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Showing posts from 2022

Downsizing Options

Opportunities exist for a subset of homeowners, possibly in their 60's to 70's, who want to downsize to smaller homes for convenience, less maintenance, change of lifestyle, or to save money.   These homeowners are more likely to have large equities and will not feel the same constraints that are keeping younger owners in their homes due to the substantial increase in mortgage rates in the past year. In some cases, there may be enough equity in their relinquished home to pay cash for the replacement.   In other situations, the loan-to-value may be so low that even with higher mortgage rates, it won't be as expensive as purchasing with a minimum down payment. Some downsizers may be moving from a high-cost area to a lower-cost area where they can get more home for the dollar and may even be able to free up cash for investment or special projects. It is more likely that older homeowners are living in a property above the median price.   If a seller has a $750,000

Concessions Make Your Home More Marketable

Sellers offer concessions as an incentive to encourage buyers to purchase their home.  The concessions, paid for by the seller, benefit the buyer in ways that may be more appealing than possibly, being able to purchase the home for a lower price. In some situations, buyers have good income, credit, and even the down payment to purchase a home but not necessarily enough cash reserves to pay their closing costs.  Another possibility is that there could be a feature in the home that the buyer wants replaced but can't afford to do it themselves.  If the seller agrees to make that improvement, it could cause the buyer to act favorably. Concessions could include paying the buyer's closing costs, buying down the interest rate, or any possible combination of physical improvements or upgrades to the property. Sellers, occasionally, question why they should provide concessions to a buyer.  It should be obvious; it improves the marketability of the home.  With less than the no

Building Your Home Buying Team

There are a lot of professionals involved in the homebuying process.   And when these people can function as a team, the buyer is much more likely to end up where they want to be...in their new home. The lender is an integral part of the team unless you are going to be paying cash.   Trust is very important when selecting this person because they are going to qualify you for the mortgage you need.   The interest rate and fees should be fair based on your credit, income, and the market.   You'll want someone who can close at the rate and terms that were quoted.   In a rising market, you may want to consider locking in the rate so that it doesn't go up before you close. The appraiser is hired indirectly by the lender to determine the value of the home as part of the loan approval process.   During the financial crisis of 2008, a process was created by the Dodd-Frank Wall Street Reform and the Consumer Protection Act to limit direct contact between borrowers, le

Securing Your Retirement

Social Security was established, on August 14, 1935, to take care of the country's elderly in their retirement years.   Today, about 65 million or 1/6 of Americans collect benefits and the average monthly retirement amount received in January 2022 was $1,614 per month or about $19,370 per year. This annual Social Security benefits exceed the 2022 Federal poverty level of $13,590 for individuals and $18, 310 for a family of two but from a practical level, it is nowhere near enough to be comfortable in your "Golden Years." Every adult in the work force, can go to SSA.gov to find out what to expect to receive based on their planned retirement age.   Since it probably won't be the amount you need to retire comfortably, at least you'll know how short you'll be so that you can devise an investment plan. There's a quick formula to estimate the investable assets needed by retirement to generate a certain income.   The target annual income is divided

Homeowners Need Resources

Managing an asset worth hundreds of thousands of dollars is a responsibility that requires attention to details such as timely payment of the mortgage, home repairs and maintenance, upkeep, and oversight on financial issues including taxes, insurance, and other things. Depending on how long you've been a homeowner, you may have faced some of the decisions common to homeownership.   Occasionally, there could be something new that you haven't had to deal with in the past.   This is where having a resource you can rely on becomes valuable. During the buying or selling process, it is natural to turn to your agent for information and advice but during those periods in between where do you go for counsel?   Sure, you can turn to the Internet but that may not be the best place to get advice for your situation. We encourage you to think of us as your "source of real estate information"; someone you're comfortable with asking a question and confident that yo

Waiting for the Mortgage Rates to Come Down?

Waiting for the mortgage rates to come down before you buy a home may not be a good decision. If you are correct, and the rates do come down by two percent, the savings you benefit from a lower rate will most likely be devoured by the appreciated price increase. As of 10/27/22, the 30-year fixed-rate was at 7.08% which is the highest level since April 2002.   If the rate drops to 5% in three years but the price increases by 5% a year, a $400,000 home today, will cost $463,050 three years from now. An increasingly popular option that more buyers are considering is to purchase the home today with an adjustable-rate mortgage that could give them a 5.96% rate for five years.   Then, refinance to a fixed-rate when rates come down. Not only will the buyer have lower payments with the ARM, but the buyer will also own the home, and benefit from the appreciated prices which will build equity in the home and increase their net worth. Mortgage rates have increased over 3% in the f

