $69.4 million in geographically diversified primary and select secondary markets across the U.S.

As of November 2025, it has a market cap of over $698 million and a dividend yield of 10.76%.

Best Growth REITs

When looking for the best growth REIT stocks to purchase, investors can feel confident about making the best selections by considering the company’s long-term price history, regardless of where that price is today. These three REITs have a terrific appreciation history but lower dividend yields than many other REITs.

Iron Mountain Inc. (NYSE: IRM)

Iron Mountain Inc. (NYSE: IRM) is a Portsmouth, NH-based specialty REIT focused on information management and storage, data center infrastructure, and asset lifecycle management. It was founded in 1951 and has more than 240,000 customers worldwide. In recent years, Iron Mountain has shifted its focus from paper storage to data storage.

Iron Mountain has produced a total gain of nearly 200% in the last five years.

American Tower Corp. (NYSE: AMT)

American Tower Corp. (NYSE: AMT) is a Boston, MA-based specialty REIT that calls itself “a global leader in wireless infrastructure.” Founded in 1995, American Tower owns, operates, and develops wireless and broadcast communications real estate. Most of its business is leasing space on wireless and broadcast towers, and it also leases portions of the land below the building for equipment storage. Typical tower components are coaxial cabling and fiber optic cables.

American Tower has a presence in 224,000 global communication sites across 25 countries in six continents. About 43,000 properties are in the U.S. and Canada, and approximately 181,000 are international. Contracts usually have a term of five to 10 years, with renewal options and annual lease escalators of about 3%.

American Tower has been a leading growth REIT for many years. Over the past ten years, it’s had an annualized 10-year total return of 165.16%.

Terreno Realty Corporation (NYSE: TRNO)

Terreno Realty Corporation (NYSE: TRNO) is an industrial REIT that owns and operates 290 properties with 17.4 million square feet in six major coastal U.S. markets. Those areas are Miami, Northern New Jersey/New York City, Washington D.C., Seattle, Los Angeles, and San Francisco.

As of June 30, 2025, Terreno owned a total of 297 buildings aggregating approximately 18.9 million square feet, 47 improved land parcels consisting of approximately 150.6 acres, six properties under development or redevelopment, and approximately 22.4 acres of land entitled for future development.

The company has a superior long-term growth record with a ten-year total return of 242.22%.

Best Value REITs

Long-term investors looking for undervalued REITs should consider solid companies with good track records over the years that, for one reason or another, have fallen out of favor with Wall Street. These REITs now provide solid dividend yields for income investors, have low price/FFO ratios, and, over time, may provide solid appreciation once economic conditions improve. Let’s take a look at some of them below.

Independence Realty Trust (NYSE: IRT)

Independence Realty Trust (NYSE: IRT) is a Philadelphia-based residential REIT that owns 110 multi-family properties with 32,685 units across 12 states. 74% of the portfolio is in the Sunbelt regions. Its investment strategy is focused on purchasing properties near major employment centers, with good school districts and higher-end retail stores.

Independence Realty has gained almost 70% in the last five years and has a Price/FFO ratio of 14.5. Independence pays an annual dividend of $0.68 per share, which yields 4.19%.

Realty Income Corp. (NYSE: O)

Realty Income Corp. (NYSE: O) is a San Diego-based, triple-net lease REIT with over 15,600 properties worldwide. The “Monthly Dividend Company,” as it’s widely known, is a member of the S&P 500 and an S&P 500 Dividend Aristocrat.

Realty Income remains one of the foremost REITs today, and with good reason. Its total return since January 3, 1995, is 1,188.67%. With a P/FFO of only 14.19 and a history of trading above $70 as recently as 2022, this very popular REIT remains an excellent value play.

Regency Centers Corp. (Nasdaq: REG)

Regency Centers Corp. (Nasdaq: REG) is a Jacksonville, FL-based retail REIT founded in 1963 that owns and operates 482 properties totaling more than 61 million square feet in higher-income areas, mainly on the Eastern Coast of the U.S. Its portfolio, with over 9,000 tenants, has a 95.8% lease rate and includes 80% grocery-anchored properties, along with restaurants, service providers, medical spaces and higher-class retailers. Regency Centers is a member of the S&P 500.

Regency has gained 20% in the last year with an annualized dividend of $3.02 and a dividend yield of 4.37%. The dividend is well covered, with a payout ratio of 129.36% and a price/FFO ratio of 15.78.

Recent REIT Analysis

Analyst Ratings Last 90 Days

Ticker	Company	Analyst	Rating	Price Target
PSA	Public Storage	UBS	Neutral → Neutral	$294.00
EXR	Extra Space Storage	UBS	Buy → Buy	$152.00
CUBE	CubeSmart	UBS	Neutral → Neutral	$38.00
COR	Cencora	UBS	Buy → Buy	$400.00
WY	Weyerhaeuser	RBC Capital	Outperform → Outperform	$25.00

What to Look for When Choosing the Best REITs

While publicly traded REITs are bought and sold on the stock market like any other publicly traded company, REITs are a unique asset class that needs to be analyzed differently from other stocks.

Funds From Operations (FFO)

If you’re familiar with stocks, you’re most likely familiar with terms like earnings per share (EPS) and price-to-earnings ratio (p/e ratio). However, these metrics don’t offer much help when looking at an equity REIT.

To understand a REIT’s true cash flow, you have to look at its funds from operations (FFO). Since real estate is a depreciable asset, a REIT’s reported net income includes a significant depreciation expense. It also includes capital gains and losses from the sale of properties, which don’t represent what investors can expect the company to earn on a consistent basis.

FFO adds depreciation back into the REIT’s net income and takes out any gains or losses on the sale of property, providing a more accurate picture of a REIT’s true earnings.

To use FFO as a way to value REITs, we divide the REIT’s current share price by its FFO per share to get a price-to-FFO ratio. We then compare the price to FFO of the different REITs in each real estate sector to find value opportunities.

Balance Sheet

REITs have to carry a lot of debt in order to finance the properties they purchase. This is especially true because REITs are required to pay out 90% of their taxable income to shareholders in the form of dividends. This doesn’t leave REITs with the ability to stockpile a lot of cash.

It’s important to make sure that the REIT you’re investing in isn’t carrying too much debt, though. The easiest way to do this is by looking at their total debt compared to their earnings before interest, tax, depreciation, and amortization (EBITDA). This is called a debt-to-EBITDA ratio.

For instance, if a REIT has a total of $1 billion in debt and its annual EBITDA is $250 million, you would divide $1 billion by $250 million to get a debt-to-EBITDA ratio of 4.

Ideally, you want to look for REITs with a debt-to-EBITDA ratio somewhere between 4 and 6. Anything above 6 and their balance sheet starts to look risky. You also want to make sure that they’re not too conservative with their debt. A debt-to-EBITDA ratio below 4 can indicate that they’re using too much cash that could be going to investors instead of utilizing debt.

A solid REIT management team will use a reasonable amount of debt to maximize its overall returns. This means more growth and higher dividends being paid to investors.

Dividends

One of the greatest advantages of REITs is their dividends. On average, REITs pay out significantly higher dividends than most other dividend stocks.

You want to be careful not to get caught in a yield trap, though. Some REITs may increase their dividend payments to an amount they can’t sustain in order to attract or keep shareholders. They may also put off cutting dividends when their FFO has dropped. In either case, buying a REIT with a dividend it can’t sustain is a quick way to lose money.

To get an idea as to whether a REIT’s dividend is safe, you’ll want to look at the FFO payout ratio. This compares the company’s FFO per share to its dividend rate.

For instance, if a REIT has an FFO per share of $2 and a dividend payment of $1.50 per share, you’ll simply divide the dividend rate by the FFO per share to get 75%.

Ideally, the REIT’s FFO payout ratio will be somewhere between 70% – 80%. However, a lower payout ratio is fine if you’re happy with the yield. A slightly higher payout ratio isn’t necessarily a red flag as long as they’ve consistently maintained that payout ratio while either keeping or increasing their dividend payments over time.

Real Estate

You can’t forget that investing in a REIT is essentially investing in a real estate portfolio. If you were buying properties directly instead of investing in a REIT, you would want to invest in assets that would provide you the greatest potential return with the least amount of risk possible. You want to look at REITs the same way.

If you’re looking for a dependable REIT, you’ll want to look at ones that invest in a property type with a strong outlook. For instance, if you think shopping malls are doomed you won’t want to invest in a REIT that owns a lot of shopping malls.

REIT ETFs

A REIT ETF is an exchange-traded fund that invests in REITs and other real estate stocks. These funds typically follow a REIT index and have a diversified portfolio with investments spread out across multiple companies.

