News & tidbits
Your Tax Refund and Stimulus Savings May Help You Achieve Homeownership This Year
Using data from the Internal Revenue Service (IRS), it’s estimated that Americans can expect an average refund of $2,925 when filing their taxes this year. The map below shows the average anticipated tax refund by state:
How can your tax refund help?
If you take into account the median home sale price by state, the map below shows the percentage of a 3% down payment that’s covered by the average anticipated tax refund:
Not enough money from your tax return?
What It Means To Be in a Sellers’ Market
The latest Existing Home Sales Report from The National Association of Realtors (NAR) shows the inventory of houses for sale is still astonishingly low, sitting at just a 2-month supply at the current sales pace.
Historically, a 6-month supply is necessary for a ‘normal’ or ‘neutral’ market in which there are enough homes available for active buyers (See graph below):
As this happens, home prices rise and sellers are in the best position to negotiate deals that meet their ideal terms. If you put your house on the market while so few homes are available to buy, it will likely get a lot of attention from hopeful buyers.
Today, there are many buyers who are ready, willing, and able to purchase a home. Low mortgage rates and a year filled with unique changes have prompted buyers to think differently about where they live – and they’re taking action. The supply of homes for sale is not keeping up with this high demand, making now the optimal time to sell your house.
What Credit Score Do You Need for a Mortgage?
The fact that the average American has seen their credit score go up in recent years is a great sign of financial health. As someone’s score rises, they’re building toward a stronger financial future. As more Americans with strong credit enter the housing market, we see a natural increase in the FICO® score distribution of closed loans, as shown in the graph below:
- Federal Housing Administration (FHA) loans: “With a 3.5% down payment, homebuyers may be able to get an FHA loan with a 580 credit score or higher. If you can manage a 10% down payment, though, that minimum goes as low as 500.”
- Conventional loans: “The most popular loan type typically comes with a 620 minimum credit score.”
- S. Department of Agriculture (USDA) loans: “In general, lenders require a minimum credit score of 640 for a USDA loan, though some may go as low as 580.”
- S. Department of Veterans Affairs (VA) loans: “VA loans don't technically have a minimum credit score, but lenders will typically require between 580 and 620.”
5 Reasons to Sell Your House This Spring
1. There’s high demand from homebuyers.
2. There aren’t enough houses for sale.
It’s this imbalance between high buyer demand and a low supply of houses for sale that gives sellers such an advantage. A seller will always negotiate the best deal when demand is high and supply is low. That’s exactly what’s happening in the real estate market today.
3. You have a lot of leverage in today’s market.
According to NAR, agents are reporting an average of 3.7 offers per house and an increase in bidding wars. As a seller, this means the ball is in your court – so much so that you can use your leverage to negotiate the best possible contract. Demand is there, and now is the perfect time to sell for the most favorable terms.
4. It’s a great way to use your home equity.
5. It’s a chance to find a home that meets your needs.
Whether it’s a house that has the features suited to working remotely, space for virtual or hybrid schooling, a home gym or theater, or something else, selling this spring gives you a chance to make a move and find the home of your dreams.
Is It a Good Time to Sell My House?
What does this mean if you’re thinking of selling your house?
Wondering where you’ll go if you try to move while it’s so challenging to find a home to buy? Well, in many areas, there are more homes available at the higher end of the market, so finding a move-up home may be less of an issue if you’re ready to search for your dream home this spring.
Where Have All the Houses Gone?
Does this mean houses aren’t being put on the market for sale?
The Good News for Homeowners
When you’re ready to sell your house, you’ll likely want it to sell as quickly as possible, for the best price, and with little to no hassle. If you’re looking for these selling conditions, you’ll find them in today’s market. When demand is high and inventory is low, sellers have the ability to create optimal terms and timelines for the sale, making now an exceptional time to move.
3 Ways You’ll Win When You Buy a Home This Year
1. Buying a Home Is a Great Investment
2. Mortgage Interest Rates Are Low
When you purchase a home at a low mortgage rate, it will impact your monthly mortgage payment, giving you the opportunity to likely get more house for your money.
3. Investing in Your Future Pays Off
As a homeowner, your monthly mortgage payment becomes a form of ‘forced savings’ you can reinvest later in life as you see fit. You can use it in a variety of ways, like to fund a loved one’s education, move up to a bigger home, or start your own business. As a renter, you’re actually growing your landlord’s equity instead of your own.
If you’re ready to put your monthly payments to work for you and take steps toward those dreams and goals, purchasing a home may be the way to go, especially as rental prices continue to rise.
The Luxury Market Is Attracting Buyers in 2021
For those who have moved to the suburbs and beyond, moving back to the city full time is unlikely while the work from home trend remains. Many of these affluent homeowners are now making their secondary properties their primary residences for the foreseeable future.”
Want to Build Wealth? Buy a Home This Year.
There is, however, another financial advantage to owning a home that’s often forgotten in the analysis – the wealth built through equity when you own a home.
Odeta Kushi, Deputy Chief Economist for First American, discusses this point in a recent blog post. She explains:
What has this equity piece meant to homeowners in the past?
CoreLogic, another property data curator, also weighed in on the subject. According to their latest Homeowner Equity Insights Report, the average homeowner gained $17,000 in equity in just the last year alone.
What does the future look like for homeowners when it comes to equity?
What’s the Difference between an Appraisal and a Home Inspection?
“A home purchase is typically the largest investment someone will make. Protect yourself by getting your investment appraised! An appraiser will observe the property, analyze the data, and report their findings to their client. For the typical home purchase transaction, the lender usually orders the appraisal to assist in the lender’s decision to provide funds for a mortgage.”
When you apply for a mortgage, an unbiased appraisal (which is required by the lender) is the best way to confirm the value of the home based on the sale price. Regardless of what you’re willing to pay for a house, if you’ll be using a mortgage to fund your purchase, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.
This is especially critical in today’s sellers’ market where low inventory is driving an increase in bidding wars, which can push home prices upward. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more.
However, the lender will only allow the buyer to borrow based on the value of the home. This is what helps keep home prices in check. If there’s ever any confusion or discrepancy between the appraisal and the sale price, your trusted real estate professional will help you navigate any additional negotiations in the buying process.
“In simplest terms, a home appraisal determines the value of a home, while a home inspection determines the condition of a home.”
The home inspection is a way to determine the current state, safety, and condition of the home before you finalize the sale. If anything is questionable in the inspection process – like the age of the roof, the state of the HVAC system, or just about anything else – you as a buyer have the option to discuss and negotiate any potential issues or repairs with the seller before the transaction is final. Your real estate agent is a key expert to help you through this part of the process.
Owning a Home Is Still More Affordable Than Renting One
That has happened even though median home prices have increased more than average rents over the past year in 83 percent of those counties and have risen more than wages in almost two-thirds of the nation.”
Why Right Now May Be the Time to Sell Your House
According to the latest Realtors Confidence Index Survey from the National Association of Realtors (NAR), buyer demand across the country is incredibly strong. That’s not the case, however, on the supply side. Seller traffic is simply not keeping up. Here’s a breakdown by state:
NAR also just reported that the actual number of homes currently for sale stands at 1.28 million, down 22% from one year ago (1.64 million). Additionally, inventory is at an all-time low with 2.3 months supply available at the current sales pace. In a normal market, that number would be 6.0 months of inventory – significantly higher than it is today.
What does this mean for buyers and sellers?
Sellers may not want to wait until spring to put their houses on the market, though. With such high buyer demand and such a low supply, now is the perfect time to sell a house on optimal terms.
IS BUYING A HOME TODAY A GOOD FINANCIAL MOVE?
There’s no doubt 2020 has been a challenging year. A global pandemic coupled with an economic recession has caused heartache for many. However, it has also prompted more Americans to reconsider the meaning of “home.” This quest for a place better equipped to fulfill our needs, along with record-low mortgage rates, has skyrocketed the demand for home purchases.
