Category: Real Estate

Consumers Turn to Non-Banks for Mortgages | Realtor Magazine

More borrowers are choosing non-banks—financial institutions that only issue loans and do not offer savings or checking accounts—to get a mortgage, The Washington Post reports. It’s a major shift in borrower behavior. In 2011, 50 percent of all new mortgage loans originated from the three largest banks: JPMorgan, Bank of America, and Wells Fargo. However, in September 2016, that share plunged to 21 percent.

During that time, non-banks emerged as six of the 10 largest lenders by volume, including Quicken Loans, loanDepot, and PHH Mortgage. In 2011, only two of the 10 largest lenders were non-banks.

“For consumers, it doesn’t really matter whether you get your loan through a bank or a non-bank, although in some ways, non-banks are a little more nimble and can offer more loan products,” says Paul Noring, managing director of Washington, D.C.–based financial risk management firm Navigant Consulting. “The impact is bigger on the housing market overall because without the non-banks, we would be even further behind where we should be in terms of the number of transactions.”

Some traditional banks have backed away from the mortgage business after financial regulations were put in place following the last housing crisis, says Meg Burns, managing director of Collingwood Group. That has opened the market to non-banks. “The regulatory atmosphere changed from a risk management regime to a zero-tolerance and 100 percent compliance regime,” Burns says. “Not only were new regulations implemented, but new regulators like the Consumer Financial Protection Bureau were created. At the same time, the CFPB and other agencies became more assertive in their enforcement practices.”

The greater regulations made banks more cautious about lending, says Jeffrey Taylor, managing partner of Digital Risk, a provider of mortgage processing services and risk analytics. “Now banks only approve ‘perfect’ loans, not ‘good-enough’ loans,” Taylor says. “This created an opportunity for non-banks that focus entirely on mortgages and are less regulated than big banks.”

Indeed, some consumers benefit from non-banks because they tend to offer “more opportunities to borrowers who are not perfect,” says Ricky Sharga, chief marketing officer of Ten-X, an online real estate marketplace. Some lenders are offering “loans to borrowers with lower FICO scores, but [these non-bank lenders] are still not making risky loans,” Sharga says.

MLS Says It’s First to Offer Chinese Translation | Realtor Magazine

MLSListings, a multiple listing service based in Silicon Valley, is staking claim to being the first real estate platform to offer Chinese translation. The MLS says the move was to help remove potential language barriers from the real estate process.

MLSListings agents and their clients will now be able to switch between English and Chinese with a click of a button on the platform. Real estate agents also will be able to send translated reports and automated emails to their clients.

“We have one of the most culturally diverse markets in the country,” says Aaron Hyde, vice president of product management for MLSListings. “For many buyers and sellers, English is not their first language. To support our agents and brokers even better, we are integrating translation into other languages, where we can, in the tools we offer, to help them provide listing information in the language most comfortable for their clients.”

In 2016, buyers from China ranked first among foreign nationals purchasing property in the U.S. for the fourth consecutive year, according to the National Association of REALTORS®. The Bay Area remains a strong active market for Chinese buyers.

The MLS also plans to eventually support additional languages, such as Spanish.

Should I Buy a House? | realtor.com®

“Should I buy a house?” This life-changing question is not something you casually ask the magic eight ball and get hit with a vague answer like, “Concentrate and ask again.” Instead of shaking a plastic novelty globe, there is an empirical way to find out if you should, in fact, buy a house or not—like asking yourself these questions below.

Question No. 1: Can I afford a home?

The first step is to find out whether you can buy a house given your current financial situation. Realtor.com’s home affordability calculator will help you figure out just how much house you can afford by plugging in your income, your monthly debts, how much of a down payment you can swing, and the type of mortgage you prefer. You’ll instantly get a figure telling you the top number you can pay for a property, plus what you’ll be looking at in monthly mortgage payments and insurance.

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Question No. 2: Is it better for me to rent or buy?