Investing in The Best REITs

A REIT’s recent financials provide a great basis for choosing the best ones to buy, but major changes can happen between quarterly filings. Before investing in a real estate stock, be sure to look for recent news about any acquisitions, dispositions, offerings, or any other relevant news that can affect their future performance.

Other intriguing REITs include the Plymouth Industrial REIT, Emirates REIT, U.S. REIT ETF, and the Apple Hospitality REIT.

You can learn more about how to use REITs to invest in the real estate market with our guide on How to Invest in REITs.

Related content: BEST HIGH-YIELD REITS

Frequently Asked Questions

Are REITs a good investment now?

If you’re looking for income and are willing to ride out some volatility, REITs could be a strong part of a diversified portfolio right now. Particularly if you focus on well-managed REITs in resilient sectors (like industrial, data centers, healthcare, or residential), you may find good opportunities.

What is the dark side of REITs?

The dark side of REITs includes sensitivity to interest rates, which can hurt values and dividends; market volatility, since they trade like stocks; sector-specific risks (e.g., office vacancies, retail decline); and management or fee structures that may reduce returns. Some REITs also face liquidity or leverage risks, making them riskier than they first appear.

What is the 90% REIT rule?

The 90% rule for REITs refers to the requirement that the REIT must distribute at least 90% of their taxable income to shareholders as dividends to qualify for tax advantages. This requirement helps REITs maintain their tax-efficient status while providing consistent dividends to investors.

The post Best REITs to Buy Right Now by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Is Fractional Ownership the Future of Real Estate Investing?

Ethan Roberts — Thu, 10 Apr 2025 22:06:11 +0000

The post Is Fractional Ownership the Future of Real Estate Investing? by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Family ownership of investment real estate in the United States has existed for centuries but developed further in the decades after World War II as the 30-year mortgage became the standard for investment property. Individual landlords became a means to garner extra income and secure a healthy retirement.

But real estate appreciation over the past few decades has been a double-edged sword. While it’s made many individual rental property owners wealthy, it’s also made new real estate investments far more unaffordable for Mom-and-Pop operations. A rising trend that’s gaining traction—and could define the future of property investment—is fractional ownership in real estate. But what exactly is fractional real estate investing, and why is it becoming a more compelling option in 2024 and beyond?

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How Does Fractional Ownership Work?

Fractional ownership of real estate involves asset sharing among a group of people. Each person owns a small part of a real estate asset and shares its benefits, such as rental revenue and appreciation. A sponsor company acquires the asset, divides ownership into shares or units and then sells the shares to individual investors. The money raised pays down debt and funds ongoing operations. Net income from the operations is then returned to the individual investors as dividends per share.

To get started with fractional real estate investing, choose a platform, select the investments that hold your interest and then purchase some shares in those investments. Over time you will begin to earn returns.

Benefits of Fractional Ownership

The 2008 real estate crash changed the market as institutional investors, incentivized by government discounts and long-term profit potential, bought many foreclosed homes. As home values rose and inflation drove up interest rates, the affordability of investment homes became more challenging for individuals.

At the same time, Crowdfunding websites showed that one could accomplish financial goals as part of a larger community where individuals pool small amounts of money together to fund expensive projects. Enter fractional real estate ownership with startup real estate platforms such as Arrived, which had the backing of Amazon.com founder and CEO, Jeff Bezos. The benefits of fractional ownership are many and include:

The ability to acquire real estate with far less capital upfront
The ability to choose how much you want to invest, rather than a fixed down payment
The sharing of any maintenance or management costs
Access to acquiring assets of greater value
The potential to generate steady income and appreciation
Property management typically takes care of all rent collection, repairs and other day-to-day landlord operations
Diversification of property locations to reduce risk and enhance profit potential

With programs like Arrived Homes, an individual investor receives shares of a large portfolio of single-family rental homes for as little as $100. Investors receive a monthly dividend and appreciation from potential changes in property values at the end of the investment holding period. You can find real estate investing apps that have different strengths.

Potential Returns For Investors

The potential returns for fractional ownership investors will vary, depending on many factors, such as location, property type and the changing of real estate market cycles. Property values can rise or fall in the short term and the rents that properties garner can also change with shifts in supply and demand or an economic cycle.

For example, during a harsh recession, rents often decline as tenants move out to return to living with their parents or share a space with a roommate. On the other hand, inflationary periods, such as the one from 2021 to 2023, often trigger large rent increases.

To understand the potential returns for investors, it’s good to study the history of the company that owns and manages the fractional ownership properties. One example is Arrived Homes, which posts its historical performance on its website. Total returns (dividends paid plus appreciation) for six properties held for 41 months ranged from 70.6% to 166.2%. Among those held for 35 months, the total returns ranged from only 1.0% to 87.1%. Several homes held for less than 27 months had negative returns and most were in single digits.

The annual rental income for homes with the best returns ranged from 6% to 8%. However, among the homes with negative total returns, the annual rental income generally ranged between 2% and 4%.

Therefore, it seems best to be selective in which markets one invests and homes may need to be held for at least three years or longer to see better returns. The average long-term return on these properties is typically between 6% and 10% annually, with about half of that return coming from rents and the other half from appreciation. Vacation rentals have a slightly higher total return than single-family homes.

With a starting investment of $10,000 and an 8% annual return rate, after 10 years of investing one would have $21,589.25. After 15 years, the return would be $31,721.69 and after 20 years it would be $46,609.57.

One of the Arrived Homes properties that has performed the best has had a 119.9% return. Since its inception in 2019, a $1,000 investment in this property would have produced a profit of $2,199.

Challenges of Fractional Ownership

Like all forms of investing, fractional real estate investing has some risks and disadvantages that an investor should understand. These include the following:

Limited access and flexibility as decisions about your properties are made by others.
Illiquid asset. These are long-term investments with holding periods of several years. Earlier redemption may be possible but may incur fees and isn’t guaranteed.
Limitation on personal use of the properties
Potential for a loss of value or smaller dividends distributed if rental prices decline
Potential for higher fees and expenses

Fractional Ownership vs. Buying Property

There are many similarities between fractional ownership and buying property as an individual. In both cases, you will receive a deed for your share of the property. Each real estate investment should provide the investor with rental income and potential profit from long-term appreciation. Something to keep in mind- real estate is considered an illiquid asset, whether purchased as fractional ownership or bought in full by an individual, because, unlike other investments, such as stocks, it cannot be sold within just a few seconds. After the holding period, it’s easier to sell the shares in fractional ownership than to sell a home. Finally, in both types of real estate investing, there are tax benefits the individual can utilize.

However, there are just as many differences between fractional ownership versus buying property. When you buy a property, you bear 100% of the costs and ongoing expenses versus a fractional share. However, in contrast to having 100% of the expenses, you also gain 100% of the rent plus appreciation, as opposed to simply having a fractional share. Buying a property gives you complete control over all decisions, such as whether to pay cash or take a mortgage, refinance a mortgage or wait for lower interest rates and choosing or evicting your tenants.

Another large difference between buying vs fractional ownership is the time spent caring for the property. Since fractional ownership usually involves employing property management, one does not have to deal with tenants’ problems, take phone calls about repairs or collect the rent. It’s a far more passive investment than owning 100% of a property. For investors with limited time or who don’t like the occasional hassles of owning a property outright, fractional real estate investing is the better choice.

Embracing Fractional Ownership in Real Estate Investing

Fractional Ownership of real estate is a relatively new alternative to buying real estate with the advantage to the individual of being far less costly, less time-consuming and with no property management hassles. Hundreds of thousands of investors have already signed up to purchase shares and this alternative has grown stronger each year. It looks like fractional ownership could be the future wave, especially if home prices and interest rates remain high.

There are a few negative aspects, such as its illiquidity, which entails a major commitment because the required holding period is often several years to avoid a fee and realize a significant profit. So, if you cannot afford to buy a rental property, don’t despair—just contact one of the many Fractional Ownership companies that own a portfolio of properties.

The post Is Fractional Ownership the Future of Real Estate Investing? by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

PMI vs MIP: Which is Right for Your Mortgage

Ethan Roberts — Fri, 25 Oct 2024 11:48:52 +0000

The post PMI vs MIP: Which is Right for Your Mortgage by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

The real estate industry has a trade-off between consumers and lenders. Consumers can get a mortgage with a small down payment, but lenders are then protected with buyer-paid mortgage insurance that repays the lender should the borrower default on the mortgage.

One type of insurance is called Mortgage Insurance Premium (MIP) and the other is Private Mortgage Insurance (PMI). This article will answer questions such as what is PMI, what is MIP, what is the difference between MIP and PMI, how much does mortgage insurance cost and whether buyers must always pay for this insurance. Let’s start with the basics:

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What Is Mortgage Insurance Premium (MIP)?

