Tag Archive for: home buying

Getting Your Finances Ready to Buy a New Home

Buying a new home takes planning, research, and patience. Not only are you considering the possibility of a new location, new schools, new employment, etc. you also need to consider the state of your finances. Is there room for improvement in this area? Have you saved up enough for a down payment? Now is a great time to figure out exactly what you need to improve and adjust so you can buy the home of your dreams.

What Do Lenders Consider When You Apply for a Home Loan?

During the process of obtaining and applying for a home loan, the lender will use various methods to determine if you are able to pay them back. They will want to see if you have enough cash to cover the down payment, if you have a steady income, and if you’re also able to cover the eventual costs of taxes, closing costs, and other fees. Your investments, bank activity, and other elements of your financial life will all be scrutinized.

They look at your banking and credit to see if you have a history of paying off debts, and they look at how much debt you have. This in-depth survey of your overall financial situation is so that they can best decide if you are a good candidate for a home loan.

How can I keep good credit or improve my credit?

Use Less Available Credit

Many credit experts say you should keep your credit utilization ratio — the percentage of how much credit is available to you and how much debt you have taken on — below 30% to maintain a good or excellent credit score. This is a good rule of thumb but the lower your credit utilization ratio, the higher the chance the lender will look at your application favorably. The less credit you use from what is available to you is a good indication that you are living within your means. 

Obtaining the highest possible credit score is important so lenders will offer you a good percentage rate on the loan. The higher the credit score, the lower the rate offered which can amount to tens of thousands of dollars saved over the life of the loan.

Pay Bills On Time

Credit scores are an accurate reflection of how well you are at maintaining consistency with paying your bills on time. If you miss even one payment, it can take a toll on your credit rating. Whether you want to get back on track or stay on track to buy a newly built home, pay your bills when they are due.

Avoid Opening New Lines of Credit

When you apply for a credit card or loan, the lender makes a hard credit inquiry into your finances. This can have an (although temporary) negative effect on your credit scores. In addition, having a mix of different types of credit accounts is looked upon more favorably by lenders, so try and have that established before the loan process.

Save For Your Down Payment

Being able to put down 20% or more for the down payment of your home is truly ideal – you will more likely be able to secure a loan and avoid having to pay PMI (private mortgage insurance). 20% down gives you a goal to work with while you are in the process of moving to Montana. The bigger the down payment, the less money you will have to borrow and the lower your mortgage will be. Plus, you’ll likely get a lower interest rate and will pay less for your home overall.

Manage Your DTI

Your debt-to-income ratio is very important to lenders, and if your DTI is over 43% you run the risk of not getting approved. The best way to lower your DTI is by paying down your existing debt. It is recommended to start with the smallest debt first and work your way up. This approach will give you  a sense of completion and the ability to move forward and conquer other debts. 

Another way to overcome debt is by tackling the highest interest loans, though those might take longer to pay off than the smaller debts. Whichever method works best for you will help you lower your DTI and put you in a better position for home ownership.

Set a Budget You Can Afford

If you want to know ahead of time how much you can afford, consider going through the process of getting pre-approved for a mortgage. Remember, this number reflects what you can afford but it doesn’t necessarily take into account your comfort level. You will also have closing costs to pay, moving costs, home furnishings, etc. 

If you are considering moving to Montana, work on paying down your high-interest debts, lowering your DTI, and staying within your budget so you and your family can enjoy a newly built home and all the amenities the home – and Montana – have to offer.

by

Millennials are Reshaping Luxury Home Buying 

Millennials Know What They Want

As the first generation to enter adulthood during the internet age, millennials are ready – and know what they want – in their first home purchase. Comprising more than 20% of the American population, those in their 20’s and 30’s have researched what is available, what is affordable, and the amenities that they desire to fit their lifestyle. 

Luxury Prescott Homes for Sale

The beauty of moving to Montana is the intertwining of luxury both inside and out. The homes available at Prescott Ranch are designed for those who value the ability to customize their needs with contemporary designs that reflect both modern and traditional features. Millennials appreciate that the luxurious Prescott homes for sale include all of the amenities they find necessary: lavish great rooms, functional mud rooms, and multiple seating areas that are combined with the magnificence of living in a mountainous region that is a feast not only for the eyes but also for the soul.

