The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2009

Four Major Variables that Determine Market Price Over the last four days we looked at the four main variables that determine home price: borrower income, allowable debt-to-income ratios, interest rates, and downpayment requirements. Today we are looking at tax implications and opportunity costs because these number will give you a more accurate measure of the impact home ownership will have on the owner's financial life. Taxes Owning real estate has two significant tax benefits: (1) favorable capital gains tax exemptions and (2) income tax benefit through the home mortgage interest deduction (HMID). Be forewarned that this is not an exhaustive treatise on every permutation in the tax code. I am going to look at the general case the most people…[READ MORE]

Four Major Variables that Determine Market Price Over the last three days we looked at the four main variables that determine home price: borrower income, allowable debt-to-income ratios, interest rates, and downpayment requirements. Today we are looking at homeowners associations because this expense (1) reduces your payment to the lender, (2) reduces the amount you can borrow and bid, and thereby (3) reduces the value of real estate. People can persuasively argue that HOAs add more value than they cost, and I believe this is true, but that value is reflected in market comps. When you examine the details of cashflow, HOAs are a cost, nothing more. The following is the words of our guest author OC Progressive. Avoiding the…[READ MORE]

Four Major Variables that Determine Market Price Over the last two days we looked at the four main variables that determine home price: borrower income, allowable debt-to-income ratios, interest rates, and down paymentrequirements. Today we are looking at some of the minor cost inputs that work by influencing the four major ones; property taxes and Mello Roos taxes. When you qualify for a loan, the difference between what your income can support and the payment you can make to the lender is a number of related expenses that only homeowners must pay; property taxes, special assessments and Mello Roos, insurance and homeowners associations. These expenses (1) reduce your payment to the lender, (2) reduce the amount you can borrow and…[READ MORE]

Four Major Variables that Determine Market Price Yesterday, we discussed the four variables that determine the purchase price of a property: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. Today we are looking at interest rates and down payment requirements. Interest Rates Interest rates go up, and interest rates go down. Interest rates are the yield on debt instruments. If investors lose their appetite for mortgage debt, prices of mortgage-backed securities goes down, payment yields go up, and mortgage interest rates go up with them. This concept is important to understand because right now, the Federal Reserve is the only buyer of agency paper at price levels yielding 4%. Private investors are demanding higher returns due to…[READ MORE]

Four Major Variables that Determine Market Price There are four variables that determine the purchase price of a property: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. These variables are impacted by some other minor cost inputs which I will be discussing on Wednesday through Friday, but for the most part, the variables above determine market pricing. The first two variables are the focus of today's post, and the last two are the topics for tomorrow. Payment is a direct link to borrower gross income. The debt-to-income ratio allowed by a lender applied to the borrower's monthly income is the maximum allowable monthly housing expense an underwriter will consider. From this amount, a lender will subtract an…[READ MORE]

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