When it comes to property, the worlds of building and finance are closely related. Just about everybody uses finance to purchase their home or investment property, and here we look at many aspects related to investments as well as property related maintenance and repair.
Financing Your Property
Let's look at the reasons why people use a lender to finance their property. For most people buying their home (whether it is a single family home, townhouse or condo) is the biggest financial investment that they make in their lifetime.
Coming up with a minimum of $100,000 is not an option for most people, so a bank or lender is a must. All lenders have slightly different guidelines when it comes to mortgage lending, so it makes sense to shop around different lenders. Note that a mortgage is just a loan against a property, which is secured against that property in case of default on the monthly payments. Gone are the days of over-financing (loans of greater than 100% of the value of a property, and now most lenders will require a down payment varying from 5% to 30%. Traditionally they prefer a down payment of 20% because that is a figure that gives them security, and they will waive escrow requirements for greater than 20%.
Escrow accounts - for borrowers with less than 20% down payment, most lenders will insist on setting up an escrow account, which is an account dedicated to paying the required services such as state and local taxes, property and flood insurance, in addition to the bank's obligation. Typically the monthly payment is adjusted annually to service the escrow account, in addition to the loan principal and interest.
Advantages and Disadvantages of a Mortgage - The biggest advantage of a mortgage is that it enables people to invest in their own home without having the full amount of cash in their bank account. In addition, mortgage interest is an allowable deduction for federal taxes. Of course the disadvantage is that over the length of a mortgage, borrowers pay back much more than the original amount borrowed.
It is very important to keep a property well maintained. Not just because the mortgage lender requires it (they do), but for several reasons. Firstly it is simply much nicer to live in a well maintained home, which looks good, and everything works like it should. In the long run, a well maintained home will sell for more in the future, when it comes time to move. Little things like a home's curb appeal will make a big difference to potential buyers.
Keeping a home well maintained is not always easy, and it is a good idea to keep handy a list of a good local plumber, electrician, landscaper and general contractor or roofer. Not to say that they will be needed often, but knowing a trusted contractor can be really useful as they are often needed a short notice. Probably the most common maintenance issues involve home plumbing, as a leaky faucet or blocked sink or toilet are some of the most common home repairs needed.
After a home has been purchased. it is very important to keep it maintained or improved. Many folk will buy a run-down property and make major improvements to the structure, plumbing and amenities. Many buyers don't have the time or money to do major repairs or improvements, and will prefer a home that has already been made as good as new for them. In addition, one of the highest returns on property improvement is the addition of an extra bedroom or bathroom, as that is what potential buyers look for in a new home.
Selling a Structured Settlement to Fund a Property
Owning a home is a big part of the American dream. Raising the cash for a downpayent is never easy, the disposable income of most people is swallowed up each month by rent payments, car payments, utilities and credit cards.
For some people who are the recipients of structured settlements, there are options available to raise a downpayment. A structured settlement is usually the result of a high dollar lawsuit settlement in favor of the individual concerned. It is often related to a personal injury case or product liability suit. As part of the court agreement, the party found to be a fault may agree to pay the agreed amount over a period of time rather than a large lump sum.
Most courts and state assemblies are in favor of this approach, as they believe payments over a long period of time is better for the individual concerned, although not all recipients will agree with this. The mechanism for these regular payments is known as a structured settlement, where the plaintiff will purchase a special kind of policy with a large insurance company, who commits to making the periodic (monthly, quarterly or annual) payments for a period of many years - decades in many cases.
Because the courts believe they know better than the recipient, many restrictions are placed on the selling of a structured settlement's annuity stream, so that the recipient can't easily access the money in a large lump sum. Fortunately there is a secondary market where all or part of the annuity stream can be sold.
First get your settlement estimates to figure out how much you will have available for a downpayment, the recipient must apply to state court to be given permission to sell their payments. Normally this is done by a funding or factoring company who will be paid a commission for making the arrangements. The court will not allow the sale to go ahead if it considers the use of the funds is not suitable (for example to buy a new luxury car), but the use for a downpayment on a mortgage is considered a good purpose. Because in addition to benefits such as tax write-offs of mortgage interest and property taxes, an investment in property is always a good long-term investment, although prices often fluctuate in the short-term.
The mechanics of using part of a structured annuity is fairly straightforward for most recipients as the paperwork and legal representative is arranged by the settlement buyer or their agent. To cover their costs (and profits), normally a recipient will be charged for the arrangement and received a discounted lump sum to be used for the mortgage downpayment.