This increase in demand, on top of the severe shortage of homes for sale, has also caused more bidding wars and thus has home prices appreciating rather dramatically. Some, therefore, have become cautious about buying a home right now.
The truth of the matter is, even though homes have appreciated by a whopping 6.7% over the last twelve months, the cost to buy a home has actually dropped. This is largely due to mortgage rates falling by a full percentage point.
Let’s take a look at the monthly mortgage payment on a $300,000 house one year ago, and then compare it with that same home today, after it has appreciated by 6.7% to $320,100:
But isn’t the economy still in a recession?Yes, it is. That, however, may make it the perfect time to buy your first home or move up to a larger one. Tom Gil, a Harvard trained negotiator and real estate investor, recently explained:
“When volatile assets are facing recessions, hard assets, such as gold and real estate, thrive. Historically speaking, residential real estate has done better compared to other markets during and after recessions.”
That thought is substantiated by the fact that homeowners have 40 times the net worth of renters. Odeta Kushi, Deputy Chief Economist for First American Financial Corporation, recently said:
“Despite the risk of volatility in the housing market, numerous studies have demonstrated that homeownership leads to greater wealth accumulation when compared with renting. Renters don’t capture the wealth generated by house price appreciation, nor do they benefit from the equity gains generated by monthly mortgage payments, which become a form of forced savings for homeowners.”
Bottom LineWith home prices still increasing and mortgage rates perhaps poised to begin rising as well, buying your first home, or moving up to a home that better fits your current needs, likely makes a ton of sense.
CHANCES OF ANOTHER FORECLOSURE CRISIS? “ABOUT ZERO PERCENT.”
During the housing crash of 2006-2008, many felt homeowners should be forced to pay their mortgages despite the economic hardships they were experiencing. There was no empathy for the challenges those households were facing. In a 2009 Wall Street Journal article titled Is Walking Away From Your Mortgage Immoral?, John Courson, Chief Executive of the Mortgage Bankers Association, was asked to comment on those not paying their mortgage. He famously said:
“What about the message they will send to their family and their kids?”
Courson suggested that people unable to pay their mortgage were bad parents.
What resulted from that lack of empathy? Foreclosures mounted.
This time is different. There was an immediate understanding that homeowners were faced with a challenge not of their own making. The government quickly jumped in with a mortgage forbearance program that relieved the financial burden placed on many households. The program allowed many borrowers to suspend their monthly mortgage payments until their economic condition improved. It was the right thing to do.
What happens when forbearance programs expire?Some analysts are concerned many homeowners will not be able to make up the back payments once their forbearance plans expire. They’re concerned the situation will lead to an onslaught of foreclosures.
The banks and the government learned from the challenges the country experienced during the housing crash. They don’t want a surge of foreclosures again. For that reason, they’ve put in place alternative ways homeowners can pay back the money owed over an extended period of time.
Another major difference is that, unlike 2006-2008, today’s homeowners are sitting on a record amount of equity. That equity will enable them to sell their houses and walk away with cash instead of going through foreclosure.
Bottom LineThe differences mentioned above will be the reason we’ll avert a surge of foreclosures. As Ivy Zelman, a highly respected thought leader for housing and CEO of Zelman & Associates, said:
“The likelihood of us having a foreclosure crisis again is about zero percent.
REASONS WHY THE ELECTION WON’T DAMPEN THE HOUSING MARKET
Tomorrow, Americans will decide our President for the next four years. That decision will have a major impact on many aspects of life in this country, but the residential real estate market will not be one of them.
Analysts will try to measure the impact feasible changes in regulations might have on housing, the effect of a possible first-time buyer program, and any number of other situations based on who wins. The housing market, however, will remain strong for four reasons:1. DEMAND IS STRONG AMONG MILLENNIALSThe nation's largest generation began entering the housing market last year as they reached the age to marry and have children - two key drivers of homeownership. As the Wall Street Journal recently reported:“Millennials, long viewed as perennial home renters who were reluctant or unable to buy, are now emerging as a driving force in the U.S. housing market’s recent recovery.”2. MORTGAGE RATES ARE HISTORICALLY LOWAll-time low interest rates are also driving demand across all generations. Strong demand created by this rate drop has countered other economic disruptions (e.g., pandemic, recession, record unemployment).
In addition, Freddie Mac just forecasted mortgage rates to remain low through next year:“One of the main drivers of the strong housing recovery is historically low mortgage interest rates…Given weakness in the broader economy, the Federal Reserve’s signal that its policy rate will remain low until inflation picks up, and no signs of inflation, we forecast mortgage rates to remain flat over the next year. From the third quarter of 2020 through the end of 2021, we forecast mortgage rates to remain unchanged at 3%.”3. PRICES CONTINUE TO APPRECIATEThe continued lack of supply of existing homes for sale coupled with the surge in buyer demand has experts forecasting strong price appreciation over the next twelve months.4. HISTORY SAYS SOThough it’s true that the market slows slightly in November when it’s a Presidential election year, the pace returns quickly. Here’s an explanation as to why from the Homebuilding Industry Report by BTIG:
“This may indicate that potential homebuyers may become more cautious in the face of national election uncertainty. This caution is temporary, and ultimately results in deferred sales, as the economy, jobs, interest rates and consumer confidence all have far more meaningful roles in the home purchase decision than a Presidential election result in the months that follow.”Ali Wolf, Chief Economist for Meyers Research, also notes:
“History suggests that the slowdown is largely concentrated in the month of November. In fact, the year after a presidential election is the best of the four-year cycle. This suggests that demand for new housing is not lost because of election uncertainty, rather it gets pushed out to the following year as long as the economy stays on track.”BOTTOM LINEThere’s no doubt this is one of the most contentious presidential elections in our nation’s history. The outcome will have a major impact on many sectors of the economy. However, as Matthew Speakman, an economist at Zillow, explained last week:“While the path of the overall economy is likely to be most directly dictated by coronavirus-related and political developments in the coming months, recent trends suggest that the housing market – which has basically withstood every pandemic-related challenge to this point – will continue its strong momentum in the months to come.”
BUILDING A POOL IS JUST THE BEGINNING
When your children are small, pools become a magnet for not only your children but their friends as well. It can also be a great place for the summer holidays, Memorial Day, 4th of July and Labor Day. Any day during the summer, especially on the weekends, can be an opportunity to enjoy the pool, cook outside and bask in the sun.
Some of you may have even made the transition from your children enjoying the pool to your grandchildren. Usually, there is an interim where you may have wished that your home didn't have a pool so you would not have the maintenance and required upkeep. Then, the new generation of family starts using it regularly and again, you are glad you have a pool, so you'll see the grandchildren more.
For those people who don't have a pool but are considering one, there are some things that you need to think about.
If you've watched some of the TV shows like Pool Kings, most of those builds look like resorts or water parks and the price tag that comes with them can be staggering. Even a modest gunite, in-ground pool with a limited amount of decking can be as expensive as a luxury car, especially after including the cost of landscaping and pool furniture.
If you finance the pool as a home improvement, the term will probably be between seven to fifteen years. If you refinance your current mortgage and wrap the cost of the pool together, you could get a 30-year term.
Pool cleaning and chemicals depend on the size of the pool but will generally start at about $175 a month through a service. Your utilities will see an increase because you're going to use more electricity and water than you did before you had a pool.
Then, of course, there is food and refreshments to consider for not only your family but your guests. There are also pool toys, floats, sunscreen, towels and other minor things that do add up.
People going through the pros and cons of building a pool usually tell themselves that the house will go up in value. It is true but not nearly as much as the cost of the pool. Long time pool owners will tell you that they have had lots of great memories and it has been a good investment in their family. It just may not be a good financial investment.
Once you've made the decision to build a pool, find a reputable pool builder, ask for references and check them out. Ask friends who have pools, who built them and would they use the company again. Most pool companies hire and coordinate with subcontractors to do the work. It is important to know that the builder will be around if something goes wrong and how they'll solve the issue.
The Better Business Bureau has some suggestions about hiring a pool contractor and they warn about scammers who are eager to take advantage of the increased demand for pools.
