For whatever reason you’ve delayed buying a home, it may be time to reconsider that decision based on today’s conditions and what is expected to happen in the future. Rents are continuing to increase to the point that in most markets, it is significantly less expensive to own than to rent. Even after you factor repairs into the equation, the low interest rates, principal accumulation due to amortization, appreciation and tax savings lower the monthly cost of housing. Low inventories coupled with strong demand cause a rising effect on prices. Another reason for higher values is that builders, especially in certain price ranges, have not ramped up new home starts to keep up with the demand. Recently, the Federal Reserve announced that they intend to start raising rates. Most experts agree that higher interest rates are a foregone conclusion; it is just a matter of when it will happen. A $300,000 home today could cost considerably more one year from now. With a 20% down payment, if prices go up by 3% and the interest rates increase by .5%, the principal and interest payment at 3.625% would be $1,094.52 for 30 years compared to $1,198.05 at 4.125%. The question is not necessarily “can you afford the additional $103.53 more per month that you’d have to pay for the home during the 30 year term?” More importantly, “How would you feel about having to pay more because you weren’t ready to make a decision and what would you have spent it on if you didn’t have to pay a higher payment?”
After you take the training wheels off your bike and learn to ride it, you’d never consider putting them back on again. Similarly, once you’ve owned a home, you might think you’ll own a home from now on but there may be some situations where it might make sense to rent again. Big shifts in a person’s life like a divorce, death of spouse, empty nesting or a temporary transfer to a new city are certainly things that may warrant renting, at least temporarily, until those circumstances develop the particulars. A good example might be that you think you’d like to move downtown. Before selling your home and purchasing a condo, it might be enlightening to rent an apartment to see how you’ll adapt to the changes in that style of living. The sales and purchase expenses incurred with real estate are absorbed over the period ownership which is usually between ten and twelve years. When the holding period involves only a few years, it can negatively impact a homeowner’s equity. Like any move, especially coordinating the sale and purchase of two homes, there are a lot of issues involved. Your real estate professional can provide information that will help you to make better decisions on whether to buy, sell or rent again.
Once the kids are grown, have careers, relationships and get a place of their own, parents find that they may not need their “big” home like they did before. Their lifestyle may have changed and the house just doesn’t “fit” anymore. Benefits of a smaller home:
- Easier to maintain
- Lower utilities
- Lower property taxes
- Lower insurance
- More convenient location
- Convenience of a single level
- Possibly more energy efficient
- Possibly lower maintenance
Moving from a larger home frees equity from the previous home that can be invested for retirement income, purchase a second home, travel, education or just to have a nest egg for unexpected expenses. The profit on the home, in most cases, will be tax-free up to the exclusion limits set by IRS. There will be expenses involved in selling a home as well as the purchase of a new home. These will lower the amount of net proceeds available to invest in the new home. Like any other big change in life, it is recommended that you take your time to consider the possible alternatives and outcomes. Your real estate professional can provide information that can be valuable in the discernment process such as what your home is worth, what you will net from a sale as well as alternative properties for your next stage in life.
Buyers with a minimum down payment are generally faced with the decision of whether to get a FHA or a conventional loan. With the new 3% down payment program on conventional loans, it may become more confusing which loan to pursue. The two loan programs have mortgage fees that can differ greatly. FHA has a 1.75% up-front mortgage insurance charge in addition to the monthly mortgage insurance charge which was recently lowered by .5%. FHA’s mortgage insurance is a fixed amount where conventional mortgage insurance providers’ fees are determined by individual companies and according to the credit score of the borrowers. A borrower with a good credit score will be charged less than a borrower with a marginal credit score. Mortgage insurance on conventional loans can be cancelled when the equity in the property reaches 20%. FHA mortgage insurance in most cases, is paid for the life of the mortgage. Once a borrower has a 20% equity in their home, to eliminate the monthly FHA mortgage insurance, they would need to refinance the home with a conventional loan and would not be eligible for any refund of the up-front fee paid at closing or added to the mortgage. If a borrower has a low credit score, FHA may be the better choice because conventional underwriters may have a higher minimum score. FHA loans also tend to be more lenient than conventional loans when a borrower’s total monthly debt exceeds 45% of their monthly income. FHA tends to allow borrowers a shorter time frame after foreclosures and bankruptcies. The decision-making factor is which mortgage will provide the lowest cost of housing including payment and all loan fees. A lot of information is necessary to make a good decision and typically, the borrower isn’t able to acquire it on his/her own. A trusted mortgage professional is very valuable in not only providing the information but guiding the borrower through the entire process. Your real estate professional is uniquely qualified to make such a recommendation.