The whole “rent or buy?” question depends on which housing market you’re in, because inventory can make a huge difference. The good news is our Rent vs. Buy calculator can crunch the numbers for you. You’ll enter the current rent you’re paying (or could pay) and the ZIP code you want to live in. What you’ll get: a comparison of the cost of buying a home versus renting in that area. You’ll also see which one wins out over time (more on that next).

Mortgage Rates Are Mostly in Holding Pattern | Realtor Magazine

Mortgage rates continue to defy expectations, with the 30-year fixed-rate mortgage rate barely budging for the fourth consecutive week.

Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 23:

• 30-year fixed-rate mortgages: averaged 4.16 percent, with an average 0.5 point, rising from last week’s 4.15 percent average. Last year at this time, 30-year rates averaged 3.62 percent.
• 15-year fixed-rate mortgages: averaged 3.37 percent, with an average 0.5 point, increasing slightly from last week’s 3.35 percent. A year ago, 15-year rates averaged 2.93 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 3.16 percent, with an average 0.4 point, dropping from last week’s 3.18 percent average. A year ago, 5-year ARMs averaged 2.79 percent.

What Threatens Your Closings the Most | Realtor Magazine

The majority of contracts settle on time, but more than a quarter of practitioners are citing delays due to common culprits.

In the latest REALTORS® Confidence Index report, 29 percent of real estate professionals say they faced a delay to settlement and 5 percent reported a contract that was terminated. Sixty-seven percent of practitioners reported their contracts were settled on time.

Among the contracts that had a delay to settlement, 38 percent were due to issues related to obtaining financing and 22 percent were from appraisal issues. Survey respondents blamed appraisal-centered delays on the shortage of appraisers, valuations that were not in line with market conditions, and “out-of-town” appraisers who were not familiar with local conditions.

Other issues that caused delays involved titles, sales contingencies, problems related to distressed sales, home/hazard or flood insurance issues, or a buyer losing a job.

 

Among contracts that were terminated, the most common reasons were related to home inspections, obtaining financing, and appraisal problems.

The median number of days to close a contract was 40 days in January, down slightly from 42 days a year ago in January 2016, NAR reports.

Housing Market Ripe for Millennial Buyers | The Huffington Post

The share of homeowners under the age of 35 will grow from 31 percent to 35 percent by the end of this year alone, according to the Harvard Joint Center for Housing Studies.

This is in sharp contrast to news we’ve been hearing for some time now — that millennial incomes aren’t keeping up with home prices. So, how is it that millennials will be able to afford to move out of rental homes (or out of their parents’ homes) and into their own homes within the next year?

First, they’re going to buy fixer-uppers. A home that needs repair will sell for considerably less than one that has already been lovingly refurbished and updated — and the percentage discount can be significant. With mortgage funds becoming more readily available, many millennials will be able to get into homes in need of repair. Then, they’ll work to fix them up — completing home improvement projects over a period of one to two years and adding more to their dream homes as finances allow. This is an excellent way for 20- and 30-somethings to start building equity. And, to the extent that they’re able to add some “sweat equity” (i.e., to do some of the hammer-swinging themselves), they will realize even greater financial benefits.

Millennials will form 23 million new households over the next 10 years, according to Harvard’s analysis. And in the next decade, owners currently younger than 35 are projected to account for more than one-quarter of total home improvement spending — as well as virtually all of the net growth in home improvement spending.

Here are some ways millennial buyers can make their dollars go farther:

• Look in up-and-coming neighborhoods. Transitional neighborhoods — those in which a number of homes are being fixed up and beautified — will provide the best return on investment.

• Look for homes chiefly in need of relatively easy, inexpensive cosmetic repairs (such as wallpaper or landscaping updates). Some sellers simply don’t want to go to the trouble of updating and repairing everything, but an industrious buyer can decide which items are most important and tackle those first. Young buyers should look for homes that are immediately livable, but that have just enough “ugly” to warrant a nice discount. This approach can save a buyer a lot of money while providing a superior return on investment.

