A fair number of homes in the State of Mississippi are built on what is called “16th Section Land” of which, in trust, the State of Mississippi owns over 640,000 acres. Trustees manage this land and 108 Mississippi public school districts serve as trustees for 16th Section Land. The Mississippi Secretary of State FAQ serves as the supervising trustee. The allocation of 16th section property dates back to the Land Ordinance of 1785, which set aside section number 16 in each township for the use and benefit of public schools.
Basics of 16th Section Land
The 108 trustee school districts raise public education funds by leasing 16th Section Land, which is partitioned and classified for different uses. Classifications include agricultural, forestry, farming, hunting and fishing, recreational, residential, industrial and mining. The local school districts advertise the land through notices and newspapers, and the highest bidder wins the lease. When renewing a lease, the land is appraised at fair market rental value. The lessee is responsible for paying the taxes as if the lessee owned the property. The beneficiary of the funds are the various school districts throughout the state.
The All Star Team currently has two homes listed at 1137 and 1145 Grantham (check availability), both listed at $151,500 which are on 16th Section Land. These homes in Hattiesburg were built by Kent Williamson who is a quality builder who has built many similar homes throughout the Hattiesburg area. Buying a home on 16th Section Land is not a complicated proposition. You own the house, but you don’t own the land; you only pay taxes on the land which is leased to you on a long term basis. All in all, the tax burden for owning a home on 16th Section land is the same as any other residential property in any given county.
The ironic thing about people who think they can’t afford to buy a home for themselves, end up buying the home for their landlord. There are several facts that support this notion.
Mortgages, whether held by an owner-occupant or an investor, are usually amortized so that each payment reduces the principal amount owed so that the loan will be repaid totally over the term. A tenant is inadvertently retiring the landlord’s mortgage with his monthly rent.
In most cases, the mortgage payment including taxes and insurance will be lower than the rent tenants are paying. Some experts are saying that we may never again experience the incredibly low mortgage interest rates currently available.
Renting a home in Hattiesburg precludes a person from enjoying the advantage a home has as a leveraged investment. When the borrowed funds cost less than the investment is returning, the rate of return on the down payment grows much faster. As you can see from the chart, a 2% appreciation on a home could result in big returns on the down payment. In most cases, there are very few or no alternative investments that offer homeowners similar returns.
Even if a buyer agrees with all of these things but doesn’t have the down payment or cannot qualify for a loan, they still need to investigate further. To find out exactly what types of loans are available and the specific down payment required which can be a whole lot less than 20%, they need to consult with an experienced, trusted loan professional (an Internet lender or a “BIG” bank may not be the best choice.)
I work with the best lenders and banks in Hattiesburg. I will gladly place you in touch with someone who can answer your questions even if you have bad credit and help you get into the home of your dreams.
- “It’s impossible to get low down payment loans.” – MYTH!
FHA down payments are 3.5% and VA is 0%. In some areas, there may be some 0% down payment USDA loans available. FNMA and Freddie Mac have 3% down payment programs.
- “It takes perfect credit to get a loan.” – MYTH!
There is a relationship of better rates to better credit but many issues on a credit report can be explained or corrected. The way to know for sure is to speak to a reliable lender.
- “If I’ve had a bankruptcy or foreclosure, I can’t qualify.” – MYTH!
Credit history following a bankruptcy or foreclosure is very important and there can be extenuating circumstances. It only takes a few moments with a reliable lending professional to find out if your individual situation will allow you to qualify for a new mortgage.
- “Getting pre-approved is expensive.” – MTYH!
Usually, the only expense to getting pre-approved is the cost of the credit report which could be around $35. The advantage is that you will know that you qualify for a particular mortgage amount.
- “I should wait to qualify until I find a home in Hattiesburg.” – MYTH!
It can take weeks to qualify for a mortgage especially if there are issues that need to be corrected. The best interest rates are only available for the highest credit scores. It is to your advantage to start the qualifying process early in your home search.
- “All lenders are the same.” – MYTH!
Reliable lending professionals will explain the entire process before collecting fees, quote fees up-front, have competitive products, do what is necessary to get the loan approved and close at the locked rate and terms. Ask for recommendations from recent borrowers.