Finding a mortgage lender is not a problem. Selecting someone who will help you find the best loan product for your situation even if it means sending you to another lender is paramount. There is a huge advantage to be able to sit across the table from someone you’re doing business with and look them straight in the eye. It’s difficult to make an informed decision based on a website and a phone call. Doing business with a full-time professional who specializes in residential loans like you’re trying to get is important. You want the loan officer to be familiar with local conditions, values and practices. It’s to your benefit to have a loan officer who has the experience to put the unusual transaction together even if yours is not. Here are a few questions that will be helpful in selecting the right loan officer.
- What percentage of your business are FHA & VA compared to conventional mortgages and how long have you been doing them?
- What percentage of your loans close on time according to the sales contracts?
- Will my credit score affect my interest rate?
- Will you help me select the best loan product for me regardless of your commission?
- Are there prepayment penalties on any of the loans we’re considering?
- Are there any restrictions on refinancing any of the loans we’re considering?
- When is my loan rate locked-in? Is there a charge for that?
- Is your loan underwriting in-house?
A real estate professional can be your best source of information and can recommend a trusted lender. If you have any questions as to what kind of answers you should expect, please give me a call.
Most people’s first introduction to Radon is during the inspections of a home. It can be as much a surprise to a seller as it is a buyer. Radon is an invisible and odor-free, cancer-causing radioactive gas. Radon can get into a home through cracks in solid floors, construction joints, cracks in walls, gaps in suspended floors, gaps around service pipes, cavities inside walls and even the water supply. It is estimated that one out of every fifteen homes in the United States has elevated radon levels. The EPA recommends that you test your home which is the only way to find out if you and your family are at risk. If the level found is 4 picocuries per liter or higher, the EPA suggests that you make repairs or install a radon reduction system. Even lower levels can have health risks. The EPA’s interactive map is available to find state and county information but still recommends that all homes should test for radon. More information can be found from the EPA in A Citizen’s Guide to Radon. Test kits are inexpensive and can be purchased at stores like Lowe’s or Home Depot if you choose to do it yourself. If levels indicate a high enough level, you can contact a qualified radon service professional for another test or to mitigate your home. You can get information on identifying these professionals at www.nrpp.info and www.nrsb.org.
There are sites all over the web that offer to tell you what your home is worth. Simply plug in your address and email and you’ll get a value. It’s fast; it’s easy but is it accurate? The value is determined by what is called an Automated Valuation Model (AVM) that analyzes public record data with computer decision logic. Square footage, age, number of bedrooms and location are easily definable objective data. The challenge is identifying, measuring and comparing the subjective data. An AVM cannot identify how unique features might add or detract from the value, if the market is declining or why the comparable sales apply or don’t apply to the subject property. Is a home worth more because it is near shopping or less because it is across the street from a high-traffic commercially zoned property? Experienced professionals are more likely to make proper adjustments for condition, market appeal and positive and negative influences. Imagine that you’re going out for dinner and you consult HamburgerAVM.com to tell you how much a hamburger is worth. It might be accurate based on condiments, vegetables and weight but can it address things like taste, quality, cleanliness, service, convenience or atmosphere. You certainly couldn’t present the printout to the waiter to negotiate a lower price. An AVM can be a tool that a homeowner, prospective buyer, mortgage officer, appraiser or real estate agent can use to get a quick idea of price but there are inherent limitations that can only be considered by personal examination balanced with experience in the market place. Experience and understanding of the subject property and the marketplace are critical to having confidence that a value is accurate. Any person could go through the same steps to arrive at a value but an experienced, well-trained professional is far more likely to assess all of the variables more accurately.