The last two months of the new normal stay at home has led many homeowners to rethink the way they live in their home. It has now become an office for working at home; a school for children; a gym to stay in shape; and a place for recreation.The repurposing has people evaluating whether their home still meets their needs or if some changes are necessary. In some cases, adult children have moved back home, and, in others, there are parents who have moved in for the first time.Staying at home and sheltering in place is necessary but how much togetherness can one family take and how long is it going to last? Temporary is stretching into longer than expected and even when vaccines and treatments are discovered, will things really go back to the way they were?A home is a place to call your own; to raise your family, share with your friends and to feel safe and secure. Covid-19 has changed the scope of feeling safe and secure at home and may now be considered a sanctuary of safety more than ever before.Many of the chief economists in the country feel that real estate will likely lead the country out of this recession. The housing market is experiencing low inventory and has for almost a decade. Building has not kept up with demand and prices of existing homes have continued to go up; 8%% over last year.With 30-year mortgage rates at close to 3.25%% and prices expected to continue to rise, an investment in a home can fit your needs and show returns in satisfaction, comfort, enjoyment, and monetary value.If you are going to be spending more time in your home for all the reasons mentioned, maybe now is the time to consider finding a home that better suits your needs. It can be done in a responsible and safe manner using an online meeting with your real estate professional. Find out what is available and what the process entails to protect you and your family.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
HOUSING MARKET POSITIONED TO BRING BACK THE ECONOMY
CONVENIENCE AT A COST
The convenience of selling your home without the hassle of getting it ready, putting it on the market, showings, open houses, negotiations and repairs comes at a cost ... a significant part of your equity.The companies, referred to as iBuyers, that buy homes from sellers are for-profit organizations. They expect to make a profit from sellers who are willing to discount the proceeds they'll realize as an alternative to the conventional method of selling a home for people who need a quick sale.The promotions for these companies generally state that you can receive a cash offer in a few minutes after putting your address online. The discount can be between 10 to 18% compared to normal selling costs from 6 to 9%. The cost to a person with a $100,000 equity could be as much as ten thousand dollars.Even after you have accepted an offer, there can be contingencies in the contract that allow the company to inspect the home to discover the condition and reassess the offer to possibly make even more deductions. If the seller isn't willing to accept them, the buyer can withdraw from the sale without penalty.This appears on the surface to be a friendly, accommodating service but it can be an adversarial situation. The seller wants to maximize their proceeds and the buyer wants to buy it as cheap as possible.Compare this to working directly with a real estate professional acting as your agent. They have to put your interests above their own. They have a fiduciary duty of care, integrity, honesty and loyalty in their dealings with you. Other duties include confidentiality, disclosure, obedience and accounting to the seller.In this traditional model, your agent will provide you with the facts of what homes have sold for in the area and their opinion and recommendations on what the most likely sales price will be. Your agent will provide you an estimate of the sales expenses based on different sales possibilities.They can advise you on work to be done prior to putting the home on the market, staging so your home will show at its best and estimate the time it will be on the market. Based on low inventories in some price ranges, it could be surprisingly short.As an owner, you made an investment in your home in cash and maintenance. You are entitled to maximize your proceeds based on the risk taken to purchase a home instead of renting. The convenience of a quick offer has a cost to it. You need to compare the two alternatives to see which one benefits you the most based on your individual situation.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
IT STARTS BEFORE THE STATEMENT IS SENT
The deadline for challenging your property tax assessment this year may be later than normal due to the stay at home orders but when you are notified, you'll want to be ready to decide whether you can save some money on property taxes this year.There are two elements that determine the amount of property taxes you'll pay for the year: the assessment of value and the property tax rate. Both determinations occur long before the property tax statement is sent.Property owners are notified in writing what their assessed value is for the year. It is estimated that most owners don't challenge that value even though it could lower their tax bill. Not all appeals are successful, but many homeowners believe that it is worth the effort to try. Procedures for challenging the assessment are generally included with the letter and a deadline for filing the challenge.An initial step is to determine the accuracy of the information on your property's record such as market value and square footage. If the record shows a higher square footage than actual, it can cause the value to be higher than it should be. Even though it may not be required, an appraisal could be proof of actual square footage that shows the square footage and value by an independent party.Recent comparable sales are used by assessors to determine market value of a property but are usually not identified in the property record. Property owners can research comparable sales that indicate a lower value and submit them to the assessor's office either informally or in a challenge hearing.It is important that the properties proposed to establish the value of the subject property are recent, comparable in size, condition, amenities and in the same area.There are companies who will represent the owner to lower their assessment. The fee charged is usually a percentage of the taxes that are saved. It is not a complicated procedure and can be very gratifying to make the effort.Your real estate professional can be a valuable source of information and experience to guide you through the process. Call me at (970) 250-0083 for more information and a list of comparable sales.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
ONE MORE REASON TO REFINANCE
Taking cash out of the equity of your home could be a legitimate way to fund a temporary cash crisis now or to have it on-hand if the need arises. Most homeowners can pull out the difference in 80%% of the fair market value of their home and what they currently owe.The most frequently cited reasons for refinancing are to lower the payment, eliminate the private mortgage insurance, combine mortgages, consolidate debt, convert an ARM to a fixed rate mortgage, remove a person from the loan or to take cash out for another reason.The option of using your equity to deal with unexpected living expenses or potential lost wages in the future could be a good reason for doing a cash-out refinance. It is important to consider that it could increase your monthly payment instead of lowering it which would result in higher expenses during uncertain economic times.Some lenders have recently raised the minimum credit score requirement but borrowers with good credit and the ability to repay should be able to refinance. Lenders are reporting that during the Covid-19 crisis their processing time is taking longer but they have implemented procedures to safely facilitate the application as well as the appraisals.While homeowners with an FHA loan are available for a streamline process because FHA is already insuring the mortgage to be refinanced, the cash-out is limited to $500. Even though the owner may not be able to pull funds out of their FHA equity, refinancing may lower their payment and therefore, lower their expenses.Unlike conventional loans that require income through a job or other sources, refinancing an existing FHA loan does not require income verification or an appraisal. The borrower cannot be delinquent on their current FHA loan and it must be at least six months old. The refinance must reduce the current interest rate or term or both.Another alternative for homeowners is a HELOC, home equity line of credit, where you do not incur interest expense unless you actually draw on the line of credit. It will be a variable rate home equity loan similar to a credit card letting you borrow up to a specific limit when you want and repay it slowly over time.Refinancing a home incurs closing costs which can be paid in cash or added to the financed amount. The breakeven point to recapture the cost of refinancing is determined by dividing the monthly savings into the cost of refinancing. If you stay in the home less than that time, refinancing could be an unnecessary expense.Want to know the value of your home? Click HERE for a quick estimate of value.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
HOW TECHNOLOGY IS ENABLING THE REAL ESTATE PROCESS
MORTGAGE CLOSING SCAMS
The American bank robber, Willie Sutton, was asked why he robbed banks and his answer was "because that is where the money is." During his 40-year career, he stole about $2 million but Internet scammers are stealing many times that amount in phishing schemes preying on unsuspecting home buyers.These crooks know where the money is because buyers have the down payment and closing costs and are expecting to transfer it to the close the sale of their home. The FBI, in their 2018 Internet Crime Report, stated victims lost over $149 million and the CFPB estimates the losses at over $1 billion as a result of fraud in real estate transactions. The scammers want to take advantage of the situation while it is still in the buyer's account.Commonly, during the closing process, scammers will send spoofed emails to homebuyers from someone they expect to hear from regarding the transaction like the real estate agent or the settlement agent. They will include false instructions for the closing funds.Following these suggestions can help to protect you and possibly, avoid scams:Call before you click to verify the wiring instructions to transfer funds. DO NOT use the phone number or email in the email request. Use a trusted source, preferably, in person, of contact information.Confirm everything independently with your real estate agent and closing officer. Confirm the actual instructions with the bank before transferring money.Verify immediately, within four to eight hours, with the title company and real estate agent that the money was received. If it has not been received, notify the bank immediately to determine if it can be cancelled.If you believe you have been the victim of a phishing scheme, call your bank immediately and ask them to issue a recall notice on the money transfer. File a complaint with the FBI at www.IC3.gov and report it to your local FBI office.The Consumer Financial Protection Bureau has released two documents in an effort to inform consumers about wire fraud scams that commonly occur during closings: Mortgage Closing Checklist and Mortgage Closing Scams.This is for information purposes only and should not be considered legal advice.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