The Finest Selection of Newly Built Homes

With three series of new homes available – the Morgan Series, Appaloosa Series, and Lusitano Series, it is easy to find the right size and floorplan to meet the needs of any individual, couple, or family. 

Ranging in square footage from just 1,761 to over 3,500 it is easy to see how the plans in each series have brought luxury conceptualization to lavish and affordable reality. These open concept homes are designed with the idea of melding attractive architectural motifs with traditional nuances to promote healthy and productive living spaces.

Raising a Family in the Right Location

Moving to a new location requires families to peer five, ten, or even twenty years down the road. What will they be requiring as those years unfold? This new generation of homebuyers desire excellent school systems for their children, outstanding career opportunities for themselves, a deep rooted sense of community, and access to unparalleled outdoor recreation. Prescott Ranch offers all of these and more. 

Belgrade, Montana gives millennial homebuyers the opportunity to be a part of close-knit communities, top-rated Montana schools, and front door access to majestic mountain peaks on all sides that include the Bridger Mountains, Gallatin Mountains, and Spanish Peaks. World renowned skiing, fishing, canoeing, camping, and more are all within reach from Belgrade, Montana as a day or weekend trip. Millennial parents know the importance of raising children with fresh air and natural surroundings, and the newly built homes in Montana create this rich opportunity.

The Freedom of an Upcountry Lifestyle Just Minutes from the Convenience of Bozeman

As millennials transition to the role of homeowner and glean the many benefits of a residential lifestyle they may still want the accessibility offered by larger city such as Bozeman. Just 15 minutes down the road, Bozeman has a number of bistros, breweries, restaurants, art galleries, boutiques, and a fun nightlife. 

As this generation embarks on the next journey in their lives, the newly built homes at Prescott Ranch in Belgrade are well-equipped to provide them with all of the amenities they prefer, amid a splendid and breathtaking backdrop that only Montana can offer.  

by

What You Need to Know about FHA Mortgages

In March 2023, the Federal Housing Administration (FHA) instituted a 30 basis point reduction to the mortgage insurance premiums (MIP) charged to homebuyers who will obtain an FHA-insured mortgage with a 3.5% down payment. This could mean savings in the thousands to many first-time homebuyers. So what is an FHA loan and how do they work? Let’s take a look.

What is an FHA Mortgage?

FHA stands for Federal Housing Administration. An FHA loan is a mortgage that is backed by the government, specifically the Federal Housing Administration. They are especially popular among first-time homebuyers because they often require lower down payments and lower minimum credit scores to qualify. You do not, however, need to be buying your first home to qualify for this type of loan. Due to the greater convenience and availability for homeowners to obtain an FHA mortgage, interest rates may be a bit higher than conventional loans.

How Does an FHA Mortgage Work?

An FHA mortgage can be obtained for those interested in purchasing a multitude of properties including single family homes and multifamily properties. The government insures these loans, but they are underwritten by third-party lenders already approved by the FHA. The homebuyer has the choice of a 15 or 30-year term loan with a fixed or adjustable interest rate. 

One thing to keep in mind is that every borrower must also pay FHA mortgage insurance. This insurance protects the lender from loss if the borrower defaults on the loan. Most mortgage loans require mortgage insurance if the borrower’s down payment on the home is less than 20%. There are two premiums the borrower must pay:

  • Upfront Mortgage Insurance Premium. This is a small percentage of the loan amount that can be rolled out over the term of the loan.
  • Annual Mortgage Insurance Premiums. Factors to determine this amount are whether the loan is a 15 or 30 year term loan and the LTV (loan to value ratio). This premium is divided by 12 and paid monthly.

Borrowers who finance 90% or less of the property’s value will often see their mortgage insurance premiums cancelled after 11 years if they stay current on their monthly mortgage payments.

Closing costs are limited to 3-5% of the loan amount. The FHA does allow up to 6% of the home buyer’s closing costs to be covered by lenders, sellers, and builders. 

Benefits & Considerations

If you believe that an FHA mortgage might be a good fit for you, start now by saving for your down payment and researching potential lenders.

