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Showing posts from 2022

Good Records Can Reduce Capital Gains

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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

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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

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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?

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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

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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

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"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

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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

When are the Negotiations Over?

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The primary negotiation in a home purchase takes place when the contract is agreed upon that includes the price, closing and possession.    With inventory down over 19% in the past year and multiple offers being more of the norm than the exception, the first round of negotiations can be challenging. Buyers and sellers alike feel relieved once it has resulted in an agreement, but experienced agents know there is more to come if there are contingencies for financing, inspections, or other things.   The competition for the home may be so tough that the buyer waived their rights for what would be normal contingencies. Financing is one of the most common contingencies in normal situations but when multiple offers are involved, the cash offers tend to have the advantage.   If you don't have the resources to make a cash offer, the next best position is to be pre-approved with a commitment letter from the lender.   Arrange for the lender to confirm the pre-approval directly wi

Become a Victim of Inflation or Benefit from It

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In inflationary times, currently the highest in 40 years, the purchasing power of your money diminishes each day; essentially, buying you less.   The biggest threat is to be without capital assets, like a home, that are benefiting from the increase in prices.   Your money buys less gasoline now, than it did a year ago, by close to 50%. Beef prices are up about 20% since last year.   Used cars are about 35% more expensive than they were a year ago.   Mortgage rates are near 5% after reaching their lowest of 2.65% in January 2021. And then, there is the price of houses.   CoreLogic reports that home prices increased year over year by 20% in February 2022.   Their Home Price Index indicates an annual five percent increase in prices from 2014 to 2021. For many people, the American dream of owning a home is slipping away.   Adjusting your expectations for the perfect home and when you expect to achieve it, can be a legitimate, long-term strategy to making the dream come true

You don't have to give an arm to get a lower rate

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Rising interest rates compounded with increasing home prices are causing affordability issues for many buyers.   To keep payments low, you won't have to give an arm, but more buyers are considering getting an ARM, adjustable-rate mortgages. Mortgage rates are near its highest point since 2009.  "While housing affordability and inflationary pressures pose challenges for potential buyers, house price growth will continue but is expected to decelerate in the coming months."  said Sam Khater, Freddie Mac's Chief Economist. A $400,000 home with 10% down payment and a 30-year term has the choice of a 5.27% fixed-rate or 3.96% for a 5/1 adjustable-rate mortgage.   The principal and interest payment will be $1,992.40 for the fixed-rate and $1,710.40 for the adjustable rate saving the buyer $281.99 per month for five years. There is an additional savings for the buyer choosing the adjustable-rate mortgage because the unpaid balance at the end of the five-year fir

Helping the Seller See Your FHA/VA Offer More Favorably

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With multiple offers the norm on many listings these days, the seller relies on their listing agent to help them determine which one to accept.   In some cases, offers subject to FHA or VA mortgages tend to move to the bottom of the list. Some sellers consider all cash offers first and then, conventional offers with at least 20% down payments as the next most likely to close.   It may be because of a common misconception that FHA or VA buyers are poor credit risks and have a higher likelihood of not being approved.   Both FHA and VA do not require as strict credit requirements as conventional loans but if a buyer has been preapproved, that should alleviate that worry. A legitimate concern regarding FHA and VA contracts could be that if the appraisal doesn't come in at the sales price, the buyer has an option to void the contract.   This means that the property would have to go back on the market and valuable time could be lost.   However, that could also be true for a

Today is a Skills Market

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In today's ultra-competitive real estate market where there is only 1.7 months supply of inventory compared to 6 months in a balanced market, and the average home is getting 4.8 offers per sale, it is more important than ever to have the right person "champion" your cause. In the Middle Ages, it became customary for a person of nobility to appoint a "champion" to fight for them in their stead.   Trial by combat ended in the 15 th to 16 th centuries but the practice of "fighting" or speaking in one's behalf continues even to this day. Lawyers will take up the cause of their client to win justice for them.   Professional athletes are recruited for their abilities to help their team become victorious.   Craftsmen of every type imaginable are in high demand because of their finished product. Sellers' and buyers' objectives are different and, in many cases opposing in nature.   Sellers, rightfully so, believe they should get th

Existing Homeowners May be Facing Higher Payments

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As a current homeowner, you may be basking in the consolation that you bought before the market got crazy with higher prices and interest rates. However, it doesn't mean that you may not be facing higher mortgage payments for next year. Most homeowners pay their taxes and insurance into an escrow account with their mortgage payment.   The lender monitors the account to be sure there are enough funds available when the taxes and insurance are due.   If there is a shortage, it could cause your payment to increase. In 2021, the national average increase in home prices was just under 20% but may have been considerably higher in some local markets.   The increased value of homes doesn't just affect buyers, in can affect the assessed value of properties across the board resulting in their property taxes going up. Various taxing authorities, like state, city, school, and other special districts, can establish the rate they charge and exemptions that apply.   In most sit