The Federal Housing Administration (FHA) requires that all its loans be insured. The mortgage insurance for FHA loans is called the Mortgage Insurance Premium (MIP). The annual MIP is paid upfront at closing and also monthly once the mortgage begins. The monthly premium is based on a percentage of the loan amount at closing. The Department of Housing and Urban Development (HUD) holds the monthly fee in an escrow account.

The Mortgage Insurance Premium (MIP) protects the lender from loss if the borrower defaults. If this occurs, the lender is reimbursed by the FHA for the remainder of the mortgage. MIP is required on all FHA loans, regardless of the amount of the down payment.

Although it’s a fee that isn’t designed to protect the borrower directly, MIP benefits homebuyers. It allows them to put down only 3.5% on an FHA loan. Without MIP to protect the lender, the down payment requirement would be much larger.

What Is Private Mortgage Insurance (PMI)?

Private Mortgage Insurance (PMI) is required for all conventional loans if the borrower has less than a 20% down payment. Like MIP, PMI protects the lender if the borrower defaults on the mortgage. A PMI mortgage is also required on a refinance if there’s less than 20% equity in the home.

PMI can be paid at closing or in monthly premiums added to the mortgage payment. Lenders can choose how they want the PMI to be paid.

Some lenders can also provide a loan with less than 20% down and no PMI if the borrower will accept a higher interest rate. If 20% or more is put down, PMI is not required.

VA and USDA loans do not require PMI, even though they are zero-down loans. However, each has funding fees, usually between 2% t 2.25%.

Since it eliminates PMI if at all possible, putting down 20% on a conventional loan helps to lower your mortgage payment.

What Are The Differences Between PMI and MIP?

The biggest difference between PMI and MIP is the type of mortgage each covers. PMI covers conventional loans, while MIP is generally for FHA loans. Other differences are that credit scores and loan-to-value ratios influence the cost of PMI, while MIP is based on the loan amount and loan term. PMI can be removed once a home with a conventional loan accrues 20% equity or the loan balance drops below 80% of the purchase price and MIP can be removed with a 10% down payment after 11 years of on-time payments or if one refinances into a conventional loan.

Is PMI or MIP More Expensive?

Upfront MIP requires a payment of 1.75% of the loan amount. On a $300,000 mortgage, the borrower would pay $5,250 at closing. Annual MIP varies between 0.15% and 0.75% of the loan amount. On a $300,000 FHA loan with less than 5% down, the annual MIP rate would be 0.55% or $1,650.

PMI rates vary between 0.22% and 2.25% of the mortgage. On a $300,000 mortgage, the PMI would be somewhere between $660 and $6,750.

Therefore, while PMI is more expensive upfront, it’s either paid at closing or monthly, but not both. Over time, MIP becomes more expensive. However, PMI could be more expensive on a conventional loan if the borrower’s credit score is low or if the down payment is small.

How Long Do You Have to Buy PMI

Fortunately, PMI does not have to be paid forever. There are two ways to remove it from your monthly payments. The first is if the loan balance drops below 80% of the purchase price. the second is once you have at least 20% equity built up. On a $300,000 mortgage, that would mean paying off $60,000 of principal.

How Is Your MIP Determined?

The MIP depends upon four factors:

The total amount of the loan
The loan term
The amount of down payment
The loan-to-value (LTV) ratio, i.e., the ratio of the loan amount to the home value.

The monthly MIP amount can be calculated by dividing the annual amount by 12. Since both FHA and Conventional mortgages are considered qualified, the lender must calculate your ability to repay the loan principal and interest, as well as all taxes, insurance and fees including MIP or PMI.

Can You Remove Mortgage Insurance Premiums From an FHA Loan?

The good news is that you can remove Mortgage Insurance Premiums from an FHA loan. With a down payment of at least 10%, the MIP expires after 11 years of payments, but only if you have made on-time payments every month.

Another option is to refinance an FHA loan into a conventional loan to remove MIP. However, you will need 20% equity in the home and a minimum credit score of 620. In addition, there will be closing costs on the refinance, so you would have to see if the closing costs will be more or less than the savings from removing MIP. If not, it may pay to wait until the 11 years are completed.

What Type of Mortgage Insurance is Best for Me?

The type of mortgage insurance you receive will be based on the type of mortgage you choose or for which you are qualified. If you have 20% down and a high credit score, you can take a conventional loan and not be required to have private mortgage insurance. You must have a PMI mortgage if you have a high credit score but lack the 20% down payment. However, if you make all of your payments on time, once you build up 20% equity in the home you can have the PMI removed. Ask your lender how to remove mortgage insurance.

On the other hand, if your credit score is only fair or good, you may only qualify for an FHA loan. If that’s the case, you will be required to have MIP. PMI is not meant for FHA loans.

Conclusion

There are two types of mortgage insurance: PMI and MIP. PMI is required for conventional loans with a down payment of less than 20% and MIP is required on FHA loans. Mortgage insurance protects the lender in case the borrower defaults on the mortgage. Although it’s a fee, the insurance benefits the buyer because it eliminates the 20% down payment requirement.

Your lender can help you determine which type of mortgage is best for you, how much money to put down and how much MIP or PMI you will be required to pay.

The post PMI vs MIP: Which is Right for Your Mortgage by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Home Equity Agreement Explained: Benefits and Risks

Ethan Roberts — Mon, 21 Oct 2024 16:22:53 +0000

The post Home Equity Agreement Explained: Benefits and Risks by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Sometimes, circumstances in life come along where one is sorely in need of cash, but their cash is tied up in illiquid assets. Home Equity Agreements (HEAs) provide the cash that a homeowner can access when such situations come along and their requirements are far less stringent than conventional home equity loans or refinances.

But there are significant pros and cons to consider before getting into this type of arrangement. Just as you looked at certain things when you bought your house, you should take a look at the intricacies of the hea Agreement and the benefits and risks of setting one up:

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What is a Home Equity Agreement (HEA)?

What is an HEA? A HEA is a contractual agreement between an investor and a homeowner in which the homeowner receives a lump sum of cash in return for giving up a portion of the equity in the home and future appreciation on it. However, this is not a contract to be taken lightly, as the homeowner may exchange future wealth for a large sum of cash today. A typical Home Equity Agreement usually has a finite term of 10 to 20 years.

It’s one of the few financial options that allows a person to tap into their equity without taking on additional debt or selling the property. Funds from the HEA can be used for any purpose, but some lenders may restrict them until a certain amount of debt is paid off. This is particularly true if the homeowner has a low credit score or a high debt-to-income ratio.

How Does an Equity Agreement Work?

When a homeowner contacts an investor or specialty lender, the lender sends out an appraiser to evaluate the home. Upon completion, the lender makes the homeowner an offer on the amount it will pay for a certain portion of the home’s equity. If the homeowner approves the terms, the lender completes the deal and the homeowner pays the closing costs.

The lender then pays the owner a lump sum at closing and places a lien on the home for the agreed-upon amount. When the agreement expires or if the home sells first, the homeowner pays back the lender’s original principal plus a portion of any appreciation in the updated value of the home.

Homeowners must maintain the value of their property by making repairs, paying their property taxes and purchasing homeowners insurance.

If the home’s value decreases over the agreement’s life, the amount to be repaid will also decrease because the amount given to the lender is based on the home’s value at the end of the term. If the home is not sold, the homeowner will still have to repay the original principal plus a percentage of the appreciation within that time frame.

How Much Does a Home Equity Agreement Cost?

The following fees are typical for a homeowner to pay for an HEA loan:

An Origination fee of 3% to 5% of the cash advance

Appraisal: Usually about $500

Home Inspection: Typically $350 to $500

Title Insurance: Between 0.1% and 2% of the value of the home

Escrow Services: $250 to $500

Risk adjustment: Some lenders charge a percentage deducted from the appraised value to protect the investor from future market conditions. The fee can range from 2.75% to 20% of the appraised value!

These fees add up and take a sizable portion of the immediate cash. The good news is that they can be subtracted from the equity being received rather than paid upfront.

What Are the Requirements of a Home Equity Agreement?

The requirements of an HEA are not stringent, but there are several to know:

The home must appraise over a certain value for the contract to work
A low credit score may restrict the amount of funds the lender will give
The homeowner must pay closing costs such as appraisal, origination fee, title insurance, etc.
The home must be a single-family or multifamily with up to four units. Manufactured homes, farms and apartment buildings are not eligible.
The HEA must be a first or second lien on the home. Homes with two mortgages are not eligible.
The home must be in a state where an HEA Loan is available. Not all states permit HEAs.
The equity in the home must be over a certain percentage level compared to the mortgage owed

This last requirement is known as the loan-to-value (LTV) ratio, which is calculated by dividing the current loan balance by the home’s appraised value and multiplying that number by 100. If the current loan balance is $200,000 and the home appraises for $500,000, the LTV ratio would be 40%.