Benefits

  • As long as you meet FHA requirements, the FHA does permit you to get down payment assistance and financial gifts. There are many conventional loans that don’t allow for this.
  • It’s possible to obtain an FHA loan even with a down payment as low as 3.5%, as long as your credit score is 600 or so minimum.
  • On occasion, the FHA does permit individuals with credit scores as low as 500 to obtain a loan. This can be particularly helpful if your credit history is weak.
  • FHA allows sellers to pay up to 6% of the closing costs. Many conventional lenders put a cap of 3% on the seller’s contribution. 

 Considerations

  • The FHA has loan limits on how much you can borrow. This is established by the median home prices in the metro area and surrounding counties. Because home costs are always changing, these loan limits change as well. 
  • If you have good credit, there are other options to consider even if you don’t have a lot of money for a down payment on the home. FHA mortgage premiums may be higher in some instances than private mortgage insurance, which you will still be required to pay if you don’t put down 20%. 
  • Even though the mortgage insurance premiums can be rolled out into your loan, they can still be a bit costly.

Requirements and Qualifications

You must meet some requirements to qualify for an FHA loan including:

  • Minimum credit score. The lower your credit score the more you will need for a down payment. Generally, a 580 score will require a down payment of 3.5%. A score of 500 may require 10%.
  • Debt to income ratio. The total of your monthly debts cannot be more than 43% of your gross income. 
  • Your potential lender will look very closely at your income, credit and the value of the home you want to purchase.
  • You must plan to buy a home with between one and four units while also planning to use it as your primary residence.

Keep in mind that there are alternatives to FHA mortgages including a USDA loan, conventional loan and VA loan, each with their own set of standards and qualifications. Overall, FHA mortgages are a great way for many people to be able to purchase a home. The standards to qualify are not terribly high, and they are forgiving for people who might not have stellar credit histories. 

by

10 Tips to Find Your Best Mortgage Rate

Whether you are moving to Montana and buying your first home or have gone through the process half a dozen times before, the journey toward buying a home is always different. A few years ago, it was relatively easy for most to secure a modest mortgage rate. Now, with rates changing and edging higher, there are still ways to secure the very best one you possibly can.

  1. Keep an Eye on Your Credit Score. One of the first documents your lender will look at is your credit score. Obtain a copy of your credit report and review it carefully so you can point out any errors (yes, it does happen) and also so you can know exactly what outstanding balances need to be reined in.
  2. Save for a Larger Down Payment. The rule of thumb for a down payment on a home is to have 20%. However, a 20% down payment is only necessary if you don’t want to take on the mortgage insurance requirement. Your down payment will depend on the type of loan you are getting, and for a conventional loan you will be required to put down 3%. VA loans and USDA loans require no down payment if you are eligible for them.
  3. Pay off Your Debt. One thing lenders look at is your debt-to-income ratio. If you are carrying a heavy load of debt in comparison to your income, you will be looked at as risky when it comes to financing a home. It might be difficult to determine if you should pay down debt or use that money to save for your down payment. Choosing to pay down high interest credit cards will help put you in a low DTI ratio which is more attractive to lenders.
  4. Decide Between Fixed & Adjusted. Choosing between a fixed rate mortgage and an adjustable rate mortgage has a big impact on how much you will pay over the life of the loan. A fixed rate offers the peace of mind of knowing exactly what your payment will be month to month. An adjustable rate allows for dips – but also peaks – in the market. ARM’s typically remain fixed for a number of years before they are subject to market fluctuations.
  5. Work to Actively Improve Your Credit Score. Since lenders use your credit score as a litmus test toward how well you will handle your future payments and debts, it’s important to work proactively and improve that number. By making timely payments on your credit cards, your home, your car, etc., your credit score should improve.
  6. Opt for a Shorter Term Loan. When all is said and done and that final mortgage payment has been paid, the borrower will have paid a considerable amount of money over the actual purchase price. Shortening the term of the loan will help you secure a lower interest rate and it will help to pay off your home in Montana more quickly, by more rapidly building equity.
  7. Raise Your Income. While you are whittling down your debts to improve your debt-to-income ratio, you can also attack the process from the other side. Focus on how you can maximize your income. Perhaps it’s asking for a raise at work, taking on a side gig or starting your search for a higher paying job. 
  8. Increase Your Down Payment. When you significantly lower your LTV (loan-to-value ratio) you are seen by lenders as a good risk and may then obtain a more favorable mortgage rate. The more you put down on your home, the less the lender will need to give you. Keep in mind that you don’t want to spend your last dime on your down payment; it’s wise to have a 3-month cushion to cover unforeseen expenses.
  9. Prepay Mortgage Points. Also called discount points, when you’re able to pay 1% of the loan amount, it is considered one point. You can also purchase these points in increments down to .125 points. When you pay these in advance, you lower your interest rate. If you plan to stay in your home long enough to break even, it’s a great way to save money.
  10. Bide Your Time. The idea of moving to Montana and into your dream home will require patience and planning. So, when you let yourself sit back and watch the market, you will be in a better position to find the lowest interest rates available and get the most bang for your buck.
by