Homeownership and the Three M's

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Homes are valuable assets and must be maintained so they function properly, are safe, enjoyable and hold their value.   Attention to maintenance, minimizing expenses and managing debt & risk will protect your investment. Maintenance It is interesting that people understand the necessity to maintain a car and regularly have the car inspected, repaired and do regular maintenance.   Even though a house could be worth many times more than a car, homeowners regularly neglect what should be routine maintenance. Failure to maintain a home properly adversely affects the value.   Many times, buyers will discount the price they are willing to pay for a home more than the actual cost of the repair or expenditure.   A home in good condition instills confidence while a home in less than good condition generates concern about unknown items that may also need repair. HVAC systems, as well as appliances, run more efficiently when they are maintained which will result in lower util

Will Selling Your Home Increase Your Tax Bill?

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With home prices rising 20% nationwide in the past year and in some markets, even dramatically more, many homeowners are excited about the equity in their homes.   In the past, most homeowners were not concerned about profit from the sale being taxed but some may be surprised. The profit homeowners make on the sale of their homes have enjoyed a generous exclusion.   Since 1997, for qualified sales, single taxpayers exclude up to $250,000 of capital gain and married taxpayers filing jointly, can exclude up to $500,000 of gain. Prior to the Taxpayer Relief Act of 1997, homeowners over the age of 55 were only allowed a once in a lifetime exclusion of $125,000.   The new rule greatly increased the amount of excluded profit to the extent that most homeowners did not think about paying tax on the profit from their principal residences. Section 121, commonly called the Home Sale Tax Exclusion, requires that you owned and used the property as your principal residence for two out o

Buying a Home...Ask for a CLUE Report

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People purchasing a used car have most likely heard of CARFAX vehicle history reports to help them avoid buying a car with costly hidden problems.   Less likely are buyers to know that there is a way to discover some of the repair history of homes they are interested in. Lexis Nexis C.L.U.E. (Claims Loss Underwriting Exchange) is a claims history database that enables insurance companies to access consumer claims for the previous seven years when they are underwriting a risk or rating an insurance policy. An insurance underwriter could identify a previous claim for substantial damage to a property and try to find out whether the repairs were completed properly before assuming the risk as a new insurer.   Similarly, a buyer could benefit from knowledge of former claims that may affect the value of the property or possible, future repairs. A CLUE report can discover insurance claims on a home to investigate whether the repairs were done properly.   These reports are not dire

Coordinating the Sale and Purchase of Your Home

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Usually, it is easier to buy a home than to sell a home but that isn't necessarily the case currently. In today's market, it can be scary to sell your home before buying another because you could find yourself without a home. Most sellers will not accept a contingency on the sale of a buyer's home in today's market.  So, let's look at some of the alternatives that homeowners are using to facilitate the transactions.  If you have the income, credit, and cash available, the replacement home can be purchased with a new 80-90% loan-to-value mortgage and sell the existing home after you have moved into the new home.  This would require making two payments for a while but probably gives the seller the least amount of pressure to find the replacement property before the existing one is put on the market. If the mortgage on the new home has the option to recast the payment, additional down from the equity in the previous home after it sells would lower the paym

A New Opportunity for Homebuyers

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You may not have heard of anyone assuming an existing mortgage for over thirty years and didn't know they were even possible any longer.   The reason is simple, it didn't make financial sense but now that interest rates are increasing, it may be an opportunity for some homebuyers. Conventional loans added clauses to mortgages back in the early 80's that gave the noteholder the right to raise the interest rate if a loan was assumed, as well as require the new buyer to qualify for the loan.   This essentially ended the practice of assuming conventional mortgages. Then, in the late 80's, FHA and VA mortgages did impose the right to qualify the new buyers, but the big difference was that the mortgage rate would remain the same as the original borrower.   Even so, it still effectively ended the assumptions of FHA and VA mortgages because rates on mortgages trended down for the next thirty years. There was really no benefit to assume a mortgage that still require

Cost of Waiting to Buy in Both Price and Interest Rates

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Have you ever been shopping on a website where you were looking at something that was on sale?   You were interested in it but there wasn't a sense of urgency and maybe, you had a lot going on and didn't get back to it for a few days.   When you did go back to the website, the price on the item had returned to its regular price. How did you feel?   Did you go ahead and purchase it for the current price?   How did that make you feel knowing that if you had acted more decisively, you would have saved money and had the product by now? In 2021, homes across the United State went up 19.1% on average.   There were some markets where the prices soared 30 to 40%.   Fortunately, last year the mortgage rates did remain relatively stable but that isn't the situation this year, in 2022. At the end of 2021, economists from Fannie Mae and Freddie Mac, felt like prices would go up around 7% for 2022.   The Mortgage Bankers Association and the Home Price Expectation Survey