- “Adjustable Rate Mortgages are more expensive than fixed rate mortgages.” – MYTH!
Adjustable Rate Mortgages can be less expensive than fixed rate mortgages if the buyer’s circumstances warrant it. If a buyer is only going to be in a home for a few years before selling, it can be determined if an ARM loan will result in the lowest way to finance the property. There are many variables and you need to be aware of them before deciding which type of loan to finance your home purchase.
Buyers and Sellers need solid information to make good decisions. Call us with your questions or to get a recommendation of a reliable lender who can give you the real facts.
Every year, it seems like the same things are on the list but this could be the year you really do invest in a rental home.
Rents are climbing, values are solid and mortgage rates are still low for non-owner occupied properties. A $150,000 home with 20% down payments can easily have a $300 to $500 monthly cash flow after paying all of the expenses.
There are lots of strategies that can be successful but a tried and true formula is to invest in a home in Hattiesburg that is below average price range homes in predominantly owner-occupied neighborhoods. These properties will appeal to the broadest range of tenants and buyers when you’re ready to sell.
Single family homes offer an opportunity to borrow high loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control.
Since the election, rates have started going up and it will have a direct effect on the cost of a home in Hattiesburg in the future. There is a rule of thumb that a ½% change in interest is approximately equal to 5% change in price.
As the interest rates go up, it will cost you more to live in the very same home or to keep the payment the same, you’ll have to buy a lower priced home.
Before rates rise too much, it may be the best time to buy a home whether you’re going to use it for your principal residence or a rental property. Low interest rates and lower prices make housing more affordable.
During the Great Recession, some homeowners elected to rent their home rather than sell it for less than it was worth.
IRS tax code allows for a temporary rental of a principal residence without losing the exclusion of capital gain based on some specific time limits. During the five year period ending on the date of the sale, the taxpayer must have:
Owned the home for at least two years
Lived in the home as their main home for at least two years
Ownership and use do not have to be continuous nor occur at the same time
If a home in Hattiesburg has been rented for more than three years, the owner will not have lived in it for two of the last five years. So the challenge for homeowners with gain in a rented principal residence that they don’t want to have to recognize is to sell and close the transaction prior to the crucial date.
Assume a person was selling a property which had been rented for 2 ½ years but had previously been their home for over two years. To qualify for the exclusion of capital gain, the home needs to be ready to sell, priced correctly, sold and closed within six months.
All of the gain may not qualify for the exclusion if depreciation has been taken for the period that it was rented. Depreciation is recaptured at a 25% tax rate.
A $200,000 gain in a home could have a $30,000 tax liability. Minimizing or eliminating unnecessary taxes is a legitimate concern and timing is important.
Selling a home for the most money is one thing; maximizing your proceeds is another. For more information, see IRS publication 523 and an example on the IRS website and consult a tax professional.
Mortgage approval isn’t final until it’s funded. (It seems these days that about the only place you can’t get a loan is on Craigslist, although I’m sure some unscrupulous souls are attempting to do just that! Be careful when applying for a loan for your home in Hattiesburg. KNOW with whom you’re dealing!) Things can change prior to the loan being closed that can affect a pre-approval such as changes in the borrowers’ financial situation or possibly, factors beyond their control like interest rate changes.
Good advice to buyers is to do nothing that can affect your credit report until the loan closes. Opening new credit cards, taking on new debt for a car or furniture or changing jobs could affect the lender’s decision if they believe you may no longer be able to repay the loan.
The benefits of buyer’s pre-approval are definitive: it saves time, money and removes the uncertainty of knowing whether the buyer is qualified. The direct benefits include:
- Amount the buyer can borrow – decreases as interest rates rise
- Looking at “Right” homes – price, size, amenities, location
- Find the best loan – rate, term, type
- Uncover credit issues early – time to cure possible problems
- Bargaining power – price, terms, & timing
- Close quicker – verifications have been made
It is a very common practice for mortgage lenders to require income and bank verifications and to re-run the borrowers’ credit one final time just prior to closing. Mortgage approval isn’t final until it’s funded.