• Look for a home with out-of-date features and appliances. This way, buyers can plan to update certain items each year, according to their own priorities and tastes.

50 Ways House Hunters Can Get Ready for Homebuying Season | Credit.com

Spring will very soon have sprung — which means “For Sale” signs will be in full bloom — and if you’re hoping to buy a home this year, get ready for a competitive market. Thanks to the Federal Reserve’s continuing rate hike teases and some economic improvements, you can expect to run into plenty of other people while looking at prospective properties.

Fortunately, there are steps you can take now to help make sure your offer on a new home is as competitive as this year’s hot market. Here are 50 ways soon-to-be house hunters can get ready for the homebuying season.

1. Make a Wish List

“You’ll waste a lot of time if you don’t know what you want,” Brian Davis, director of education for Spark Rental, says. “Know how many bedrooms you need, which amenities are must-have, and which are desired but not mandatory. Most of all, know your price range and stick to it.”

2. Consult Your Co-Buyer

If you’re purchasing the home with a loved one “make sure you both are on the same page,” Patrick Gobin, associate broker with District Realty Team at New York Living Solutions, says. “Conflicting opinions makes the process very difficult. Example: One person wants a ranch and one person wants a two-story house.”

3. Determine Your Debt-to-Income Ratio (DTI)

Here’s how. Remember, a DTI (how much you make vs. how much debt you’re already paying off each month) over 50% or more will severely limit your ability to borrow.

4. Check Your Credit Score

Because it’s going to play a major role in whether you can actually get a mortgage and what rate you’ll pay. You can view two of your credit scores, updated every 14 days, for free on Credit.com. (P.S. If you have a co-buyer who’ll be on the mortgage, they’ll want to check their credit, too.)

5. Pull Your Credit Reports

There may be a few things you can do to clean up your credit before you apply for a mortgage. Plus, you’ll want to make sure there aren’t any errors weighing your scores down. Speaking of which …

6. Dispute Any Errors

Credit bureaus have 30 to 45 days to resolve disputes and remove inaccurate information, so if something’s amiss, now’s the time to address any errors that you may find.

7. Pay Down Credit Card Debt

Getting rid of big balances can improve your DTI and creditworthiness — and relatively soon, because issuers generally update the credit bureaus on your charges each month.

8. Continue to Tidy Your Credit

You can find 11 solid ways to soup up your credit here.

9. Decide on a Down Payment

A 20% down payment is considered ideal, since any amount below that will have you paying for private mortgage insurance (PMI). There are programs out there that help homeowners get a mortgage with much less down, which brings us to …

10. Know Your Loan Programs

Most homebuyers have two options: a conventional home loan bought and sold by Fannie Mae and Freddie Mac or an FHA loan insured by the Federal Housing Administration. Veterans can also consider VA loans, which notably feature a 0% down payment.

11. Research Rates

Your interest rate is going to play a big role in determining your monthly payment, so be sure you know what current rate ranges are being offered — and what you’re likely to qualify for, based on your credit.

12. Prepare for Property Taxes

Yup, you’ll have to pay the government each year for your land — and you’ll want to get an estimate of how much money you’re likely to owe, since it will seriously affect your housing budget. You can find a full explainer on property taxes here.

13. Account for Closing Costs

They generally run between 3% and 5% of your purchase price, depending on location and other factors.

14. Feed Your Emergency Fund

Because buying a home is going to put a serious drain on your bank accounts and you don’t want to be down to your last dollar. Experts generally recommend you have at least six to 12 months of income as backup reserves.

15. Figure Out How Much Home You Can Afford

This will be affected by your DTI, credit scores, prospective interest rate, down payment, property taxes and whether you’ll be paying for private mortgage insurance, among other things. (More tips here for how to get a rough estimate on how much home you can comfortably buy.)

16. File Your Taxes

Your mortgage lender is going to ask for at least two years’ worth of tax returns, so it’s a good idea to shore up with Uncle Sam — and print out or download your returns from two prior years.