HEA lenders typically require 20% home equity or more before granting a HEA. The usual credit score needed is 500 or better, but that’s about 120 points lower than the standard requirement for a home-equity loan or line of credit. Some homeowners might want to be able to get a home equity agreement soon after buying their home, but just like with a HELOC, it would be tough to have enough equity in the home to make it worthwhile.

Home Equity Agreement Pros and Cons

Like all financial products, home equity agreements have their pros and cons.

The pros of the home equity agreement are:

No monthly payments are required
A Lower credit score may not be a factor
There is no interest paid on the principal
It’s easier to be approved
Few restrictions on how the money can be used
Many HEAs do not include a prepayment penalty

The cons of the HEA are:

It may require more home equity than the homeowner wants to give up
The principal has to be repaid at some point or when the home is sold
A large amount of appreciation could be lost
The lender puts a lien on the home
It’s not available in every state

You can see that the home equity agreement pros and cons are about evenly divided.

How To Apply for a Home Equity Agreement

Before you apply for a home equity agreement, you should ask yourself some basic questions, such as what you need the money for, how long you plan to live in the home and whether it makes sense to wait or look for a different type of financing.

Here are the steps a homeowner should take to apply for an HEA:

Get a prequalification estimate from an HEA provider
Shop around and compare costs, funding amounts and eligibility criteria
Submit a full application to a provider. The paperwork needed includes a mortgage statement, proof of homeowner’s insurance and a government-issued photo ID
Get an appraisal from the provider
Receive the offer
Sign the agreement

When Should You Consider a Home Equity Agreement?

A homeowner should consider getting a home equity agreement if quick cash is pressing and their income, credit scores and other finances would make them ineligible for a home equity line of credit or home equity loan. If someone has substantial income, excellent credit and other assets, they would be better off with another type of loan. The costs and sacrifices made for the HEA are otherwise just too great.

On the other hand, if your credit history is not great or your debt-to-income ratio is high, the HEA might be the best option. If interest rates are high and trending higher, the HEA might be a better alternative than a Home Equity Line of Credit with variable interest rates. No interest is ever paid on a home equity agreement.

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Conclusion

A home equity arrangement is a financial product that can provide a homeowner with needed funds. The requirements for these products are less stringent than those for a regular mortgage because the home becomes the collateral for the money received and the lender risks the cash for the prospect of future appreciation.

Procuring a home equity agreement offers many benefits to the homeowner, but there are also risks and disadvantages, including high costs. Homeowners should consult with a qualified financial planner or Certified Public Accountant (CPA) before considering a home equity agreement.

The post Home Equity Agreement Explained: Benefits and Risks by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

What is a Sale-Leaseback Arrangement

Ethan Roberts — Thu, 17 Oct 2024 20:02:12 +0000

The post What is a Sale-Leaseback Arrangement by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

The sale-leaseback concept is the perfect quid pro quo (a Latin term meaning something for something) between two businesses. One company is looking to dispose of an asset to free up needed cash and the other is looking to add to its portfolio of assets and generate monthly income from that asset. The buyer has the cash or access to reasonable-cost financing to secure a positive capitalization (cap) rate from the lease.

However, risks are always involved in any business transaction and each side involved in the sale and lease-back real estate transaction will undertake a few risks and several benefits. Understanding the sale-leaseback arrangement and how to mitigate those risks is crucial for any party considering such a transaction. Take a look at the process:

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What is a Sale-Leaseback Arrangement

A sale-leaseback arrangement is a business transaction in which one company sells an asset, such as real estate and then immediately leases it back from the new owner for a specified time frame. It is a two-part transaction that requires contracts to be signed by both parties. There are many advantages to the sale-leaseback for both sides, but there are also some disadvantages to pursuing this type of deal.

Understanding Leasebacks

A sale-leaseback arrangement provides the seller with needed capital while freeing up the equity in ownership. It provides the buyer with a real estate asset with an automatic tenant and likely a long-term lease.

Unlocking the capital from its real estate asset allows the seller to reinvest in the business, pay down debt or provide value to shareholders and investors. The business’s financial ratios may improve, making it more attractive to investors or lenders.

The seller disposes of some risks involved in owning real estate, such as depreciation and obsolescence. Unless the arrangement is a triple-net lease, the seller also reduces any previous responsibility to maintain the property. This allows the seller to focus more on the business and not spend time and money on property management. In addition, the seller can negotiate an acceptable lease agreement with the acquirer.

Although the sale may result in a capital gain tax, leasing the property may be tax-deductible as an operating expense.

Why Would Someone Need a Sale-Leaseback

A sale-leaseback arrangement is mainly used to free up capital tied to a fixed asset, such as real estate or even heavy equipment and machinery. When businesses are trying to grow and expand, they often find they don’t have sufficient capital and have the risk of losing an expensive asset during an unforeseen financial crisis.

The lease-back brings quick cash without disrupting business operations in any way. The lease-back also reduces tax liabilities, debt to improve the balance sheet and costs if the rent is less expensive than the mortgage. Profits from the sale of the asset can be deferred for the duration of the lease contract if desired.

How to Identify a Sale-Leaseback Transaction

There are several ways to identify a sale-leaseback transaction. These are:

The seller simultaneously enters into a lease with the buyer to continue using the property.
The seller continues to use the property as a tenant after the sale.
The seller receives immediate capital while still controlling the asset.
The seller seeks to improve capital, restructure its debt or adjust its financial statements through the transaction.
A sale agreement and lease agreement between the parties involving the same asset must be present.
The asset type, such as real estate or manufacturing equipment, is highly valued.

How Does a Sale-Leaseback Transaction Work

There are two parts to the sale-leaseback transaction: the sale agreement and the lease agreement. The sale agreement contains all the details of the sale, such as names of both parties, property address, sale price, disclosure of property condition or any hazards, contingencies and terms and conditions of the sale. The buyer must perform the usual due diligence for buying a commercial property and consider metrics like location, tenant quality and market trends.

The lease agreement is a contract between the new owner, now the landlord and the former owner, now the tenant. The typical lease agreement ranges from 5-10 years and this should be clearly stated. If there’s an option to extend the lease, it should also be stated, along with any conditions that would change with such an extension (e.g., rent increases). Other terms in the lease agreement include names and contact information for both parties, the security deposit amount and additional costs such as parking, maintenance or taxes and insurance if it is a triple-net lease.

The difference between a lease and a sale-leaseback is that, in the former, the asset has not changed hands and the landlord does not give the tenant money. In the latter, the asset does change hands with an exchange of money for the asset.

The Pros of a Sale-Leaseback

There are many pros to both sides of a sale-leaseback arrangement. These are the pros for the seller-lessee:

The seller can convert an illiquid asset (real estate) into liquid capital that can be used for paying down debt, purchases or growing the business in other ways.
Improves the seller’s debt-to-equity ratio, allowing them to secure future debt financing.
The seller can extract 100% of the fair market value of the real estate, compared to only 80% with a cash-out refinance loan.
The seller can lock in a long-term rental rate and terms that create security and predictability for the future.
The seller gets a new tax write-off by leasing the property.
The seller maintains full operational control of the property.
The seller gains a long-term capital partner, which may be beneficial should they need capital again.

The Pros for the Buyer-Lessor are:

Acquisition of an asset to increase long-term rental revenue.
A guaranteed long-term tenant from day one with no vacancy.
The ability to secure a triple-net lease with annual rent escalations.
Growth of asset equity.
Potential future appreciation of the asset.

The Cons of a Sale-Leaseback

All business transactions or investments involve risk, especially in commercial real estate. Although the sale-leaseback arrangement offers many advantages for both parties, it also has potential cons or disadvantages.

The cons or disadvantages, of a Sale-leaseback arrangement to the seller-lessee are:

The removal of the asset from the seller’s balance sheet.
Incurring a capital-gains tax for that tax year.
Increased rental costs for the seller going forward.
The seller no longer builds equity in the asset for themselves.
The seller misses out on potential appreciation.

The cons or disadvantages, to the buyer-lessor are:

Having to renegotiate the contract if the seller defaults on rent.
The buyer becomes the primary creditor/owner should the seller file for bankruptcy.
The buyer sees a reduction in capital or takes on additional debt to finance the asset.
The risk of asset depreciation.
Ensuring compliance with landlord-tenant laws.

Example of a Sale-Leaseback Transaction

So, how does a sale-leaseback work? One example occurred on Dec. 29, 2023. Four Corners Property Trust Inc (NYSE: FCPT), a diversified Retail Real Estate Investment Trust (REIT), purchased a Tire Discounters property in Kentucky for $1.8 million in a sale-leaseback transaction.

With this purchase, the buyer-lessor, Four Corners Property Trust, secured a long-term, triple-net lease with Tire Discounters (seller-lessee), in which the tenant pays all operating costs, such as taxes, building insurance, maintenance and rent.