A Comprehensive Guide to 1031 Exchanges

Are you interested in reinvesting your capital gains tax instead of paying it out? A 1031 exchange may work for you.

Put simply, a 1031 tax exchange allows for the investor to defer capital gains tax, which then results in more capital to invest in a substitution property. Normally, when an investor sells a property they must pay a portion of the sale in capital gains – both federal and state taxes. A 1031 exchange allows the investor to waive capital gains (for now) and instead invest in a replacement property.

Not only does this let real estate investors defer capital gains tax while buying and selling property, it also gives them access to exciting new investment strategies.

The IRS code dictates that the exchange must be done with “like-kind” properties, there are strict timelines to adhere to, and there must be a qualified intermediary involved in the transaction.

Investors looking for homes in Montana to lease out will find a number of attractive, newly built homes in the Belgrade area that will qualify as replacement properties to take financial advantage of the 1031 exchange. 

Why is it Called a 1031 Exchange?

Within Section 1031 of the IRS Code, you’ll find the essentials necessary for a successful property exchange. This exchange is recognized by the IRS as a means of deferring capital gain taxes.

Properties Eligible for 1031 Exchange

Not every property is eligible for this type of exchange; however, a number of properties are which means investors have more purchasing power than they may realize.

  • Single-family rental homes
  • Multifamily rental homes
  • Motels & hotels
  • Raw land
  • Offices & commercial properties
  • Farms & Ranches
  • Leasehold interests of 30+ years
  • Rental ski condo for a 3-unit apartment building

There are other eligible properties and to get more information, contact your tax advisor if you are interested in this type of exchange.

What Exactly Is a “Like Kind” Property?

Although this term is not specifically defined in the IRS tax code, professionals do have a definition for it. Any kind of real property that is held for productive use as in an investment, business, or trade may be considered like-kind property.

The kinds of property that can be exchanged in a 1031 transaction are very broad. For example, a single-family rental property may be exchanged for a duplex (or more), a shopping center, raw land, or even an office for apartments.

Any property that’s been relinquished that was held in investment will be in like kind with property with the intent to be held in investment.

Properties Not Eligible for 1031 Exchange

The main idea behind what might be eligible for a 1031 exchange and what isn’t, is the intent to which you purchased the property, and your intent for the exchanged property. Both sides of the equation must be that they are held in investment, so personal residences and partnership interests do not apply.

  • Real estate investment trusts (REITs)
  • Stocks, notes, or bonds
  • Personal residences
  • Flips for resale (though there is a possible way around this – if you flip and then rent for a period of time, it may be eligible after a certain time period, likely a year, for the 1031 exchange, check with your tax advisor).
  • New Construction

Tax Benefits with a 1031 Exchange

Reset Depreciation

The IRS allows owners of real estate to depreciate their assets. After 27.5 years, investments may be depreciated due to deteriorating conditions over time. After reinvestment is made into a new property, the depreciation schedule is reset.

Fewer Taxes

Investors can reduce the taxes they pay by exchanging property in a state that imposes income taxes with an investment opportunity in a state that does not have an income tax. Some states that do not have income tax include Nevada, Texas, Florida, Wyoming, and Alaska.

Deferred Capital Gains

This benefit is one of the primary reasons investors make a 1031 exchange. It allows the deferring of the capital gains tax upon the selling of a property until they cash out. There are no limits on how often this can be done, and for many investors, it’s a lucrative way to continually leverage their financial position.

Important 1031 Exchange Vocabulary

Relinquished Property refers to the property that the investor will be selling. It must be an investment or business property and not a vacation home or primary residence.