Finding Funds for a Down Payment

A soft second loan, sometimes called a silent second, is subordinate to the first mortgage, whose payment is deferred or forgiven until a specific date or the resale of the property.   This would mean that buyers would not have to contend with regular payments thereby keeping their debt-to-income ratio lower and more affordable. While normal lending institutions may not be open to such types of financing, family and friends may be.   In some cases, these relatives and friends may be inclined to make a gift to help buyers get into a home.   Instead of an outright gift, if the person makes the loan, they have options to be repaid at some point in the future or in other cases, they could forgive the debt but don't have to make that decision today. There are more than 2,000 down payment assistance programs nationwide.   State, county, and city governments run many of them.   Other programs could be from churches, employers, non-profit organizations, regional Federal Home Lo

"Do you feel lucky? Well, do ya?"

You may remember the famous line in the Dirty Harry movie when Clint Eastwood has just had a shootout with bank robbers and is standing in front of the lone surviving thief who is considering going for his gun. Harry with his gun pointed at the bad guy says to him " " Did he fire six shots or only five? Well, to tell you the truth, in all this excitement, I kinda lost track myself. But being this is a 44 Magnum, the most powerful handgun in the world and would blow your head clean off, you've gotta ask yourself one question:  Do I feel lucky? Well, do ya?"  Our economy has had a long recovery from the great recession, due in most part to the housing crisis of 2007-2009.   Then, the Pandemic hit in 2020 which tanked the worldwide economy but the surprise to homeowners happened to be housing.   2021 became a red-hot market with prices going up by 21% nationally.   In 2022, mortgage rates have increased by four percentage points and haven't been thi

When will the market turn?

Housing affordability has declined dramatically in 2022 due to continued rising home prices and a three-percentage point jump in mortgage rates.   Based on the popularity of Google searches for "housing bust" or "housing bubble", it could be surmised that buyers are anticipating relief, but they are probably not going to see it anytime soon. Home price appreciation is moderating and is down from the 20% level experienced in 2021.   Some of the major industry prognosticators are estimating anywhere from 9% to 14% for 2022.   Interest rates are expected to continue to rise through the end of 2022 and could be at 7%.   Freddie Mac 30-year fixed-rate mortgage was 6.66% on October 6, 2022. Even though homes currently for sale increased to 3.2 months in August 2022, it isn't that much more than it was for the same month in 2021 when it was at 2.6 months.   Most markets are still entrenched in favor of sellers because a balanced market between buyer's

Another Tool to Improve Affordability

The rapid rise in mortgage rates during 2022 coupled with continued appreciation of home prices have limited the number of buyers in the market which is reflected by the lower number of home sales currently.   "It's a fact that many households are impacted by higher mortgage rates as they no longer earn the qualifying income for the median-priced home." Nadia Evangelou, NAR Economist One of the things that agents are doing to help buyers lower their house payments is to suggest an adjustable-rate mortgage.   The rates on these types of loans are tied to indexes that reflect the current market rates and produce less risk for the lender.   The payments adjust on the anniversary date based on the index plus margin named in the note. While many people think that they only adjust upward, they also adjust downward when the index indicates it.   For the week of September 29, 2022, the Freddie Mac 5/1 ARM was 5.03% compared to the 30-year fixed-rate of 6.70%. Ano

Cause to Pause

Rising mortgage rates are causing some would-be buyers to pause their decisions until they determine whether rates are going to come back down.   While it may be possible, the probability is that prices are going to continue to increase. On December 23, 2021, the 30-year fixed-rate, according to Freddie Mac, was 3.05% and is at 6.29% as of September 22, 2022, a 3.24% increase. On a $360,000 mortgage, the principal and interest payment went from $1,528 to $2,226.   The $698 difference represents a 46% increase in the payment. It seems understandable to pause and see if rates will come down again, especially since they went up so fast, but it probably isn't going to happen anytime soon based on the Fed's position on controlling inflation. The fact that inventories are growing slightly, and market times are increasing doesn't negate that supply cannot keep up with demand and homes are continuing to appreciate, albeit, not as much as they did in 2021. If a person

Five Factors that affect the Sale of Any Home

Owners directly control four of the five factors that affect the sale of any home: price, location, condition, terms, and the agent you select.   The one thing you can't control is the location of the home, but you can adjust the other factors to compensate for failings. The seller controls the price of the home which determines its positioning in the marketplace.   If is priced too high, it will take longer to sell and, in some cases, for less than what it should have sold for because when it doesn't sell immediately, it is assumed that there must be an issue with it.   If it is priced too low, the owner will not realize as much of their equity as they should. Not pricing the home in the proper search brackets could keep the property from being exposed to potential and likely, buyers.   For example, if a home is priced at $399,000 to follow an age-old retail marketing principle, many of the most likely buyers will never know about it because they are searching for

