Buying a house is a sound investment that will be a major factor in building your wealth. If you plan to buy a home, 2022 is a good year to do so. NerdWallet reports that according to the National Association of Realtors (NAR), housing prices will continue to increase but by only 2.8 percent as compared to 14.7 percent last year. The Mortgage Bankers Association predicts an increase of 5.1 percent, Freddie Mac predicts seven percent, and Fannie Mae predicts 7.4 percent. All are still far below the 2021 rate of growth.
The slowdown began in December 2021. According to the Business Insider, the price of the most common home in the U.S., which has three bedrooms and two bathrooms, only had a year-on-year increase of 5.4 percent in the week of December 23 at $337,000, compared to 5.9 percent the previous week at $340,000. This was the smallest annual increase since January 2020 as tracked by the Common Haus Price Index.
The supply of available houses has been improving at the fastest rate since May 2021. The U.S. Census Bureau reported that in November 2021, the annual rate of housing starts increased to 1.68 million, exceeding the forecast of 1.57 million.
It is best to buy a house earlier in the year before prices increase further. Also, mortgage rates are expected to increase this year. Try to pin down a rate before it increases. In December 2021, the 30-year fixed-rate average was around three percent. This year, Fannie Mae predicts it to rise to 3.3 percent, Freddie Mac predicts 3.5 percent, NAR predicts 3.7 percent, and the Mortgage Bankers Association predicts four percent. Of course,to get the best mortgage rate, you must keep your credit score healthy.
Increase Wealth Building
While the house you purchase will continue to grow in value, increasing your equity and personal wealth, you can do more to maximize your investment. Instead of buying a single-family home, buy a duplex. You can then reside in one unit while renting out the other. This can provide you with a passive income for life.
To get a Federal Housing Authority (FHA) loan for a duplex, NextAdvisor states that you must indeed live in one unit. Your credit score must range from 640 to 700, depending on your debt-to-income ratio (DTI). A lower DTI is better because it means that a lower percentage of your income goes to your monthly debt payments, including credit cards and student loans, among others. An FHA loan for a duplex requires a down payment of not less than 15 percent.
The U.S. Department of Housing and Urban Development requires self-sufficiency for multi-family homes such as duplexes bought through FHA loans. This means that the monthly rent must be able to cover the monthly payments for the loan principal, interest, insurance, and taxes. This is also beneficial to you because it means you will not have to shell out mortgage payments from your pocket.
Even if all the rent goes to mortgage payments, you are still gaining from the property as its value continues to appreciate. It is like getting to own a property with only the down payment. Once the mortgage is paid up, you get to keep the entire rent monthly.
However, the most important thing you must do is to ensure that your rental unit is never left unoccupied and that every tenant you accept can afford to pay rent regularly. You must be very strict in screening all applicants, including background checks and financial checks.
Do not forget to also factor in the maintenance cost in the rent, though. Set aside this monthly sum even if nothing crops up so that you are not left in a bind when a major repair suddenly becomes necessary. Remember that you are responsible for everything that breaks down in the unit, such as plumbing, electrical, and more. Ensure that you have an airtight contract that stipulates that any damage caused by the tenant, not from normal wear-and-tear or equipment failure, will be charged to the tenant.
Having the rental unit beside you makes maintenance and repair supervision more convenient. You will not need to hire a manager to look after your unit.
The Start of Bigger Things
Having one rental unit in your duplex can start you off into a larger undertaking. You get to practice being a landlord on a small scale. You learn in the process through the years. Once you have saved enough funds, you may be able to afford a down payment for a single-family home or another duplex for rent. Eventually, you may be able to have several rental properties that will set you up for life financially.
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