WHAT BUYERS CAN DO WHILE STAYING AT HOME
While you're isolating at home, there are things you can do to help buy a home now or in the near future. Instead of spending time surfing the Internet looking at homes, do the groundwork necessary to be able to purchase the home that you find.There is a lot of documentation necessary to qualify for a mortgage and to be approved. This part of the homebuying process can be done in advance, long before you even start looking at homes much less finding the one that you want.Assemble all documents to make a pre-approvalPhoto IDTwo months current pay stubsLast two years' W2sComplete copies of checking and savings statements for last three monthsCopies of statements for IRAs, 401k, savings, CDs, money market funds, etc.Employment history for last two years with addresses and contactsProof of commissioned or bonus incomeResidency history for last two years with addresses and contactsAssets for down payment, closing costs, and reserves; must provide paper trailIf self-employed, last two years tax returns, current profit and loss statement and balance sheet; copy of partnership/corporate tax returns for last two years if owning more than 25%% of companyFHA requires driver's license and social security cardVA requires original certificate of eligibility and DD214Other things may be required such as previous bankruptcy, divorce decreeGet pre-approved giving you the confidenceDetermining the amount you can borrow - decreases as interest rates riseLooking at "Right" homes - price, size, amenities, locationFinding the best loan - rate, term, typeUncovering issues early - time to cure possible problemsCreating bargaining power - price, terms, & timingBeing able to close quicker - verifications have been madeIf using a gift as a down payment, construct your gift letterThe donor's relationship to borrowerState the dollar amount is a gift and not a loanState that no repayment is requiredSigned and dated by the donor and borrowerInclude all contact informationBuild your homebuying teamREALTOR® - this person will coordinate the efforts of the other team members to make the transaction move smoothly, without unnecessary delays to close on time.Lender* ... consider a trusted professional you can meet with face-to-faceTitle company* ... guaranteeing the title and closing on time is importantInspector* ... more than a flashlight and a clipboard*Your agent can recommend these professionals based on their experience and having worked with them in the purchase and sales of other homes. This can keep you from getting hooked-up with someone that may not be familiar with the type of home, area, or loans that you might be considering.Additional information about the buying process and things that you can be doing while you're waiting to look at homes can be found in the Buyers Guide.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
SHOWING PROCEDURES DURING COVID-19
WHY HAVE A MORTGAGE DURING RETIREMENT?
GET READY TO GARAGE SALE
A well-planned garage or yard sale can give you extra space in your home, get rid of unused items and make some money but it needs some of the same considerations that any business needs to be successful.Start early to research and planPromotion is keyDisplay items attractivelyPrice items rightOrganize checkoutDetermine the date of your sale, remembering that there are exceptions, but Saturdays are generally the best day. Experienced garage-salers believe that a well-planned one-day event will do as well as a multi-day event. Serious purchasers will look for the "new" sale and most people don't come back multiple days. Recognize that the first day of the sale will have the most people. Everyone will be looking for a bargain but some of them actually want to purchase things for them to resell at their own sales.Advertise in local newspapers and free online classified sites like Craigslist. If several families are going together for the sale, mention that in the ad; it will be a big draw. Mention your bigger-ticket items like furniture, equipment and baby items.Garage sale signs can be purchased or you could have them made at Office Depot or FedEx Office. Signs need large lettering so they're easy to read without too many words on them. Remember that people will be driving when they see them. Most important info: Garage or Yard Sale, address, date and time. Directional signs are also important along with balloons and streamers to attract attention.Consider using the service Square so that you can take credit cards. The cost is 2.6%% + 10¢ per swipe and you can do it on your smartphone or iPad. You'll need to sign up at least two weeks in advance to receive your reader.You will be amazed at what sells and what doesn't. If your goal is to get rid of some things regardless, put those items in the sale and at the end of the sale, donate what you can to Goodwill and the balance goes to the dump. If you can't bear to do that, box them up and try again next year or possibly, at one of your neighbors' sales.Other supplies you'll need will be:Labels and markers for pricing items.Newspaper and clean, grocery bags to wrap breakables.Tables to display the items.Unless you're having an estate sale, keep your home locked. You don't want people wandering through your home while you're outside. If you start to accumulate a lot of money, take some of it inside. Don't discuss how much money you've made during the sale or how successful it has been. People will want to bargain; it's the nature of the game. Consider this strategy: less negotiations early in the sale and possibly, more toward the end of the sale.Want to know the value of your home? Click HERE for a quick estimate of value.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
WHAT KIND OF PROPERTIES ARE THESE?
It is the way the property is used that determines the type of property it is, not what it looks like. Based on the intent of the owner, the property could be a principal residence, income property, investment property or dealer property.A principal residence is a home that a person lives in. There can be only one declared principal residence. It is afforded certain benefits like deducting the interest and property taxes on a taxpayers' itemized deductions, up to limits. Up to $250,000 of gain for a single taxpayer and up to $500,000 for a married couple filing jointly can be excluded from income if the property is owned and used as a principal residence for two out of the previous five years.An income property is an improved property that is rented for more than 12 months. The improvements can be depreciated based on a 27.5-year life for residential property or 39-years for commercial property. This is a non-cash deduction that shelters income. When the property is sold, the cost recovery is recaptured at a 25%% tax rate.An investment property could be an improved property or vacant land that does not produce income and is not eligible for depreciation or cost recovery. The gain on both income and investment properties are taxed at a lower, long-term capital gain rate and are eligible for a tax deferred exchange.Second homes are properties that a taxpayer primarily uses for personal enjoyment but is not their principal residence. For IRS purposes, it is treated as an investment property in that the gain is taxed at preferential long-term rates if it is held for more than 12 months. However, it is not eligible for exchanges because personal use properties are excluded from that benefit.Properties that are built or bought to make a profit are considered inventory and are labeled dealer properties. The gain is taxed at ordinary income rates and they are not eligible for section 1031 deferred exchanges.The financing available differs considerably based on the intent of the owner which determines the type of property. Owner-occupied homes, used as a principal residence, are eligible for low down payment mortgages like VA, FHA, USDA and conventional ranging from nothing down to 20%%. A second home, in most cases, requires a minimum of 10%% down payment. Investment and Income properties, generally, require 20%% or more in down payment with some possible exceptions. There is not any long-term financing available for dealer property.Want to know the value of your home? Click HERE for a quick estimate of value.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
WHY PUT MORE DOWN
FINANCING HOME IMPROVEMENTS
Home improvement loans provide a source of funds for owners to finance the improvements they want to make. These are usually, personal installment loans that are not collateralized by the home itself. Since there is more risk for the lender with this type of loan, the interest rate is higher than a normal mortgage loan.In today's market, the rates on home improvement loans could vary between 6%% and 36%%. A borrower's credit score will determine the interest rate; the lower the score, the higher the rate and the higher the score, the lower the rate.Smaller loan amounts are under $40,000 with larger loan amounts over $40,000 based on the extent of the improvements to be made. With all things being equal, a larger loan may have a lower interest rate.Besides the interest rate being higher than a regular mortgage, the term is shorter. Similar to a car loan, the term can be between five and seven years. A $50,000 home improvement loan for a borrower, with good but not great credit, could have a 12%% interest rate for seven years. That would make the monthly payment $882.64.An alternative way to fund the improvements would be to do a cash out refinance. These types of loans are collateralized by the home. The current mortgage would be paid off with the new mortgage plus the amount for the improvements. Lenders will usually require that the owner maintain a minimum of 20%% equity in the home.Assuming a homeowner owed $230,000 on the existing mortgage and wanted $50,000 for improvements. The new loan amount would be $280,000 and the home would have to appraise for at least $350,000 for the homeowner to have a 20%% equity remaining.Another thing that occurs on a refinance is that the standard term for mortgages is 30 years which means the owner would be financing the improvements for 30 years instead of a shorter term. The advantage would be a smaller payment.Let's say in this example, the owner originally borrowed $250,000 at 4.5%% for 30 years with a payment of $1,266.71. After 54 payments, the unpaid balance is $230,335. If they did a cash out refinance at 4.5%% for 30 years for the additional $50,000 and financed the estimated closing costs of $8,700, the new payment would be $1,464.50.Using the home improvement loan, the combined payments would be $2,149.35 which would be $684.85 higher. While the cash out refinance produces a lower payment, it adds $8,700 to the amount owed and stretches it out over a longer period. Home improvement loans have lower closing costs than regular mortgage loans.Another alternative loan is a HELOC or Home Equity Line of Credit which can be explored and compared to the two options mentioned above. If a homeowner is going to finance improvements, a comparison of different types of loans and payments can be helpful in the decision-making process.A trusted mortgage professional is a valuable resource to assist you with current and accurate information. If you need a recommendation, please call me at (970) 250-0083.Want to know the value of your home? Click HERE for a quick estimate of value.Do you know of anyone else interested in buying or selling a home? I would love for you to introduce me to them, I am happy to take care of your referrals!