With this sale-leaseback, Tire Discounters immediately increased its capital by $1.8 million (excluding closing costs) and became the lessee of the building it formerly owned.

Thus, in this sale-leaseback agreement, each party received something they wanted: Tire Discounters received the cash they needed and Four Corners acquired another property with a long-term tenant.

Conclusion

One can easily see why the sale-leaseback arrangement is the perfect Quid pro quo, with both sides having their immediate needs met legally and ethically. It is an ideal arrangement for two companies with opposite needs and the assets to make it happen. While each side has disadvantages in a sale-leaseback transaction, the benefits seem to outweigh any risks or challenges of the deal.

The post What is a Sale-Leaseback Arrangement by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

What is a Qualified Mortgage?

Ethan Roberts — Tue, 15 Oct 2024 19:35:50 +0000

The post What is a Qualified Mortgage? by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Owning a home is and has been the American dream for decades. Most people go to a lender and inquire about how to qualify for a mortgage. They want to know how much house they can easily and safely afford. Today, a standard in the mortgage industry called the Qualified Mortgage (QM) makes it easier for consumers to pay off a home with less risk of defaulting on the loan. Take a look at some of the history that led to the creation of the QM and how it works.

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In the 1990s, politicians were determined to pass laws so everyone could own a home. However, they neglected to ensure that safeguards were put in place to protect consumers from lenders who might take advantage of them through unethical loan terms. There were few protections for lenders from lawsuits by borrowers who did not qualify to buy a home using typical lending standards.

Subprime mortgages had been around for many years but were rarely used. However, in the early 2000s, the creation of pooled mortgage-backed securities (MBS) encouraged an increase in subprime 100% loans, in which a borrower could get an 80% first loan and a 20% second loan and not have to put any money down. This led to a housing bubble with home prices skyrocketing, which finally crashed in 2008 when home prices declined and the MBS market collapsed. Approximately 8.6 million people lost their jobs between 2008-2009.

In 2008, 861,664 families lost their homes to foreclosure; by 2009, another 2.8 million homes were foreclosed. Many who took out 100% loans (no down payment required) owed more on their mortgage than the house was worth and simply moved out. Some had taken out Principal and Interest-only loans and didn’t understand they needed additional money for taxes and insurance.

In 2011, the Federal Reserve proposed a rule called the Qualified Mortgage to bolster the housing market. This rule applies to a type of loan with certain, less risky features to ensure that consumers can reasonably be expected to repay their loans. The newly created Consumer Financial Protection Bureau (CFPB) took over responsibility for the Qualified Mortgage rule in 2013 and it became effective in 2014.

How Qualified Mortgages Work

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the 1968 Truth in Lending Act (TILA) to establish ability-to-repay requirements for most residential mortgage loans. The Qualified Mortgage is a category of loan requirements by which lenders may presume that a borrower can repay the loan without missing payments and ultimately defaulting. There are a series of rules that the lender must follow and requirements that the borrower must meet to be eligible for a Qualified Mortgage. These include:

Ability-to-Repay Rule

The Ability-to-Repay Rule for a qualified mortgage mandates that a lender must make a reasonable and good faith determination that a potential borrower can repay a loan before giving that person a residential mortgage.

To make this determination, the lender must consider and document a person’s entire financial status, including income, assets, debt-to-income ratio, employment history, credit history and monthly expenses.

Suppose the lender provides the borrower with an adjustable rather than fixed interest rate. In that case, they cannot simply use a low starting rate, sometimes called the “teaser rate,” to determine qualification. They must also calculate eligibility using the higher rate the loan will become in later years.

This qualified mortgage rule protects borrowers from getting in over their heads on a loan they cannot afford. There are many costs associated with mortgages and the lender must ensure that the borrower can afford them all. It also protects lenders from accusations of “predatory lending” (unfair or abusive lending practices to take advantage of a borrower) should they default on the loan at some point.

Restrictions on Risky Loan Features

To minimize the potential of the borrower defaulting on a residential mortgage, qualified mortgages do not permit higher-risk loan features such as:

An “Interest-only” period where only interest, but no principal on the loan, is paid down.
“Negative amortization,” which allows the loan principal to increase over time, even as the borrower makes regular payments.
“Balloon Payments,” a much larger-than-usual payment at the end of the loan term.
Loan terms longer than 30 years.

The Federal Housing Administration (FHA), in particular, has cracked down on mortgage lenders who have violated these rules in the past by withdrawing FHA approval, suspending them or putting them on a probationary period.

Pricing Limits

Another way that the CFPB protects consumers from default is by mandating that the annual percentage rate (APR) on a qualified mortgage must remain within a particular threshold, depending on the type or size of the loan.

In December 2020, the CFPB established pricing thresholds based on the spread of a loan’s APR compared to the Average Prime Offer Rate (APOR). The APOR is a benchmark rate based on average interest rates, fees and other mortgage terms offered to highly qualified borrowers.

In other words, the APR (sum of all points and fees plus the interest rate) cannot be significantly above the average annual interest rate.

Limits on Points and Fees

Points are prepaid interest at closing or rolled into the loan that borrowers pay to lower the interest rate on a mortgage. However, limiting the points and fees on a mortgage is a way to keep costs down for the borrower. One point on a mortgage usually costs 1% of the mortgage amount and will reduce the interest rate over the life of the loan by 0.25%.

In 2024, the total points and fees threshold is:

3% of the total loan amount for a loan greater than or equal to $130,461

$3,914 for a loan amount of $78,277 or more but less than $130,461

5% of the total loan amount for a loan of $26,092 or more but less than $78,277

$1,305 for a loan amount of $16,308 or more but less than $26,092

8% of the total loan amount for a loan less than $16,308.

General-Definition Qualified Mortgages

The General Qualified Mortgage is commonly referred to as a Qualified Mortgage. As cited above, they have strict rules to ensure borrowers can afford to make monthly mortgage payments. The key points are reasonable fees, safe features, ability-to-pay and debt limits – generally no more than 43% of gross income.

Small-Creditor Qualified Mortgages

A small-creditor Qualified Mortgage is a loan designed for credit unions, community banks and other smaller lenders. The rules for these loans are more flexible than those for other Qualified Mortgages and the loans stay with the lender rather than being sold.

There are four requirements for the lender to make these loans:

The lender must have less than $2 billion in assets and make fewer than 500 loans yearly.
The lender must keep the loan and not sell it to big investors
Flexible rules for local and smaller communities
Loans made in some rural areas may include a large balloon payment at the end

What Is A Nonqualified Mortgage?

A Nonqualified Mortgage (non-QM) is any mortgage that does not meet the qualified mortgage definition set by the Consumer Financial Protection Bureau. Non-QM loans are available for borrowers who don’t qualify for a traditional mortgage, such as persons with irregular income, low credit scores or multiple income streams. Two examples of non-qualified mortgage lenders found online are CrossCountry Mortgage and Angel Oak Mortgage Solutions.

The non-qualified mortgage has different eligibility requirements than the Qualified Mortgage and the interest rates and closing costs are usually higher. The non-qualified mortgage uses bank statements or asset consideration as alternative underwriting methods. Since the qualified mortgage model is not utilized, the lender assumes more risk for issuing the loan.

Conclusion

The qualified mortgage definition is a loan with strict rules and requirements to ensure that consumers can afford their residential mortgage payments and are not at risk of default. It began as a way to temper the number of foreclosures that were crushing the real estate market. A Qualified Mortgage restricts the number of points a lender can charge, puts a ceiling on interest rates, limits high-risk loan features and, most importantly, ensures that a borrower can repay the loan based on current income and debt levels.

In addition to protecting the borrower, it protects the lender from being accused of making a predatory loan because if the lender documents everything required for a Qualified Mortgage, they can prove to the CFPB that everything was done according to the law.

The post What is a Qualified Mortgage? by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

What Is a Loan Estimate or Good Faith Estimate?

Ethan Roberts — Fri, 11 Oct 2024 10:45:31 +0000

The post What Is a Loan Estimate or Good Faith Estimate? by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

For borrowers to receive a clear and detailed guide of all the costs and fees of taking a mortgage, the law requires mortgage companies to provide an estimate of those charges. This was originally called a good-faith estimate (GFE), but the “Loan Estimate” was created by the Consumer Financial Protection Bureau (CFPB) in 2015 to differentiate it from the Good Faith Estimate. Today, a GFE is only used for reverse mortgages, a type of mortgage where the lender pays the homeowner a monthly amount that reduces the equity in the property. The simpler loan estimate is used for all purchase mortgages.

The loan estimate must be given to the borrower within three days of completing the mortgage application process. Because the loan estimate form is standardized and should be the same for all lenders, you can shop around with different lenders for the lowest mortgage rates. This helps the borrower achieve the best rates and terms for the loan. The loan estimate is usually only valid for 30 days but can be extended to 45 days if newer income documentation is presented to the lender.