Gift Amount Increased for 2022

The limit for tax free gifts for 2022 is $16,000 and no tax is due to the donor or the donee.   There are provisions that would allow gifts higher than this amount providing the total lifetime gifts above the annual exclusion of $12.06 million for 2022 has not been met. The donor and donee can be separate persons so that the aggregate tax-free gift for one-year amounts to more money.   For instance, a father and mother can gift $16,000 each to their married son in 2022 and an additional $16,000 each to the daughter-in-law for a total $64,000. If the son and daughter-in-law used the money as a down payment to purchase a home, depending on how recent the gift occurred, the mortgage company might require a gift letter from the parents stating the amount was a gift and is not expected to be repaid.   Lenders may ask the exact amount of the gift, where it came from and the relationship involved. Family members and friends with financial resources can become the catalyst that al

Housing Affordability - Call to ARMs

Housing Affordability is negatively affected by both rising home prices and mortgage rates.   A 20% increase in nominal home prices and a 2% increase in the 30-year fixed rate mortgage since January have contributed to a 46 point drop in the NAR Housing Affordability Index. The Index was 143 in June 2021 and is 98.5 in June of 2022. The Housing Affordability Index indicates whether a median income family can qualify for a mortgage loan with a 20% down payment and 25% qualifying ratio for monthly housing expenses to gross monthly income. 100 points is considered the tipping point.   As the Index rises above that point, housing is considered more affordable and as it declines, it is considered less affordable. With affordability threatening to limit buyer's ability to purchase, more borrowers are considering an adjustable-rate mortgage.  For the last ten years, fixed-rate mortgages have been so low, only about 3% of borrowers used adjustable-rate mortgages.   There is

Surviving Spouse Sale Period

Married couples who own a home as joint tenants with rights of survivorship, the surviving spouse inherits the home, along with their basis, and it does not trigger a taxable event.  Unfortunately, the capital gain exclusion is reduced to a single person's share unless the survivor disposes of the property in the granted time. Married couples, filing jointly, have up to $500,000 of capital gain exclusion on qualifying sales.  As a single taxpayer, the survivor is only entitled up to $250,000 exclusion of capital gain.  For instance, if the home at the time of death is worth $900,000 with a basis of $400,000, the gain is $500,000.  If the surviving spouse sells the home, their exclusion is only a maximum of $250,000 which would make the other $250,000 subject to long-term capital gains tax. However, there is an exception to the rule that if a sale occurs within two years of the death of their spouse, the survivor is entitled to the $500,0000 exclusion if the ownership an

Are prices and rates going to continue to rise?

One of the most talked about questions in the real estate market has to do with "Will prices continue to rise now that interest rates have increased dramatically this year?" It is understandable to think that if the Federal Reserve is using interest rate increases to slow consumer demand, that it would also slow homebuyer demand to moderate prices.   Unfortunately for would-be homebuyers, it isn't the case.   High inflation, strong economic growth, low unemployment, and increased wage growth have been associated with high home price appreciation. In a recent newsletter from First American, Chief Economist, Mark Fleming stated that historically, 90% of total inventory is from existing homes and homeowners are not moving as often as in the past.   Prior to 2007, the average tenure was five years.   After the housing crisis, between 2008 and 2016, the length of time spent in a home went to eight years. Lawrence Yun, Chief Economist with the National Associatio

Indecision Can Be Expensive

With all that is going on in the world, a global pandemic, supply chain issues, highest inflation in 40 years, the economic effects of a war in Ukraine, it can be overwhelming to think about when the right time is to buy a home. On a local level, there is a pent-up demand for homes that have been building for years.   Builders haven't kept up with demand for new housing for almost 15 years.   Low inventory, especially in the past three years, have driven up prices nationally in 2021 by 20% and even though, the rapid appreciation seems to be moderating, in June, NAR reported that the median price home was up 13.4% from one year ago. Then, of course, there are mortgage rates that have gone up by 2% since the beginning of 2022.   Appreciation and rising interest rates are a double whammy for people looking for their first home or to move up. It is completely understandable that many people are faced with so much that they are sitting on the sidelines waiting to see if thin

Good Records Can Reduce Capital Gains

Regardless of whether you're entitled to $250,000 or $500,000 of exclusion when you sell your home, prices have gone up so much in the past two years, you may be approaching the limit where you might have to pay tax on the excess when you sell. Any improvements you have made to the home during your ownership can be used to raise your basis in the home which will reduce your gain.   It is worth the effort to start reconstructing the list, both big ticket items and lower priced items that qualify. While repairs to your home do not count as improvements, other money which either materially adds value, appreciably prolongs the useful life of the property, or adapts a portion of the property to a new use will qualify.   Hopefully, you have contracts and agreements on the major items and receipts on things over $75. If you have photographs before and after the improvements were made, it can help serve as evidence that they were in fact made.   The best proof is to record t