17. Pick a Neighborhood

“Location is one of the most important factors when finding a home,”  David Lewis, owner of full-service real estate agency The Lewis Group, says. “It’s also the only one that you can’t change. Knowing what areas you’d like to live in prepares you to make the jump when it is time to move forward with an offer.”

18. Study the Market …

You’ll want to know what you’re in for: What’s the median home price in the area you’re looking to live? Are you in a buyer’s or seller’s market? Are solid homes going for more or less than list price?

19. … & the Process

Oh, if only the homebuying process were so simple. Unfortunately, there are a whole lot of steps between finding a home and closing on it. Get familiar with all the major steps: pre-approval, home inspection, home appraisal, title search, closing, etc.

20. Hit the Open Houses

A little window-shopping can do a house hunter good. Visit some open houses ahead of your formal search to get an idea of list prices in your preferred area(s) — and whether your list of “wants” is realistic with your budget.

21. Get a Pair of Flip-Flops … 

… or some other kind of easily removed shoes, because most homeowners or listing agents are going to ask you to leave your kicks at the front door.

22. Search for Schools

“If you have kids, carefully examine the school choices and districts available to you,” William Mayben, CEO of consulting firm Wm Mayben and Associates and former division president for National Public Builders, says. There are sites online that can help you pinpoint school ratings, crime rates, etc.

23. Calculate Your Potential Commute

The length of your commute can seriously impact the enjoyment of your home. How much time are you realistically willing to spend in the car, on the bus or on a train?

24. Find a Realtor

You don’t have to use one, but there are certainly benefits to enlisting the services of a reputable Realtor or agent. Case in point: They can give you insights into the current market and walk you through the homebuying process. Bonus: The seller pays their commission.

25. Consider a Specialist

“If buyers are looking for ranches in the Stoney Gardens neighborhood, they should find a realtor who specializes in (drum roll please…) ranches in the Stoney Gardens neighborhood,” Davis says. “The best Realtors know a specific segment of the market inside and out, and can help borrowers who want that specific market segment.”

Warn Buyers: Earnest Money Mistakes to Avoid | Realtor Magazine

Once a buyer settles on a home, they often show their commitment with an earnest-money deposit. But if they’re not careful, they could lose thousands of dollars.

Realtor.com® recently featured some of the biggest mistakes home buyers most often make with earnest-money deposits, including:

Failing to understand exactly what an earnest-money deposit is.

It is proof that a buyer is committed to completing the sale. Earnest money is used as credit toward the down payment and closing costs. It’s often a negotiable amount between the buyer and seller and usually about 1 percent to 2 percent of the purchase price, although it could be much higher.

Not offering up enough.

When a market is competitive, offering more earnest money may be one way to get your offer to stand out. Real estate pro Robyn Porter in the Washington, D.C., metro area advises her clients to offer an earnest-money deposit that will get attention. For example, on a $500,000 home, in a competitive market, she’ll recommend the buyer offer up $20,000 to $25,000, or up to 5 percent, depending on the competing offers. But she is also careful to warn her buyers that their deposit money could be in jeopardy if they default on the contract.

Removing contract contingencies.

Jeremy Colonna of Matchpoint Funding says he’ll see buyers agree to remove a loan contingency and then if their loan falls through, they could lose their earnest money. “Never give up your right to cancel your purchase until you are 100 percent certain that you’re going to be able to close,” Colonna says. Watch for giving up other contingencies, like waiving inspection issues, appraisal issues, or problematic title searches.

Not abiding by contract timelines.

“Ensuring that you as a buyer say on the schedule dictated by a contract can assist with not losing your earnest-money deposit,”

Do you owe taxes after selling your home?

Selling a home is a big financial transaction. In most cases, hundreds of thousands of dollars move between banks, title companies, buyers, sellers and agents. After the dust settles, you can find yourself with a substantial tax bill.

However, in many cases, you won’t owe a cent.