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What is Included in Your Mortgage Loan Estimate?

A loan estimate example includes a summary of the monthly payments and any other regular costs. The breakdown is principal, interest, taxes and insurance or PITI. If mortgage insurance is also required, that will be part of the loan estimate too. The closing costs to be paid and the loan terms, such as number of months, prepayment penalties and interest rate will be on the estimate.

The loan estimate is not binding because interest rates and other costs can change. It’s simply a guide for an approximate total of the mortgage costs. In addition, receiving a loan estimate does not mean the borrower automatically qualifies for a loan. It only shows what the lender expects to offer you. Should you decide to move forward with the loan, you will be asked for additional financial information that will be used to determine loan eligibility.

Interest Rate and Annual Percentage Rate (APR)

An interest rate is the cost of borrowed money and is always expressed as a percentage. For example, if John and Betty have a 5.5% mortgage on their home they will pay 5.5% of the loan amount (not the home price) per year in interest. On a $300,000 home, they would pay $16,500 in interest in year one. In the second year, they would still pay 5.5% interest, but it would be on a smaller loan amount due to the principal paydown that occurred in year one.

The Annual Percentage Rate or APR, is the actual amount paid, including the interest, closing costs and other fees associated with acquiring the loan, such as an origination fee, mortgage points, private mortgage insurance and underwriting fees. It’s a more accurate representation of the total mortgage cost than just the interest rate and that is why the law requires mortgage companies to list the APR along with their interest rates.

Detailed Monthly Payment Estimate

A detailed monthly payment estimate should include the principal and interest, monthly and annual taxes, monthly homeowners association (HOA) dues, insurance and PMI. In addition, it should note the loan term, interest rate, whether the rate is fixed or adjustable, the purchase price and down payment amount.

Itemized Closing Costs

The good faith estimate must include itemizing all fees and costs associated with the loan. These include:

Title Insurance (varies by state, typically 0.1%-2% of the purchase price)
Loan origination fee (about 1% of the loan amount)
Real estate appraisal ($300-$800 for the typical single-family home)
Property taxes (2-3 months escrowed, the amount depends on home value and tax rate)
Escrow or closing fee (1-2% of the sales price)
Homeowners Insurance (varies, usually 10-20% of the annual premium)

Prepaid Interest

Many borrowers don’t realize it, but the lender requires interest to be paid on a loan at closing rather than at the time of the regularly scheduled payment. The borrower will pay the interest due from the day of the closing to the end of that month. The following month, no mortgage payment is made; however, the month after that, the first regular payment is due.

For example, John and Betty close on a home on September 25. At the closing, they must bring six days of prepaid interest to cover the period from Sept. 25 to September 30. They have no mortgage payment due in December and their first mortgage will be due in January. In that way, mortgage payments are always one month in arrears, but the additional days from closing until the end of the month are paid.

If a borrower chooses to take a mortgage point to reduce the interest rate, that amount is included at closing as prepaid interest.

Escrow Expenses

Escrow expenses are the fees that a borrower pays the closing agent during the home closing. The expenses include recording the deed, distributing funds to all appropriate parties and paying the title company or attorney who holds the closing. Other paperwork and actions are also involved. For example, the closing agent must send all the signed paperwork to the mortgage company for final approval before the closing is official. A few weeks after the closing, the closing agent will send the buyer the officially recorded deed by the county.

Escrow expenses can be paid by either the buyer or seller or both can split the costs.

Importance of the Loan Estimate for Borrowers

The significance of the loan estimate for borrowers cannot be stressed too much. If borrowers were not given a complete and detailed estimate, they would have no idea what their monthly payments would be, nor would they know how much money was needed to bring to closing. In essence, they would be operating in the dark and at risk for fraud or not having sufficient funds to close on the home.

How To Get a Loan Estimate

It is quite easy to get a loan estimate. Once you’ve found a home, you can contact multiple lenders for loan estimates. Having more than one loan estimate can save you hundreds of dollars annually on the interest rate and terms.

No written documentation is required and you do not need a signed purchase agreement to get a loan estimate. The lender is required to give you a loan estimate once you’ve submitted the following six pieces of information:

Name, income, social security number, address of the home you plan to purchase, estimate of the home’s value and the loan amount needed.

It’s also a good idea to submit information on the property taxes and condo or homeowners’ association dues, although the lender can look these up online if you don’t know them.

Conclusion

Every prospective homeowner wants to find the best home loan rates and the loan estimate is an important way to quickly secure low mortgage rates and terms. It’s not always easy to find the lowest mortgage rates because rates can change almost daily and one must compare fixed rate to fixed rate or adjustable rate to adjustable rate of the same term. You will also want to ensure that the different rates and terms are for the same type of mortgage, Conventional, VA, FHA or USDA.

Remember that the loan estimate is merely the first step of the long loan process and is not the same as getting a preapproval or prequalification. And finally, the loan estimate is just that- an estimate and the final numbers could be lower or higher. Most mortgage lenders are careful to err on the high side so the borrower is relieved to see a lower amount that needs to be brought to the closing table.

The post What Is a Loan Estimate or Good Faith Estimate? by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

What Are Property Taxes-A Comprehensive Guide

Ethan Roberts — Thu, 10 Oct 2024 18:35:58 +0000

The post What Are Property Taxes-A Comprehensive Guide by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Prospective buyers need to know all the expenses they must pay regularly to understand the responsibilities of homeownership. A home is the biggest expense of a person’s life, but the long-standing American dream of homeownership continues today, despite higher prices and mortgage rates.

This article will provide a comprehensive guide to what are property taxes, their use by local government, how to calculate the amount you will pay, how to pay them and what happens if you don’t pay them.

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When mortgage lenders quote a prospective homeowner a monthly payment known as P&I, that refers to the principal and interest paid on the loan. But anyone who owns a home must also pay property taxes. Mortgage borrowers are also required to have insurance, which protects the lender from calamities like fire, flooding or other destruction of the property. Someone who pays cash or inherits a home without a mortgage is not required to have insurance, but it is advisable to have it.

So, if a lender quotes you the PITI of a home, that means the principal, interest, taxes and insurance are bundled into one total monthly payment. You can use a mortgage calculator before meeting with a lender to get a general idea of what the PITI will be for different home prices or you can get an estimate based on a $300,000 home.

Understanding Property Tax

Property tax is an annual or semiannual charge levied on homeowners by local governments and paid by real estate owners within that location. Property tax is a part of owning a home. The money you pay in property taxes goes to the local government for projects and services such as roads, schools, police and fire departments.

How Does Property Tax Work?

To understand how property taxes work, you need to know that they are ad valorem, meaning “according to value.” They’re based on the assessed value of the property being taxed – in this case, real estate.

Property tax rates vary by state. New Jersey, Illinois and Connecticut have the highest property tax rates, while Hawaii, Alabama, Nevada, Arizona and Colorado have the lowest rates.

How To Calculate Property Tax

Prospective homeowners often want to know how property taxes are calculated. Local governments set a county tax rate or mill rate. The mill rate is the percentage at which you’re taxed. One mill equals $0.001 or to simplify, the tax is $1 for every $1,000 of your property’s assessed value. To calculate your property tax, multiply the property’s assessed value by the mill rate. If there are any voter-approved levies or assessments, these will be added to the property tax amount.

Every one to five years, the county tax assessor assigns a dollar amount for property values in that county. The assessment rate is a percentage of the market value.

Example: If the assessed value of your primary residence is $300,000 and your mill rate is 12, since there are 300 $1,000s in your assessed value, you would be taxed $300 x 12 or $3,600 for the year.

A “Homestead exemption” is a statewide discount in which a portion of the home’s assessed value is protected from taxation, thus reducing the taxable value of a primary residence.

Additionally, certain persons may qualify for further exemptions. Senior citizens over 65 with income restrictions or residency requirements, Veterans and persons with disabilities often qualify for these exemptions. In some states, such as Iowa and Florida, a disabled Veteran may receive up to a 100% property tax exemption.

Contact your local county tax office to see if you qualify for a real estate tax exemption.

Property Tax vs. Real Estate Tax

Property and real estate taxes are often used interchangeably but have different meanings. When people ask, “What are personal property taxes?” they may be referring to something other than their home. The personal property tax definition is a tax on personal items such as cars, boats, equipment and furniture. Real estate taxes are the taxes paid on the assessed value of your home and are charged by the local government.

Where the Property Tax Goes

Many people feel they pay too much in taxes but don’t always understand where their property tax goes and how important it is for the community to function properly. Property taxes fund public service projects such as water and sewer improvements, garbage collection, first responder (police and firefighter) services, schools, parks, road infrastructure and libraries. Can you imagine what would happen if everyone stopped paying their real estate taxes? Our property taxes fund these vital services and society would not function well without them.