Moving Down in an Up Market

Selling and buying a lower priced home in an "Up" market can be to your advantage.   The advantage is to maximize the sales price on your existing home and replace it with a less expensive one. Moving down in an "up" market may be to your advantage in multiple ways.   It is possible that your present home doesn't meet your current needs like it once did.   Making a move can allow you to "re-balance" the equity in your home to better reach your future goals. The "up" market maximizes the sales price you can expect to receive, and it will free the equity in your home. A lower priced home will result in reducing your housing costs with lower property taxes, insurance, utilities, and maintenance...while improving your liquidity position. It is not required to reinvest the proceeds of the sale.   You may decide to get an 80% loan-to-value mortgage on the replacement home to get the best interest rate and avoid private mortgage insura

Showing How Earnest You Are

The expression "putting your money where your mouth is" demonstrates a monetary sincerity to what could be empty words.   In today's competitive market where multiple offers are common, sellers want as much assurance as possible that the buyer is sincere and will close on the sale. The seller who accepts a contract expects the buyer to follow through but, in most cases, doesn't know the buyer either personally or by reputation.   The earnest money submitted by the buyer with the contract shows their commitment to the terms of the offer. If the amount is relatively small, the seller could be concerned that the buyer may walk away from the contract if they change their mind before closing.   The lost time could be injurious to a seller who is trying to meet a deadline. The more earnest money a buyer deposits indicates to the seller a higher level of commitment to the contract.   Except for stated contingencies in the sales contract, if the buyer fails to c

Is Your Home Inventory Up To Date?

A current inventory of all the personal items in your home is important and even necessary, if you are faced with filing a police report or insurance claim. The homeowner is usually asked if they have a home inventory.   If not, the homeowner can reconstruct one to estimate the loss. Imagine you are in this position; would you be able to make an accurate list of your belongings and their value?   As an exercise, pick a room of your home, and, while being in another room, list all the belongings and their value.   When you're finished with the list, go into the room, and check to see how you did. This little project should demonstrate the difficulty of reconstructing a list and depending on whether you missed a lot of items and the importance of having an up-to-date home inventory.   Not only will this help you purchase the right amount and type of insurance, having an accurate inventory will make filing a claim easier. An accurate accounting of your belongings can als

Difficult to Buy What Is Not For Sale

Buyers are becoming discouraged there are not enough homes on the market, especially, in certain price ranges.   When they do find something they want, there may be multiple offers and they end up losing to another buyer. Some buyers after experiencing several of these instances have decided to wait until the market changes.   It is understandable but it may be a very long wait as well as being a very costly decision. Inflation is affecting all sectors of the economy; prices on food, cars, and electronics are going up as well as housing and mortgage rates.   Home prices rose 20.2% year over year in May 2022 over 2021, according to a recently released CoreLogic report.   The advantage to current homeowners wanting to move up is that their home is now worth more and it takes the sting out of the price they will have to pay for a larger home. Unfortunately, first-time buyers and those who don't currently own a home are seeing the prices continue to increase at a rate

Questions to Ask a Mover

"I'd wish I'd known that before I picked a mover."   Having a checklist of questions might have prevented this issue.   This list of questions will provide you with things to discuss when interviewing a moving company. Fees What is the charge for packing? Does it include boxes?   If not, what do they cost and will you deliver them? Is there an additional charge to deliver some items to a storage unit? Insurance How is a damage claim handled? What insurance do you provide and is there a cost? Does the insurance cover items packed by the owner? Can additional insurance be purchased? If items are covered by my Homeowner's insurance, whose insurance pays first? Unusual Items Can you ship my car(s)?   Will they be in the moving van or towed? What are the charges for shipping cars, lawn tractors, etc? What items cannot be shipped? If a shuttle truck is needed because of the location of my house or size of the drive way, is there an additio

Buy Before You Sell

A common concern for homeowners is that if they sell their home first, they may not be able to find another home to buy.  It is understandable with the low inventories currently available in most markets, but a strong argument can be made to buy your replacement home first. In fact, there are some advisors that would tell you not to sell at all.  Instead, keep the home for a rental investment and refinance it to pull out some cash for the down payment and closing costs for the new one. Many homeowners recognize that their home has been an excellent investment for them.  Their home may have outperformed their retirement and other investments.  In all likelihood, homeowners understand the management and benefits of a single-family home far better than they understand stocks, mutual funds, annuities, or ETFs. Just as there are low inventories of homes for sales, there are shortages of available single-family homes for rent, as is evidenced by rent continuing to rise.  Rising