Most home sales are tax-free

When Bill Clinton was president, Congress doubled down on homeownership. The federal government decided that homeownership is in the best interest of American families, and as part of the American Dream should not be taxed or penalized in most circumstances.

These benefits extend into today as the mortgage tax deduction and home sale capital gains tax exclusion. Today, most Americans still enjoy tax-free mortgage interest and home sales. However, there are some cases where you do have to pay a big chunk of your property sale to Uncle Sam.

 

Taxes on the sale of property

If you own and live in a home for two of the past five years, you can take advantage of a big tax deduction when you sell the property. Because of this rule, you generally can’t use this tax deduction more than once every two years and the deduction only applies to your primary residence.

There are some cases where you can live in the home for less than two years and still take the deduction, most notably if you move for your primary job. You can also qualify for a waiver on the two-year rule if you had to sell a home for health reasons or other “unforeseen circumstances” as outlined in IRS Publication 523.

If you qualify for the deduction, you can exclude up to $250,000 in profit from the sale of your home. That jumps to $500,000 for married couples filing jointly. Because of the high deduction limit, most home sales qualify for the deduction.

Homes with a profit that’s more than that amount are subject to capital gains taxes on the additional profit. For example, if you lived in a home with your spouse for the required amount of time and sell it for a $550,000 gain, you have to pay capital gains taxes on $50,000 of the $550,000 profit.

However, you can also take closing and other transaction costs into account when calculating the profit on a home sale. Just because the value increased by more than the taxable limit doesn’t mean you owe taxes. If you sell your home for a $550,000 increase in home price but paid $30,000 in closing costs, you would only pay capital gains tax on the $20,000 profit.

What about second homes and vacation properties?

Second homes, vacation homes and investment properties are not subject to the same tax exclusion that you get with your primary residence. The tax code was designed so wealthier individuals and families pay more taxes than poorer individuals and families. Because of this, you can’t exclude the taxes on your second home.

Because it was not a primary home under the rule of residency for two years of the past five years, all capital gains from the sale of a second home or vacation home are taxable. However, keep in mind that capital gains taxes are lower than your regular income taxes.

 

For short-term gains, if you owned the property for less than a year, you pay your regular income tax rate. For most people, that is 25 percent to 28 percent. For long-term gains, expect to pay 15 percent in most cases. Filers in the 10 percent and 15 percent tax brackets pay no capital gains taxes, while those earning more than $200,000 per year (single filers) or $250,000 per year (joint filers) pay 18.8 percent including the 3.8 percent Affordable Care Act capital gains tax.

When in doubt, talk to an expert

Just like a trusted real estate agent will stand by your side when buying or selling a home, you should contact a tax expert if you have any doubt about your taxes after selling a home.

Filing taxes incorrectly can lead to fines and penalties or an overpayment. Any of those are bad for your bank account, so it can be worthwhile to hire a CPA to help you file your taxes the year after a home sale.

7 Tax Breaks Every First-Time Homebuyer Must Know | GOBankingRates

The tax landscape changes yearly. Congress meets occasionally to review and adjust the tax code, so first-time homebuyers must stay on their toes to understand year-to-year tax changes.

The government provides tax breaks for existing and new homeowners to incentivize buying homes. Homeownership offers multiple home tax deductions, tax credits and other breaks that aren’t available to those who rent. If you bought your first home in 2016 — or you’re hoping to buy one in 2017 — it can pay to familiarize yourself with first-time homebuyer tax credits so you can take advantage of tax breaks that lower your tax bill.

Home Mortgage Interest Deduction

The mortgage interest deduction is one of the biggest home tax breaks and is a crucial new homeowner tax credit. It covers interest paid on loans of up to $1 million, or $500,000 if you’re married but filing a separate return.

The deduction can be especially beneficial for borrowers with new loans because interest charges on mortgages are typically steeper in the early years of the mortgage’s term.

“The way loan amortization works, your first payments have the highest ratio of interest to principal,” said Andrew Christakos, an accredited investment fiduciary with Westfield Wealth Management in Westfield, N.J.

