Hi BP friends.
Super excited, just today I received my pre-qualification information from a lender. Although I wasn't particular worried about being approved, I am a bit shocked at the numbers. I'm wondering if anyone can help, it seems like I'm missing something.
I generally estimate pretty conservatively, but I've missed by a mile.
Property tax? Is the rate or tax different if its not your primary residence? Sorry if this is a complete rookie question. Are there exemptions to which you don't qualify for as an investor that make the property tax nearly double?
Same thing with Home Owners insurance, am I looking for that to be way off as well?
I'd be very excited to learn if there were any other catches I hadn't found involving fees or pricing. Also, if you could share any math, that'd be really helpful for my nerd side.
Thanks again, happy Tuesday.
Account Closed ,
Yes, homestead exemption dropsyour property taxes down for personal residence vs rental.
Insurance should be slightly higher but not too much. I am close to you in Kennesaw. My insurance is almost the same for my house and rental in the same area.
Also, I am confused. how is your lender providing you a number that you are comparing to be off by a mile?
I find insurance to be less on rental than primary. Work with companies that deal with investors.
Funny story, I just needed to dive a little deeper into the math, and I found my error. I won't skip over that it was a bit boneheaded on my part, but it basically came down to that I can calculate principle and interest given the loan amount, term, and interest rate. So I came up with a number, and then the actual mortgage payment with the estimate of taxes and insurance was like double....that was the red flag. Further investigation, user error.
@Carl Fischer great to know, I'll definitely not be calling the agent who does my family's insurance.
@Ashish Acharya Thanks for the information, and hello neighbor! Great that your in Kennesaw and can give me Cobb county intel. Even greater that your CPA and my wife is about to graduate KSU with her bachelors in Accounting and sit her CPA. I expect we'll be bugging you regularly for info :)
You don't say what you are using to estiamte your hazard insurance premium. If you are using your own homeowner's insurance premium as a baseline, then you first need to recognize that a homeowner's insurance policy and a non-owner occupied investment property policy are not the same . You cannot buy "homeowners insurance" for a rental property. If you do and have a claim for your rental propertty, you won't be covered.
For your rental dwelling policies, you will want loss of rent and business liability coverage included. The business liability coverage limit may also be much higher than you might consider for your primary residence insurance. The policy limits may also be factors in setting your premium. Lender's will want policy coverage high enough to cover the loan balance. You may want coverage high enough to rebuild the property in the event of catastrophic loss. The lender may also be using rates for a primate placement (high-risk) carrier as well. A conversation with your insurance carrier will help you nail down the insurance cost for a rental property.
If you are comparing your owner-occupied property tax to the lender's estimate, then you also need to know that there are discounts available to owner occupants that you won't get as an investor. Owner occupants typically have a "homestead" excemption that discounts the property tax from what would be charged for non-owner occupied property. Senior citizen homeowners may also get an additional discount not available to non-owner occupied properties.
You need to recognize that the lender's quotes for tax and insurance premiums are just estimates and may be overly conservative (high). You need to do your own due diligence to get realistic numbers.
@Dave Toelkes Great information thanks!
I feel like I knew most of what you said, or perhaps assumed. It's nice to hear it all at once. All of the numbers I was using were "lender estimates" which I understand generally aim for erring higher rather than lower. There were just some inconsistencies in the math that weren't adding up. Thankfully, now they are.
The homestead exemption is great information as is the investment property insurance data, thanks!
Account Closed is correct. The lender is estimating based on an imaginary house for your prequalification.
Assessed values and tax rates can vary quite a lot within a given region. So, they are estimating for worst case scenario. Look at some potential listings and see what actual taxes are like on properties you would potentially be interested in.