How To Pay Your Property Tax

There are two ways to pay your property taxes. If you have a mortgage, the mortgage company holds part of your monthly PITI payment in escrow and automatically pays your property taxes in the month they’re due. Even if you miss a mortgage payment or two, the lender will still pay your property taxes to avoid a tax lien.

If you don’t have a mortgage, you would pay your property taxes directly to your local tax office. For a list of state tax offices, click here.

Prospective homeowners often ask their lender or Realtor, “When do you pay property taxes?” The answer is that it varies from state to state and can be anywhere between April to December. The tax bill will usually be sent to the homeowner about 1-2 months before the tax is due. You may also receive a tax estimate before sending the official tax bill. If you wish to dispute the amount of taxes you owe, the tax assessor’s office usually has a website or phone contact where you can state your case.

Another frequently asked question is, “What happens if you don’t pay your property taxes?” Unfortunately, the answer is that your unpaid amount becomes a lien against the property. The property becomes collateral for the debt owed and you could lose your home to a tax sale. In some states, such as Florida, the tax collector will sell your lien in a tax lien sale. At that point, you can pay off the lien, but if you don’t, the collector can sell your property in a tax deed sale. You can still pay off the taxes owed, but you will also have interest and other costs or charges to pay.

Some companies can provide you with property tax loans, but while this will prevent your home from going into foreclosure, the interest on such loans can range from 12% to 18%. Therefore, if you don’t have a mortgage company escrowing tax money for you, the best idea is to budget for the property taxes you know will be coming due.

Making mortgage and tax payments on time is especially important for improving one’s credit score. So, you can see how important paying one’s property taxes is for local communities across the United States and for your benefit.

The post What Are Property Taxes-A Comprehensive Guide by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Florida Real Estate Market Forecast 2024, 2025, 2030

Ethan Roberts — Tue, 08 Oct 2024 16:55:37 +0000

The post Florida Real Estate Market Forecast 2024, 2025, 2030 by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

Florida has been and is still a great place to buy real estate, whether for a primary residence, second home or real estate investing. But what is the Florida Real Estate Market Forecast for 2024, 2025 and 2030? Take a look:

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Current Overview Of Florida Real Estate

Redfin recently reported that although starter homes have risen 4.2% year-over-year, affordability measures in several Florida metropolitan areas have changed from “unaffordable” to “affordable” within the past year.

The $76,995 income needed to afford the median-priced starter home of $250,000 declined by 0.4% because mortgage interest rates dropped from 7.07% to 6.50%. However, the average starter home may be a condo or townhome today, whereas a decade ago it would have been a turnkey four-bedroom home in a nice neighborhood.

After several years of low inventory levels, with sellers not wanting to give up their 3% mortgages, inventory levels have risen 36.2% in 2024. The median sales price as of July was $416,990, an increase of only 0.5% year-over-year. As of August, 32,061 homes sold year-over-year, a decrease of 5.2% from 2023. In addition, the 61 median days on the market increased by 18 days year-over-year. Zillow’s latest mortgage interest rate data for a 30-year fixed mortgage is 6.01%, but Bankrate shows it at 6.21%.

The Florida housing market still favors sellers. Demand for good homes still outweighs supply, recently about 4.3 months (6.0 is balanced). House prices have diminished slightly but are still running ahead of 2023. A new wave of buyers hit the market in September as the Fed cut its benchmark interest rate by 50 basis points. However, some may still not qualify for a mortgage at present levels.

So, with high house prices and mortgage rates above 6%, is it a good time to buy a house?

Factors Influencing Real Estate Prices

Factors influencing real estate prices include job growth, inventory levels, demographics, the economy and demand from other states and international buyers. Job growth in Florida is excellent, inventory is still low and demand remains high. While Florida was once considered a place for retirees, over the past several decades, more people of younger generations have moved there. Two reasons why are the Florida economy is good and there is no state income tax. The influx of younger generations has maintained high Florida house values.

What Makes Florida Real Estate Prices Go Up?

Supply and demand drive home prices. High demand continues as people worldwide are attracted to Florida and the inventory of homes cannot seem to keep pace with the demand. People are attracted to the climate, beaches and lower cost of living. In June 2024, prices in Florida hit an all-time high with a median house price of $419,000. With mortgage interest rates slated to decrease further, there remains room for more appreciation.

What Makes Florida Real Estate Prices Go Down?

Just like anywhere else, economic conditions could bring the price of homes down in Florida. Florida had one of the highest foreclosure rates in the U.S. during the Great Recession of 2007-2009. Foreclosed homes were selling for 30%-50% below the highs of 2006 and they dragged prices down on non-foreclosed homes, too.

A decrease in demand could also reduce prices. In May 2024, researchers from Florida Atlantic University and Florida International University determined that nine Florida housing markets were among the most overpriced in the U.S. All nine were in double digits, with Miami at 34.7%, ranking 11th among the most overpriced U.S. housing markets. When homes are overvalued, people may move to less expensive states.

Experts Are Predicting Higher Florida Home Prices By 2030. Ready To Buy A Home Now? Find The Best Lender Here.

People may be surprised to learn that the average 30-year mortgage rate increased from 6.08% to 6.12% last week. It was the first increase in seven weeks. That’s because the U.S. 10-year treasury bill bottomed on Sept. 13 at 3.59% and has since increased to almost 4% as of October 4. Since mortgage interest rates are closely tied to the 10-year treasury bill, this may cap the recent surge of buyers seen after the Fed lowered interest rates in September.

However, even with higher rates, leading real estate website Zillow expects house values to increase by 2.1% in 2024, above their previous projection of 1.8%.

According to the June 2024 updated Southeast Florida Housing Outlook, mortgage rates will be 6.6% by the end of 2024. Existing home sales will decline by roughly 5.5% in 2024. Despite the lower sales, single-family home prices will rise by 7%.

Florida Real Estate Forecast For 2025

The Southeast Florida Housing Outlook also noted that the projected interest rate cuts and strong economic fundamentals in Southeast Florida should lead to a sales recovery and sustained price growth in 2025. There will be strong demand for single-family homes and flat sales of condominiums. Single-family home prices could rise nearly 10% in 2025.

Of course, projections are never perfect and the Outlook was created by Gay Cororaton, the Miami Realtor’s Chief Economist. Real estate economists often have unbridled optimism. Ms. Cororaton sees interest rates declining to 5.7% by the end of 2025 with the Fed cutting rates four times.

So is it a good time to buy a house? If the predictions are true and lower interest rates, lower taxes and a strong economy spur increased demand, then it’s still a good time to buy a house. By waiting, Florida could become much more expensive.

While mortgage rates are expected to tick lower as the Fed cuts interest rates again by the beginning of 2025, homebuyers should not expect to see the 3% mortgages again that were prevalent in 2020-2021. Greg McBride, chief financial analyst at Bankrate, thinks the low 5% range is more realistic if the U.S. gets a soft economic landing.

Florida Real Estate Forecast For 2030

Housing market predictions are always subject to unknown economic factors. Few people in 2003 could have predicted the Great Recession of 2008, which devastated the U.S. real estate housing market. Another factor that makes housing market predictions tough is that housing market news comes out at different times of the month, data varies from different sources and the data is often lagging.

While it’s more difficult to make a real estate forecast for the next five years in Florida, Dr. Lawrence Yun, the Chief Economist of the National Association of Realtors (NAR), recently said he believes the national market will appreciate 15% to 25% over the next five years. Working from home means more migration to areas such as Florida. If Yun is right, the forecast for Florida price appreciation should be equal to or greater than the national average.

According to Ken H. Johnson, an associate dean at Florida Atlantic University’s College of Business, Florida needs at least 200,000 new homes each year to keep up with demand, but only about 20,000 are built. That means it’s likely that house values will continue to rise.

Consumer sentiment among Floridians is climbing and they are optimistic about the next five years. In August, Florida’s unemployment rate was 3.3%, compared with 4.2% overall in the U.S. Since jobs drive demand and subsequently real estate prices, the low unemployment rate means increasing house values are likely.

Challenges And Opportunities In Florida Real Estate

It would take a strong recession to challenge the optimistic predictions for Florida’s house prices. Even hurricanes don’t seem to deter people from moving to Florida. Things could be more problematic for investors though. Rents will have to keep pace with housing prices for investors to generate a viable return on investment.

One possible opportunity for lower prices is if the next administration decides to limit hedge fund home purchases. If the hedge funds are forced to sell large positions, that would create a dramatic rise in inventory. Florida would quickly become a buyer’s market for both owner-occupants and investors.

Is Florida Real Estate A Good Investment?