HOUSE-HACKING RENTAL PROPERTY
INTERIOR CONDENSATION SOLUTIONS
Condensation occurs when the air has too much moisture in it which is felt as high humidity. The water deposits on various surfaces that are cooler than the air itself. Several things can contribute to the high humidity such as cooking, dishwashers, clothes dryers, bathing and long showers.If the home has a crawl space under the floor, inadequate ventilation or insulation can cause moisture in the home. There seems to be a difference of opinions about whether to vent or not vent. First, determine if you are having a problem and then, weigh the options available to find the best solution.Condensation that forms on windows and other surfaces in your home can cause damage to window trim, frames, drywall, floor coverings and sub-floors as well and the interior framing.To reduce condensation in a home, the moisture saturating the air needs to be reduced. Just as steam from a shower can fog a mirror, warm air holds more moisture. When the air cools, it releases the moisture. There are other things that can be done to reduce the moisture and the condensation.Adjust humidifierBathroom and kitchen exhaust fansCirculate the air; ceiling fans can help with thisOpen windows to release warm airRaise temperatureAdd weather strippingWindow insulation kitsStorm windowsMove plants that release moisture in the airThe average life of a bathroom exhaust fan is about ten years with kitchen fans lasting about fifteen years. Regular cleaning can increase the life of the fans. Bathroom exhaust fans should be vented to the outside and should be run for 15-20 minutes after using the bath or shower to remove the moisture that causes mold and mildew.Regulating the humidity in a home can protect against damage but it also promotes comfort in the form of breathing, relieving dry skin, sinus problems and sickness in general. Breathing is easier and the air feels more pleasant.
PRICE IT RIGHT THE FIRST TIME
The Internet has empowered all buyers with information and home buyers are no exception. The amount of information available to public includes details on size, condition, sales history, current inventory, recent sales, photographs, videos, school info, drive-times, entertainment and much more.When a seller realizes that buyers are educated with facts, it becomes unlikely that they will pay more than a home is worth.If a home is priced too high in the beginning, it may stay on the market longer than normal which could adversely affect the ultimate sales price. It is a natural reaction from people, personally or professionally, to assume that something must be wrong with a home that doesn't sell in a reasonable time for that market.The seller is entitled to maximize the equity in their home and pricing it properly in the beginning is the best way to achieve that. Overpricing can reduce buyers activity because they assume that the best homes are purchased soon after they are offered for sale and if one has been on the market longer than normal, there must be a problem with it. Similarly, sales associates may come to the same conclusion.After buyers have seen a few homes in a certain price range, they begin to expect similar amenities in each home they look at. If a home is overpriced, it will not compare favorably with the other homes that are being viewed. Sometimes, the buyer may even think that another home could be a bargain because it offers much more for the same price as the overpriced listing.Shopping the market means looking at the homes that meet a buyers' wants and needs and selecting the one that gives them the most, whether it is in price or amenities. The overpriced listing doesn't compete well, and it extends the market time. There is a documented study that shows that the longer a home stays on the market, the lower the price will be.It is essential that a seller receive factual information to price their home to compete favorably in the current market. Some of the obstacles can include:Failure to objectively compare the current and sold homes with theirsNeighbors who mislead the seller as to how much they got for their homeFear of making a mistake and thinking they can start high and always lower the priceLoss of perspective because the seller is emotionally involvedExpecting the home to sell for more than fair market value because they need the moneyAgents who will accept a listing at any price in order to tie up the property until the seller realizes the price is too highWhat a seller paid for the home or the cost to rebuild it today do not affect market value. Neither does the amount spent by sellers on certain improvements that were made for their own pleasure and enjoyment.It is unrealistic to expect a buyer to pay more than market value for a home. The seller sets the price of a home but the buyer determines the value. If the home is priced properly in the beginning, it is more likely to sell for a higher price, in a shorter period and with less problems.
WANT TO BE A LANDLORD?
MONEY YOU SAVED FOR A DOWN PAYMENT
DOWNSIZING IS AN ALTERNATIVE
- Easier to maintain
- Lower utilities
- Lower property taxes
- Lower insurance
- More convenient location
- Single level
- Possibly more energy efficient
- Possibly lower maintenance
INVEST IN EQUITY BUILD-UP
AMERICA STILL CONSIDERS REAL ESTATE THE BEST
35%% of respondents, in a recent annual Gallup poll that dates back to 2002, identified real estate as the best long-term investment option compared to 27%% who identified stocks. The top choices included real estate, stocks, savings accounts and gold. Even with the remarkable prices of the different U.S. stock indices recorded in 2019 through April and May, homes have the highest confidence in the minds of the respondents.This seems to be based on the stability of the housing market and the expectation that home prices will continue to rise. Homeowners build equity from both appreciation as well as reducing principal with each payment made. These same factors exist for investors of rental homes in predominantly owner-occupied neighborhoods.Real estate has another dynamic working to produce favorable investment results due to leverage. Leverage occurs when borrowed funds are used to control an asset. When the borrowed funds are at a lower rate than the overall investment results, positive leverage occurs which can increase the yield from an all cash investment.Gold and savings accounts must be funded with cash. The maximum borrowed funds allowed for stocks is 50%% and generally, at a rate higher than typical mortgage rates. Homes are a particularly attractive investment because you can enjoy them personally by living in them. The interest and property taxes are deductible and gains on the profit are excluded up $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly. Many people consider an investment in a home for a rental property an IDEAL investment: Income, Depreciation, Equity Build-up & Leverage.
GET LEVERAGE WORKING FOR YOU
Leverage is an investment term that describes the use of borrowed funds to control an asset; sometimes referred to as using other people's money. Borrowed funds can affect the investment in your home positively.For instance, if you had a $100,000 rental property, collected the rents and paid the expenses and had $10,000 left, you would earn a 10%% return (divide the $10,000 by the $100,000.) With no loan on the property, there is no leverage.If you decided to get an 80%% mortgage at 8%%, you would owe an additional $6,400 in expenses leaving you only $3,600 net. However, your return would grow to 18%% because your investment is now $20,000 in cash (divide the $3,600 by $20,000.)Leverage, the use of borrowed funds, causes the return to increase in this example. While, most people associate leverage with rental properties, it also applies to a home. The larger the mortgage, the more leverage you have. A FHA mortgage with a 3.5%% down payment has more leverage than an 80%% loan.Assume we're looking at a $295,000 purchase price with 3%% closing costs and a 4.5%% mortgage for 30 years with a five-year holding period. The following table shows the return based on different down payments and appreciation rates. The initial investment is the down payment plus closing costs. The equity build-up at end of year five is the result of normal principal reduction and appreciation.Down Payment1%% Appreciation2%% Appreciation3%% Appreciation3.5%%21%%28%%34%%10%%12%%17%%21%%20%%7%%10%%13%%Another way to look at the 3.5%% down payment example with 3%% appreciation would be to say that a $10,325 down payment plus $8,850 in closing costs could grow into $82,482 of equity in a five-year period producing a 34%% rate of return on the initial investment.Estimate what your initial investment could grow to using this Rent vs. Own. If you need any help, let me know at (970) 250-0083 or Amanda@Brayandco.com.