Why a Home Should Be Your First Investment

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Real estate has been described as the basis of all wealth.   Without considering income or investment property, buying a home to live in is an incredibly powerful way to build wealth or financial net worth. A home is an asset measured by the size of the equity.   Equity is simply the difference between the value of the home and the amount owed.   There are two powerful dynamics at work to increase the equity which include appreciation and amortization. Appreciation occurs when the fair market of the home increases.   The shortage of available inventory coupled with high demand has contributed to an 18% increase in value in the past year on average for homeowners in the U.S. Most mortgage loans are amortized with monthly payments that include the interest that is owed for the previous month and an increasing amount that is paid toward the principal loan amount so that if all the payments are made, the loan would be repaid by the end of the term. A 30-year mortgage at 3.5% intere

Paying Points to Lower the Rate

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Two commonly known ways to lower your mortgage payments are to make a larger down payment especially if it eliminates private mortgage insurance and improve your credit score before applying for a mortgage. Another way to lower your payment would be to buy down the interest rate for the life of the mortgage with discount points.   A discount point is one percent of the mortgage borrowed.   Lenders collect this fee up-front to increase the yield on the note in exchange for a lower interest rate. A permanent buy down on a fixed-rate mortgage is available to borrowers who are willing to pay discount points at the time of closing. Let's look at two options on a $315,000 mortgage for 30 years at 4% interest with no points compared to a 3.75% interest rate with one-point.   The principal and interest payment on the 4% loan would be $1,503.86 compared to $1,458.81 on the 3.75% loan.   The $45.04 savings is available because the buyer is willing to pay $3,150 in points.   By dividi

I wish I knew then...

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We have all heard this expression that implies that had a person known earlier in life what they know now, they would have done things differently.   The subject possibilities are endless    While no one has a crystal ball to see into the future, it may be possible to learn from people who have experienced similar situations. In the late sixties, mortgage rates hit 8.5% but before the decade had finished, the rates had come down to 7% where they stayed for some time.   Homeowners who purchased at the higher rate, could buy a larger, more expensive home for the same payment if they could get out from under the obligation of their existing mortgage. FHA and VA mortgages, up until the late 80's, could be assumed by anyone, regardless of credit worthiness.   Since these homes were purchased one or two years earlier, the sellers didn't really have much equity in them, and many homeowners were willing to "give" them to investors so they could qualify on a new, lower rat

Your Home is a Hedge Against Inflation

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The concern about inflation is the sustained upward movement in the overall price of goods and services while the purchasing value of money decreases.   Tangible assets like your home consistently become more valuable over time.   In inflationary periods, your home is a good investment and a hedge against inflation. Money in the bank loses purchasing power due to inflation and the interest you may be earning is almost always less than inflation. Home prices are going up but so is rent.   With mortgage rates near historic lows, the interest is, generally, less than the appreciation the property is enjoying.   Combine this with the leverage that occurs using borrowed funds to control an asset and your equity is most likely, growing at a faster rate than inflation. A 90% mortgage at 3.5% for 30-years on a $400,000 home that appreciates at 4% a year will have an estimated equity of $220,000 in seven years due to appreciation and amortization.   That is a 27.5% annual rate of return o

Why is the APR higher than the interest rate?

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Annual percentage rate is a calculation to accurately reflect the cost of the mortgage considering the note rate of interest, financing fees and charges based on the term of the mortgage. Annual percentage rate, APR, calculates the interest rate and loan fees over the life of the loan expressed as a rate.   A mortgage has a quoted interest rate plus a specified number of points which may be paid at closing or rolled into the loan, in some instances. For example, a $400,000 loan amount at 2.98% interest for 30-years with 0.7 points would have an annual percentage rate of 3.0349%.   While the mortgage rate is quoted at 2.98%, the borrower must additionally pay 0.7 points or slightly less than one percent of the amount borrowed as a fee to the lender in consideration of making the loan. This increases the yield to the lender on what they are earning by making this loan and is expressed as the annual percentage rate for the benefit of the buyer. Since the lender is required to incl

There's more to it than you might think

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There is more to selling a home than you might think.  Superficially, a person might think that it will sell itself currently because, nationally, homes for sale receive 3.6 offers and they sell within 18 days.  Any business student can probably list the four Ps of marketing: product, price, place, and promotion.  It may appear that there isn't much to selling a home: put a price on it; photograph it; put a sign in the yard; and, put it in MLS but, on closer scrutiny, there is a lot more that the best agents provide. Long before the home goes on the market, the agent will create a detailed value and pricing study based on similar homes in size, price, proximity, and condition.  An overpriced home will sit on the market longer than it should.  The longer it stays on the market, buyers, as well as other agents, begin to wonder if there is something wrong with it. The agent will develop a staging and declutter plan to make the house show at its best because first impressions m