Florida real estate has been a solid investment for a long time, as home prices have risen considerably over the past three decades and the demand for housing has been strong. Rental property demand has also seen large increases. Therefore, real estate investing in Florida has been lucrative, but it’s quite competitive, with many investors even bidding prices up on distressed properties.

However, there are some risks to investing in Florida Real Estate. Florida is a peninsula where hurricanes can destroy property, especially near the coasts. As of Oct. 1, estimated insurance losses from Hurricane Helene are at $656 million and rising. Thus, Floridians can expect their insurance premiums, which are already some of the highest in the U.S., to increase again.

On the other hand, property taxes are very low compared with other large states. On primary residences, state law limits the annual increase in the assessed value of homesteaded property to 3% or the Consumer Price Index (CPI), whichever is less. Homestead exemptions also decrease the property’s taxable value from $25,000 to $50,000.

The average Florida homeowner pays $2,338 in property taxes annually and its effective tax rate on the median home value is 0.91%. New York has an effective tax rate of 1.40%, Ohio’s is 1.59%, Texas 1.68% and Illinois is at 2.08%.

Conclusion

Most forecasts for Florida real estate in 2024, 2025 and 2030 are for lower interest rates, increasing demand for single-family homes and ultimately higher real estate prices. If you are interested in purchasing and want to learn more about buying a home in Florida, you should contact a reputable Buyer’s Agent and mortgage lender in specific areas in which you have interest.

The post Florida Real Estate Market Forecast 2024, 2025, 2030 by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

What To Know About Buying A Second Home

Ethan Roberts — Tue, 08 Oct 2024 16:13:11 +0000

The post What To Know About Buying A Second Home by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.

It’s fun to dream about buying a second home where one can go on vacation and get away from the daily grind of life. The great thing about a second home is that one can even pay for the upkeep by renting it out to others when not using it for themselves. However, there are many practical measures to consider before you buy that second home. Here’s what you need to know to have the best experience:

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Reasons to Buy a Second Home:

People buy a second home for many reasons, such as wanting to be close to other family members or friends, taking the family on vacation, getting away from big city life, engaging in recreational activities such as skiing, boating, or gambling, or simply investing in real estate with the potential for strong appreciation. With more companies allowing work-from-home arrangements, owners might want to work from a vacation area rather than their primary residence.

Many people from northern states and Canada buy second homes in areas like Florida. They are affectionately known as “snowbirds” because they like to spend winters near the sunny beaches. Other northerners prefer to buy a cabin or lake home for hunting or fishing.

Unless you have unlimited funds to buy a second home with all cash, you must secure a home loan. However, loans for second homes differ from primary residence loans, so it’s important to find the best home loan rates for a second home.

Second Home vs. Investment Property: What’s The Difference?

The main difference between a second home and an investment property is that the owner typically lives at the second home for a few weeks to a few months a year. The home may be rented short – or long-term to other tenants for the rest of the year. An investment property is usually leased to one tenant for a year or longer. The tax requirements are also very different, with investment properties having more deductions.

The IRS dictates that a second home must be 50 miles from the primary residence. Anyone renting a second home for less than 15 days per year does not have to report the rental income to the IRS; however, you cannot deduct rental expenses if you don’t report the rental income. Conversely, an investment home can be near the owner’s primary residence. They can even live in one half a duplex and use the other half as an investment property.

5 Things To Consider Before Buying a Second Home

Before buying a second home, you need to consider five things: location, purchasing costs, maintenance costs, mortgage payments, and taxes.

Location: Will the second home be in a resort, large city or vacation area where activities are abundant and it’s easy to rent when you’re not using it? Or will it be in a rural area where you’ll have more solitude and privacy but perhaps not as easy to rent? To increase the chances of renting it in a country setting, look for a second home on the water or close to a large body of water where renters can swim, water ski, fish or rent a boat.

Cost to Purchase: Besides the down payment, closing costs and other fees, there will be costs for buying furniture, appliances, and furnishings. Utilities, cable or internet must be turned on and may require deposits. Cleaning, mowing and other maintenance costs must also be factored in. Transportation costs to and from the second home should be considered. Some second homes may have quarterly or annual homeowners association (HOA) dues.

Monthly Mortgage Payments: Mortgage payments on a second home are usually higher than primary residence rates by 0.5% to 1.0%. In addition, if the down payment is less than 20%, Private Mortgage Insurance (PMI) will likely be added to the mortgage amount, ranging from 0.5% to 1.5%. Therefore, finding a lender with low mortgage rates is essential and one should carefully shop around. An online lender can be just as good as a local one.

If you have bad credit, getting a second home loan will be difficult. Buying a primary residence with bad credit is tough enough, and getting a second home is even more challenging. Fannie Mae requires a minimum credit score of 640 and a 25% down payment for a second home loan. One alternative might be to find a seller who will owner-finance the property. Some lenders specialize in poor credit, but that’s generally on primary residences.

Another possibility is to do a cash-out refinance on your primary home mortgage and use the cash for the second home. If you have enough equity in the home and a large Home Equity Line Of Credit (HELOC), you might also be able to use that to write your own loan. With the HELOC, there are no closing costs and no appraisal fee. The one disadvantage is that the interest rate is variable and could go up in an inflationary era.

Insurance: Second home insurance will be different from the insurance on your primary residence because you must have ample liability coverage for your guests or renters in addition to the standard dwelling and personal property coverage. Second homes are not typically occupied all the time, so they are at a higher risk for theft and liability. Second home insurance policies are often written on a “named perils” basis, covering only specific events outlined in the policy.

Property Tax: Property taxes may be tax-deductible but have a $10,000 limit. If you deducted $10,000 or more on your primary residence, the second home property taxes will not be deductible. Mortgage interest may or may not be deductible. You should consult with a Certified Public Accountant (CPA) or visit the IRS website (www.irs.gov) for more information.

Advantages and Disadvantages of Purchasing a Second Home

Advantages:

Ability to defray costs when not staying there:

A major advantage of a second home is that it can be rented to others when not used by the owner. The IRS mandates that for a property to be considered a second home, the owner must use it at least 14 days per year or 10% of the number of days it gets rented, whichever is greater.

Saves money on typical vacation expenses:

For people who like to vacation in the same area every year, having a second home there could save money on hotel rooms and dining out. There is more privacy, and you can remodel the living quarters to suit your taste and lifestyle.

Real estate investment:

Since homes usually appreciate over time, having a second home can provide you with a lucrative and possibly diversified long-term investment for retirement. Many resort and vacation areas in the U.S. have appreciated substantially over the last few decades.

Disadvantages:

Larger down payment requirement:

One disadvantage of purchasing a second home is that you need a 10%-20% down payment, whereas a primary residence can be bought with zero down (VA or USDA loans) or 3.5% (FHA).

Difficulty qualifying for a second home mortgage:

An existing mortgage on a primary residence may increase the difficulty of qualifying for a second home because it raises your debt-to-income ratio. If you qualify, in addition to the larger down payment, you will likely have a higher interest rate on the second home mortgage. Second mortgages also have closing costs that are paid upfront at closing.

You may have to work with a Realtor you don’t know:

If you were buying an investment home near your home, you probably already know two or three good Realtors. However, buying a second home far from your primary residence means working with unknown agents. Perhaps the Realtor who sold you your home can recommend someone in that area. If not, look for a Buyer’s agent with a good reputation in the second home area.

Difficulty in finding tenants and maintenance persons:

Since by definition the second home must be more than 50 miles from your primary residence, you can’t just drop by each time you want to interview a tenant or find a plumber or handyman. You need to rely on quality people from afar and grant them access to the home. One solution is to employ a property manager or use a company such as Airbnb Inc (Nasdaq: ABNB), but you must pay for those services. It may be worth the cost, as they can find qualified tenants and service people quickly and rent your home faster.

When Is The Right Time to Buy a Second Home?

You can buy a second home anytime, but perhaps the right time to buy is when you can easily afford it. If you are struggling to make ends meet and are paying an expensive mortgage on your primary residence, no matter how good a deal you find it’s not the right time to buy a second home. Your second home should be a source of relaxation and pleasure, not an additional financial burden that keeps you awake at night.

At some point in your life, you might decide to move into the second home and sell or rent the primary residence. Speak with a CPA about the tax implications of doing that.

So, it would seem that buying a second home is not as easy as buying your primary residence. Getting a second home loan is trickier, and you are not likely to find a no-credit loan or bad-credit home loan. There are additional costs you may not have considered, and finding reliable service people requires some networking.

On the other hand, the rewards of a second home are many. You may be able to work from your second home, entertain guests or simply relax by the water with a fishing rod in your hands. And when you’re not there, your tenants provide you with the passive income you need to pay the mortgage, utilities and other expenses.

The post What To Know About Buying A Second Home by Ethan Roberts appeared first on Benzinga. Visit Benzinga to get more great content like this.