MEASURING SQUARE FOOTAGE
DON'T LEAVE HOME WITHOUT...
You been planning this trip for some time and almost every detail has been considered...or has it? Have you thought about how to protect your home while you're out of town? What's going to make sure that everything you left is still there in you return?Nothing could ruin a trip more than coming back to find out your home has been burglarized or worse. It makes sense to spend a little time before you leave on making sure your home is as safe and sound as it can be.There are a host of devices to use across the Internet including camera door bells, video cameras, door locks, garage door openers, light and thermostat controls. You can monitor your home whenever you have an Internet connection. The question is whether you want the distraction from your trip.Consider these low-tech suggestions along with your other normal efforts:Tell your neighbors you'll be out of town and to be aware of any unusual activity.Notify your alarm companyDiscontinue your postal deliveryUse timers on interior lights to make it appear you're home as usual.Don't make it easy for burglars by leaving messages on voice mail or posting on social networks.Post on social networks after you've returned about your vacation.Remove the hidden spare keys and give it to a trusted neighbor or friend.Lock everything, double-check and set the alarm.Take pictures of your belongings in case you need them.Disconnect TVs and other equipment in case of unexpected power surges.Adjust your thermostat.Arrange for lawn care.Consider disconnecting the garage door opener.Put irreplaceable valuables in a safety deposit box.It's nice to go out of town on a well-deserved trip and it's always nice to get back home...especially when it is just the way you left it.
DEPENDS IF YOU CAN AFFORD IT
However, for those who can afford a higher payment and commit to the 15-year term, there are three additional reasons: lower mortgage interest rate, build equity faster and retire the debt sooner.The 30-year, fixed-rate mortgage is the loan of choice for first-time buyers who are more likely to use a minimum down payment and are concerned with affordable payments. For a more experienced buyer who doesn't mind and can qualify making larger payments, there are some advantages.Consider a $200,000 mortgage at 30 year and 15-year terms with recent mortgage rates at 4.2%% and 3.31%% respectively. The payment is $433.15 less on the 30-year term but the interest being charged is higher. The total interest paid by the borrower if each of the loans was retired would be almost three times more for the 30-year term.Let's look at a $300,000 mortgage with 4.41%% being quoted on the 30-year and 3.84%% on the 15-year. The property taxes and insurance would be the same on either loan. The interest rate is a little over a half a percent lower on the 15-year loan, but it also has a $691.03 higher principal and interest payment due to the shorter term. The principal contribution on the first payment of the 30-year loan is $401.56 and it is $1,235.09 on the 15-year loan. The mortgage is being reduced by $833.53 more which exceeds the increased payment on the 15-year by $142.50. Interestingly, over three times more is being paid toward the principal.Some people might suggest getting a 30-year loan and then, making the payments as if they were on a 15-year loan. That would certainly accelerate amortization and save interest. The real challenge is the discipline to make the payments on a consistent basis if you don't have to. Many experts cite that one of the benefits of homeownership is a forced savings that occurs due to the amortization that is not necessarily done by renters. Use this 30-year vs. 15-year financial app to compare mortgages in your price range. A 15-year mortgage will be approximately half a percent cheaper in rate. You can also check current rates at FreddieMac.com.
STANDARD OR ITEMIZED DEDUCTIONS
Let's say that the married couple filing jointly has a $285,000 mortgage at 5%% for 30 years that has about $14,000 in interest being paid. The property taxes are $6,000 and they have $4,000 a year in charitable contributions for a total of $24,000 of allowable itemized deductions on Schedule A.Since that deduction amount is the same as the Standard Deduction, there is no monetary advantage one way or the other. However, if the taxpayers were to pay their interest because they must make timely house payments but only pay $2,000 of the 2018 property taxes in December of 2018 and the balance of the $4,000 in January, they transfer part of the deduction into 2019.
Additionally, if they make their intended charitable contribution for 2018 in January of 2019, it makes that deductible on the 2019 return.Since the total deductible amounts paid out in 2018 was $16,000, the taxpayers would have an $8,000 benefit that year from taking the Standard Deduction.Assuming they made the same $4,000 charitable contribution in 2019 during the year and paid the house payment and property taxes on time, their total deductions for 2019 would be $32,000 which is $8,000 more than the Standard Deduction.In this example, the taxpayers in 2018 and 2019, would benefit a total of $16,000 in tax deductions by bunching and electing to take the standard deduction one year and itemizing the next.This is only an example but if your situation is similar, it might benefit you to consider an alternative when to take the standard deduction and when to itemize. This is a conversation you need to have with your tax professional to see if it would work for you.
ELIMINATE FHA MORTGAGE INSURANCE
Mortgage insurance premium can add almost $200 to the payment on a $265,000 FHA mortgage. The decision to get an FHA loan may have been the lower down payment requirement or the lower credit score levels, but now that you have the loan, is it possible to eliminate it?Mortgage Insurance Premium protects lenders in case of a borrower's default and is required on FHA loans. The Up-Front MIP is currently 1.75%% of the base loan amount and paid at the time of closing. Annual MIP for loans with greater than 95%% loan-to-value is .85%% per year.
For loans with FHA case numbers assigned before June 3, 2013, when the loan is paid down to 78%% of the original loan amount, the MIP can be cancelled. The borrower may need to contact the current servicer.However, for loans greater than 90%% with FHA case numbers assigned on or after that date, the MIP is required for the term of the loan.Most homeowners with FHA mortgages are not eligible to cancel the MIP because they either originated their loan after June 3, 2013, put less than 10%% down payment and/or got a 30-year loan. If they have at least 20%% equity in the home, they can refinance the home with an 80%% conventional loan which in most cases, does not require mortgage insurance.With normal amortization on a 30-year loan, it takes approximately 11-years to reduce the original loan to the 78-80%% requirement based on normal amortization. There is another dynamic involved which is the appreciation on the home. As the home goes up in value and the unpaid balance goes down, the equity increases.If the homeowners believe that they have enough equity that would eliminate the need for mortgage insurance, they can investigate refinancing with a conventional loan. Borrowers refinancing will incur expenses in starting a new mortgage and the interest rate may be higher than the existing rate. Analysis will determine how long it will take to recapture the cost of refinancing.
MORE COMFORTABLE, CONVENIENT AND SECURE
ANOTHER TYPE OF FINANCING CONCESSION
rice, condition and terms are factors that any owner must consider when marketing their home. Price is usually the easiest to adjust to compensate for shortcomings in location or condition of the home. Improving the condition of the property is more time consuming but updates to kitchens, baths and other things can appeal to a buyer.One of the most overlooked marketing factors are terms which are also referred to as financing concessions.