There are many reasons people want a home with the most frequent responses being a place of their own, to raise their family, share with their friends and feel safe and secure. These are all strong motivations fueling the American Dream of owning your own home. The motivation is so dominant that buyers are willing to make sacrifices to have their dream come true. According to the 2014 National Association of REALTORS® Home Buyers and Sellers Survey, 72% of first-time buyers cut spending on luxury or non-essential items. They also cut spending on entertainment, clothes and even cancelled vacation plans. The value of getting their own home is more important than the immediate gratification of things that are considered less important. While qualifying guidelines were increased last year, there are still more buyers purchasing homes at near record-low mortgage rates.
Insurance is a way to hedge the risk of a possible loss on an asset that a person or entity cannot afford. The cost of the coverage is determined by risk and exposure to the insurer and reflected in the premium. Another way to say it is: don’t buy insurance when you can afford the loss. If you have a mortgage on your home, you must have insurance. It is probably prudent for most people to have property insurance but certain coverage might be avoided because you can afford the loss if you were to have an occurrence.
- Call your current agent and review your insurance coverage. Ask if there are any available discounts whether your property qualifies for now or after certain improvements are made. Monitored alarm systems, dead bolts, smoke detectors, updated electrical, certain types and ages of roofs among other things may be eligible for individual discounts.
- Compare the newly revised coverage and premium with other reputable agencies and insurers. Shopping can be time consuming but experts agree that the exercise can be valuable and should be considered every few years.
- Deductibles are an easy way to affect the premium based on the initial amount of loss that the insured wants to assume. The higher the deductible, the lower the premium. Determine the amount of risk you want to assume and select an appropriate deductible.
- Consider bundling your home and auto policies for possible discounts and leverage for better service.
- Don’t become a co-insurer. Most policies stipulate that a building must be insured for at least a certain percentage, usually 80% of its insured value to be able to collect the full amount of a partial loss. Insured value is not always the same as market value. The land is not considered in the value but replacement cost of the dwelling is.
It isn’t possible to purchase insurance after a loss; it must be purchased before a loss is incurred. Premiums are based on careful analysis of insurer’s loss and overhead expense plus a profit. As a homeowner and an insured, it would be equally wise to analyze coverage, claim service, your risk tolerance and the premium you’ll pay for that coverage.
Even if you’re having a professional help you with your income tax return, you need to provide them with information on the money you spent that might be deductible. Look at the following list to see if any of these things need a little more investigation to determine if they apply to your situation.
- If you refinanced your home for the second or subsequent time in 2014, there may be points that can be taken as an interest charge.
- Compare mortgage interest, property taxes and other eligible itemized deductions to your standard deduction to see which will give you a larger deduction.
- If you’re paying mortgage insurance premiums with your payment, you may be eligible to deduct them.
- If you purchased a home in 2014, there may be some deductions found on the HUD-1 form you received at closing.
- If you purchased a home in 2014 and the seller paid points on your behalf in order to get a mortgage, you may be able to deduct them.
- If you purchased and installed in 2014 qualified residential energy efficiency property or improvements, you may be eligible for tax credits.
- If you have dedicated, exclusive space in your home for a home office, you may be eligible for a deduction that may include a pro-rata share of insurance, utilities and other things.
For more information, see IRS Publication 936, Home Mortgage Interest Deduction; 2014 Instructions for Schedule A. If you need another copy of your closing statement for the home you purchased or sold in 2014, contact your real estate professional.