Replacement Property refers to the property that is to replace the relinquished property. It must be of equal or greater value and “like kind” to the relinquished property.

A qualified Intermediary refers to the person or the company that holds the real estate sale proceeds and subsequently facilitates the exchange. This person or company holds the exchange funds because IRS tax law dictates the seller of the property cannot or the funds will be subject to tax liability. The qualified intermediary can’t have any other formal relationship with the seller and must be a licensed professional. Overall, a 1031 exchange lets the investor reinvest the money that would normally be paid out to capital gains tax and put it into a replacement property.

by

Moving to Montana? Your Complete Home Buying Checklist

Are you moving to Montana? Regardless of where you are moving from, you’ll need a complete home-buying checklist to help make your move to the Big Sky state as seamless as possible. After the chaos of the pandemic and its influence on the real estate market, things are finally settling down, and purchasing homes in Montana is easier and more affordable than ever before.

Save Up for a Down Payment

Your down payment is your first contribution to the home’s purchase price. You pay this at closing. The remainder of the balance is paid by your mortgage lender. Ideally, a 20% down payment is a great goal to strive for. However, there are various loans that can lower your down payment. Being able to contribute a healthy down payment will lower your monthly payment and the overall total cost of your home.

Determine What You’re Able to Afford

Figuring out your debt-to-income ratio is the first step toward creating a realistic budget and from there, determining what price range you’ll be considering when you start to look at newly built homes in Belgrade, Montana. Make certain to include all of your recurring bills and anything that you pay on a month-to-month basis.

Securing a qualified mortgage from most lenders generally requires a DTI of no higher than 43%, so shoot for that as you analyze and rework your budget.

Build Breathing Room into Your Budget

Taking the step to purchase a newly built home in Belgrade, Montana is an exciting one and you want to be sure that you leave sufficient breathing room in your budget for other day-to-day living expenses such as entertainment, indoor and outdoor furniture, as well as unexpected expenses that come your way.

Types of Loans

You may be eligible for various government-backed loans such as FHA and VA loans. These let you contribute 3.5% and 0% of the home’s purchase price (respectively). Conventional loans allow for down payments that may be as low as 3-5% as determined by the lender.

Here are other loans you might qualify for:

5/1 ARM Loan: this is an adjustable rate mortgage loan (ARM) that has a fixed rate for the first five years but then has a variable interest rate from the sixth year moving forward.

3-2-1 Buydown Mortgage: this loan charges a lower interest rate for the first three years of the loan. The first year is 3% less, the second year is 2% less, and the third year is 1% less. For the fourth year and beyond, the borrower pays the full interest rate on the loan.

Permanent Buydown: a permanent buydown allows the buyer to pay a large lump sum of cash to the lender to lower the monthly payments for the life of the loan. This is different than 5/1 ARM loans and 3-2-1 mortgages because interest rates are only lowered temporarily and not for the life of the loan.

Get to Know the Neighborhood

A bird's eye view of the Prescott Ranch neighborhood. When moving to Montana, it's best to know your neighborhood.

In many ways, the neighborhood where you decide to put down roots may be just as important as the home itself. Befriending neighbors, the schools your children will be attending, and your family’s house of worship, as well as community events, are all a part of what constitutes content and thriving life. Montana neighborhoods are coveted for their unique offerings of both superior outdoor recreational opportunities combined with folks who take great pride in a small town and family values.

Homes Available at Prescott Ranch

The homes available at Prescott Ranch are crafted in a variety of floor plans designed to meet your needs. These newly built homes range from single stories to three stories with 12 total plans across three series: The Morgan, The Appaloosa, and The Lusitano. These Prescott Model Homes are poised at the foothills of the Bridger Mountains. The homes blend modern and traditional styles to create an elegance that is unmatched in the Belgrade area.    

People who live in Montana tend to be nature lovers and prefer to take advantage of the gorgeous scenery and the larger, greener blueprint of the geography in the area. That’s why, with Prescott Model Homes, there is a comfortable and spacious spot for more than one vehicle. Each plan in the three series features either a two or three-car garage. Both the Appaloosa and Lusitano Series offer a more traditional look with garage bays as part of the front schematic while the Morgan plans are designed with the garage bays accessible along the back side of the home. You’re sure to find your own personal preference within the intricacies of these unique home layouts.

by