Paying part or all a buyer's closing costs is the most common financing concession. By doing so, the buyer doesn't need as much cash to get into the home which can be attractive to more buyers.There is another financing concession that is not used very often in today's market but it is still allowed and can increase the marketability of a home. A temporary buy-down of the interest rate makes a lower payment for an initial period.It is still a fixed-rate mortgage that the buyer must qualify for at the note rate and there is no negative amortization. The seller pre-pays the interest in advance at closing so the buyer has lower payments in the initial period.Instead of lowering the price of the home, let's say the seller has decided to offer $6,875 worth of financing concessions that the buyer can apply any way they want. One way might be to get a 2/1 buy-down which means that the first year, the payment would be based on 2%% less than the note rate of the mortgage and the second year, it would be 1%% less than the note rate. The third through thirtieth years, the payment would be the actual note rate.On a $275,000 home with a 3.5%% down payment at 5%% for 30 years, the first year's mortgage payment would be figured at 3%% which would be $305.76 less than normal. The second year's payment would be figured at 4%% and would be $157.65 less than normal. The third through thirtieth years, the payment would be the normal payment of $1,424.59.It would save the buyer $5,560.90 in interest in the first two years and there would still be $1,314 of the financing concession to apply toward the buyer's closing costs.The financing concessions paid by the seller give the buyer lower payments for the first two years and less money needed for the closing cost. An added bonus for the buyer is that the buyer can deduct the pre-paid interest the seller paid as qualified mortgage interest.Some lenders may tell you that temporary buy downs cannot be done. They've been around for over thirty years and can still be done today on FHA, VA and conventional loans. Call (970) 250-0083 if you need a recommendation of a trusted professional.
44 TIMES MORE THAN A RENTER
GIFT OF EQUITY
FHA requires that borrowers receive gifts of equity only from family members transferring title to the borrower.An appraisal is required to determine the value of the home. The sales price is subtracted from the appraised value to determine the equity to be gifted. If a home appraises for $300,000 when the owner will sell it for $250,000, the gift is $50,000.The gift is applied to the down payment. In this example, the borrower would have to qualify for a $250,000 mortgage which would require private mortgage insurance because a 20%% down payment on a $300,000 home would be $60,000. If the buyer had an additional $10,000 in cash to put down, the PMI would not be required, and the monthly payments would be lower.The seller would need to provide a gift letter stating the amount of the gift, the date the gift, and that no repayment is expected or required. It also needs to have the donor's name, address, phone, email and relationship to the buyer. In addition, the settlement statement will need to show the gift being credited from the seller to the buyer. The lender may require additional documentation.Beginning in 2018, the annual gift tax exemption is increased to $15,000 per person per year and lifetime exemption to $5.6 million. The fact that the $50,000 exceeds the individual amount doesn't mean there will necessarily be any gift tax due now. The seller should consult their tax professional.
GETTING THE "RIGHT" HOME
Pre-approval is an essential step that needs to be handled before buyers begin searching for a home. The benefits to the buyer fall into the category of confidence.
START EARLY AND LIVE HAPPILY EVER AFTER
An alternative to this might be to start investing in rental homes early in their adult life before their standard of living becomes so expensive that they don't feel like they have the money to purchase rentals. There are infinite possibilities but let's say a single person, after getting a good job, buys a small three or four-bedroom home with an owner-occupied, minimum down payment. They move into the home and possibly, rent out the bedrooms to other singles who need a place to live.At some point, they decide to buy another home to live in with a minimum down payment and either rent out their bedroom in the first home or rent the whole home to a tenant. And they repeat the process again with the second home.This could continue until they acquired several homes. Let's say, that in the meantime, they have met their love interest, decide to get married and together, they buy a starter home for them to live in.This concept advances the investment in rental homes from the latter part of their lives to the early part of their life. The early investment gives them more time for appreciation and wealth accumulation. A simple principle of investing is that sooner is better than later. By delaying gratification to own your "dream home" early, a person may be able to accumulate more net worth in the same period of time.Buying a property initially as owner-occupied permits a lower down payment of 3.5%% compared to a typical down payment for non-owner-occupied properties is 20%%. By using more borrowed funds, leverage can increase the yield on the investment.It may be too late for some people reading this article to adopt this strategy but if they have kids in college, it may be something for them to consider.When the standard deduction for married couples filing jointly was increased from $12,700 to $24,000 for 2018, there was some speculation that the bloom was off the rose of homeownership. The thought was that if the tax benefits from being able to deduct the property taxes and interest was less than the standard deduction, that maybe, the buyer would be better off continuing to rent.With mortgage rates as low as they have been for the past eight years, payments have been lower and so has the amount interest that was paid. This and the fact that sales and local taxes, which include property taxes, are limited to $10,000 a year on the Itemized Deduction form have made it harder to reach the increased standard deduction.
The reality of the situation is tax benefits are only one of the components that make a home an excellent investment and it probably contributes the least of the top three benefits. Principal reduction and appreciation build an owner's equity in an automatic way that is like a forced savings account.In today's market, it is common for the total house payment to be lower than the rent a first-time home buyer is currently paying. As a homeowner, the buyer would have additional expenses like maintenance and possibly, a HOA.To illustrate the net effect, let's look at a purchase price of $275,000 with 3.5%% down payment on a 4.75%% 30-year FHA loan. We'll assume the home appreciates at 3%% annually and the buyer is currently paying $2,000 a month rent.Net Cost Of Housing$1180.72The total payment is $2,115 including principal, interest, property taxes, property and mortgage insurance. However, when you consider the monthly principal reduction, appreciation, maintenance and HOA, the net cost of housing is $1,181. It costs $819 more a month to rent than to own. In a year's time, it would cost $9,831 more to rent than to own which is more than the down payment required to buy the home. In seven-years, the $9,625 down payment would grow to over $58,000 in equity. The equity build-up far exceeds the tax benefits which some people would have as an additional incentive. Use this Rent vs. Own to see what the net cost of housing would be using a home in your price range or call me at 970-986-6093 and I'll do it for you.
HELOCS BECOMING MORE EXPENSIVE
A HELOC is a first or second mortgage that allows the borrower to withdraw money as needed, up to the line of credit provided by the lender. A draw period is established where the borrower is only required to pay interest.Since all HELOC loans are variable rate mortgages, during periods of rising rates, the cost of the funds increase. However, unlike adjustable rate mortgages that have specified adjustment periods and caps, a HELOC adjusts when the prime interest changes.The formula for determining available funds on a refinance are to take 80%% of the fair market value, which will probably have to be verified by appraisal, less the existing first mortgage and the costs to refinance. The balance would need to cover the cost of replacing the HELOC. Any remaining balance may be available for cash to be taken out.Now is a great time for a mortgage review. In many cases, the equity you have in your home may allow you to eliminate mortgage insurance and substantially lower your monthly payment. As with all tax matters, always consult with a tax professional before making any decisions. Call us at (970) 986-6093 for a recommendation of a trusted mortgage professional.
A HOME FOR TOMORROW
As people near or enter retirement, one of the decisions that typically comes up is whether to sell their "big" home and buy a smaller one. If you know anyone who has been faced with that situation, selling one home and buying a smaller one may not save enough money to make it worthwhile.There are sales expenses on the property being sold and acquisition costs on the replacement home. Generally speaking, homeowners may not mind a home with less square footage, but they usually don't want to give up amenities or locations that they've become accustomed.After a little number crunching, the move may not make enough difference in savings and they end up staying in their current home even if it doesn't fit their needs anymore.What if while this couple were still in their peak earning years, they acquired a home in an area where they would consider retiring and rent it during the interim. They could put it on a 15-year mortgage and possibly, even accelerate the principal payments to have it paid off by their anticipated move.In the meantime, they could continue living in the "big" home until it is time to make the transition. Sell the "big" home that may be paid for by then and avoid up to $500,000 of capital gain. Take part of the proceeds and remodel the rental/transitional home and invest the proceeds for retirement income.Ideally, the former rental would be mortgage free by this point, so the retirees would not have a house payment. Even if at this point, they changed their mind about retiring to this particular home, they still have a property that acted as a hedge against rising prices and have sufficient equity to purchase something else without using the proceeds from the "big" home.It is difficult to know what the situation will be years from now when a person retires. It is clearly advantageous to have a plan that allows for options and choices. To find out more about purchasing your retirement home today, give me a call.Congress enacted the Dodd-Frank Act in 2010 in response to the mortgage crisis that led to America's Great Recession. The two parts that apply closely to home buyers are the Ability-to-Repay (ATR) and Qualified Mortgages (QM).A Qualified Mortgage is a category of loans that have certain, more stable features that help make it more likely that borrowers will be able to afford their loan. These loans do not allow certain risky features like an interest-only period when no money is applied to reduce the principal; negative amortization that would allow the mortgage balance to increase; and, "balloon payments" at the end of the loan that are larger than the normal periodic payments. :
A debt-to-income ratio of less than or equal to 43%% has been established to provide a limit on how much of a borrower's income can go toward total debt including the mortgage and all other monthly debt payments. However, the Consumer Finance Protection Bureau believes these loans should be evaluated on a case-by-case basis and in some cases, can exceed 43%%.There is a limit for up-front points and fees the lender can charge.By showing that the lender made an effort to be certain that the borrower has the ability to repay the loan, the lender in turn, receives certain legal protections. Underwriting factors considered by the lender include:For more information, see the Consumer Financial Protection Bureau fact sheet ... protecting consumers from irresponsible mortgage lending.
QUICK PLUMBING INSPECTION
A slow-draining sink can be an indication of a clog that builds up around the insides of the pipe. Common causes are food, grease, hair and soap scum. Plunging can take care of some slow-running sinks. After partially filling the sink with water, seal the plunger over the drain and pump it up and down a few times.Inspect each toilet to see if they are leaking water from the tank into the bowl.Toilets that continue to run after being flushed can use a large amount of water in a month's time. Generally, the problem comes from a flapper that doesn't seat properly. Sometimes, the chain is keeping it from closing properly or the flapper itself may need to be replaced.Another issue could be that the flush valve needs to be replaced. These can be purchased at Lowe's or Home Depot for about $20.00 and are relatively easy to change out. There are lots of instructional videos on the internet and it can save money if you give it a try. If you need a recommendation for a good plumber to take care of something you discover, please feel free to call me.
The National Association of REALTORS? reports there is currently a 4.2-month supply of homes for sale which is close to the same as last year's inventory. Normal inventory is considered to be a 6-month supply.If during the period you're waiting to buy, the price of the home goes up by 5%% and the mortgage rate increases by 1%%, the payment on a $275,000 home with a 95%% mortgage could be $233.80 more each and every month. Over a seven-year period, the delay to purchase would total close to $20,000.To act decisively, you need good information; a confused mind will not generally make a decision. In today's market, you need to know exactly what price home you can qualify for and you need to know what kind of home you can expect for that price.You'll want a housing and a mortgage professional you can trust to give you the information you need to make good decisions for yourself and your family. We'd like to be your real estate professional and can recommend a trusted mortgage professional.To get a better idea about what it may cost you for a home in your price range, use the Cost of Waiting to Buy calculator. If you have any questions, call me.
MOISTURE & MOLD
Moisture control and eliminating water problems are key to preventing mold. Common sources of moisture can be roof leaks, indoor plumbing leaks, outdoor drainage problems, damp basements or crawl spaces, steam from bathrooms or kitchen, condensation on cool surfaces, humidifiers, wet clothes drying inside, or improper ventilation of heating and cooking appliances.Control the moisture problemScrub mold off hard surfaces using soap and water or other cleanser; dry completelyDo not paint or caulk moldy surfacesDiscard porous materials with extensive mold growthAvoid exposing yourself or others to moldPeriodically, inspect the area for signs of moisture and new mold growthThe EPA suggests that if the moldy area is less than ten square feet, you can probably handle the cleanup yourself. If the affected area is larger than that, find a contractor or professional service provider.Increasing ventilation in a bathroom by running a fan for at least 30 minutes or opening a window can help remove moisture and control mold growth. After showering, squeegee the walls and doors. Wipe wet areas with dry towels. Cleaning more frequently will also prevent mold from recurring or keep it to a minimum.A simple solution to clean most mold is a 1:8 bleach/water mixture. Since homes have thermostatically controlled temperatures and water is used all day long in the kitchen and bathrooms, the environment is conducive to mold.See Ten things you should know about mold written by the EPA.
Even if you have an initial approval on your mortgage, little things can derail the process which isn’t over until the papers are signed at settlement and funds distributed to the seller. The verifications are usually done again just prior to the closing to determine if there have been any material changes to the borrower’s credit or income that might disqualify them.Most lending and real estate professionals recommend NOT to:Planning is fine but don’t do anything that would affect your credit or income while you’re waiting to sign the final papers at settlement.
RISING RATES AFFECT THE COST TOO
YEAR END TAX NEWSLETTER
If you bought a home for a principal residence last year, check your closing statement and identify any points or pre-paid interest that you or the seller paid based on the mortgage you received. These can be deducted on your Schedule A as qualified home interest if you itemize your deductions. See Home Mortgage Interest Deduction | IRS Publication 936 (2018 version not released as of this newsletter).Keep track of all money you spend on your home that might be considered a capital improvement. Get in the habit of putting receipts for money spent on your home that is not the house payment or utility bills. Repairs are not tax deductible but improvements, even small ones, can be added to the basis of your home which can lower the gain when the home is sold. Years from now, your tax preparer can sift through them and determine whether they're capital improvements or maintenance. See Increases to Basis | IRS Publication 523 Selling Your Home (2018 version not released as of this newsletter).By making additional principal contributions with your mortgage payment, you'll save interest, build equity and shorten the term of a fixed-rate mortgage. See Equity Accelerator. If you sold a home last year, the payoff on your old mortgage included interest from the last payment you made to the date of the payoff. That interest is tax deductible. You may need a breakdown of the payoff to the mortgage company; you should be able to get that from your closing officer.If you refinanced your home, unlike a home purchase, points paid to refinance are not deductible as interest in the year paid; they must spread ratably over the life of the mortgage. See Home Mortgage Interest Deduction | IRS Publication 936 (2018 version not released as of this newsletter).For homeowners who have lost a spouse, there is an exception regarding the exclusion on the sale of a principal residence. If the surviving spouse concludes a sale of the home within two years of the death of their spouse, they may exclude up to $500,000, instead of $250,000 for single taxpayers, of gain provided ownership and use tests are met prior to death. The two-year period begins on the date of death and ends two years after that date. See Sale of Main Home by Surviving Spouse | IRS Publication 523 Selling Your Home (2018 version not released as of this newsletter).There could be significant tax consequences to a person selling a home that was received as a gift as compared to receiving the home through inheritance. With a gift, the basis of the donor becomes the basis of the donee. With inheritance, the heir usually gets a stepped-up basis and avoids potential unrecognized gain. See Home Received as Inheritance | IRS Publication 523 Selling Your Home (2018 version not released as of this newsletter).Click here to download a Homeowners Tax Guide. This is meant for information purposes only and advice from a qualified tax professional should be sought to find out about your individual situation.Generally speaking, when you need an inventory of your personal belongings, it is too late to make one. Sure, you can reconstruct it but undoubtedly, you'll forget things and that can cost you money when filing your insurance claim. Most homeowner's policies have a certain amount of coverage for personal items that can be 40-60%% of the value of the home.Homeowners who have a loss are usually asked by the insurance company for proof of purchase which can come in the form of a receipt or current inventory of their personal belongings. The most organized people might find it difficult, if not impossible, to find receipts for the valuable things in their home. Think about when you're rummaging around a drawer or closet looking for something else and you discover something that you had totally forgotten that you had. An inventory is like insurance for your insurance policy to be certain that you list everything possible if you need to make a claim. Systematically, make a list of the items by going through the rooms, along with the drawers and closets. In a clothes closet, you can list the number of shirts, pants, dresses, and pairs of shoes but higher cost items should be listed separately. Photographs and videos can be adequate proof that the items belonged to the insured. A series of pictures of the different rooms, closets, cabinets, and drawers can be very helpful. When the video is used, consider narrating as it is shot and be sure to go slow enough and close enough to see the things clearly. For more suggestions and an easy to use, interactive form, download a Home Inventory, complete it, and save a copy off-premise, either in a safety deposit box or digitally in the cloud if you have server-based storage available like Dropbox.