You must itemize on Schedule A of your tax return to claim the home mortgage interest deduction. To do so, add up all deductible expenses for the year, including those related to homeownership as well as other categories. Claiming the mortgage interest deduction can save you tax dollars if your itemized deductions are greater than your standard deduction.

Don’t miss this new homebuyer tax credit. Your loan provider should send you Form 1098 shortly after the tax year ends. It will show the amount of interest you paid the previous year.

Mortgage Interest Credit

The federal government’s mortgage interest credit provides another opportunity for first-time homebuyers to claim a tax break for the mortgage interest they paid. Unlike the mortgage interest deduction — which reduces your taxable income — this mortgage interest credit directly counts against your tax bill, lowering what you owe.

“It’s a little-known but very cool program,” said Deb Tomaro, a Bloomington, Ind.-based broker with RE/MAX Acclaimed Properties. “Depending on the purchase price of your home, a buyer can get 20 to 30 percent of the interest they pay every year back as a straight tax credit.”

For example, imagine you prepare a return and find that you owe the IRS $1,000 in taxes. However, completing IRS Form 8396 for the mortgage interest credit shows that you’re eligible for a $1,000 credit. In that situation, you can apply the credit and not owe the IRS anything.

The credit is not refundable, so you won’t receive a check if the credit is larger than what you owe in taxes.

To be eligible for this strategic tax break, a state or local government must have issued you a Mortgage Credit Certificate. Typically, this certificate is issued at the time you originate the mortgage. The certificate tells you how much interest you can claim as a credit. If you also claim a mortgage interest deduction when you file your taxes, you must reduce the credit by that amount — no double-dipping is allowed.

 

 

 

Mortgage Points Deduction

You can also deduct what you pay in points to obtain the mortgage loan in the first place. Mortgage points are prepaid interest that can help a borrower qualify for a lower interest rate over the life of the loan. And, they can qualify for a tax deduction as well.

“Most homeowners overlook the deduction of points they pay to secure a mortgage loan,” said Yvette Best, controller and senior tax accountant at Best Services Unlimited, a tax preparation company based in Fayetteville, Ga. “Buying points to lower the interest rate on your mortgage loan is one of the best tax breaks available right now. The return on investment is twofold because you get to deduct the cost of the points and the amount on interest paid in the same year as the home purchase.”

You must itemize on your return to claim this deduction, and your settlement disclosure statement must specifically cite these fees as “points.” Your home loan must be for $1 million or less, just as with the mortgage interest deduction.

 

Tax-Free IRA Withdrawals

Saving money for a down payment and closing costs is a major consideration for most people when they’re getting ready to buy a home. The IRS says you can pull funds from your IRA to help.

“First-time homebuyers who break into their IRAs to come up with the down payment do not have to pay the 10 percent penalty normally applied to withdrawals taken before age 59½,” said Lisa Greene-Lewis, a certified public accountant and blog editor at TurboTax. “This incentive applies to current homeowners as well because you’re eligible for first-time buyer status if you haven’t owned a home in two years.”

You can take up to $10,000 from your IRA without penalty to buy a home, although you’ll still need to pay taxes on the money. Your 401k plan does not qualify for the exception to the 10 percent penalty.

 

 

Property Tax Deduction

Property taxes are one of the many lucrative tax breaks for first-time homebuyers. Taxpayers who itemize deductions on Schedule A are also eligible to deduct real estate taxes paid on a primary residence, said Laurie Samay, a New York-based certified financial planner with Palisades Hudson Financial Group.

You can deduct property taxes paid during the year for which you’re filing. If you purchase a home midway through the tax year, you can claim all taxes paid from the date of sale onward.

 

 

Home Improvement Tax Breaks

Improvements you make to a home can qualify for a tax break. If you use a home equity loan or other loan secured by your home to finance improvements, the loan will qualify for the same mortgage interest deductions as your main mortgage.

Keeping track of capital improvements to the home also can help you out when you sell the home. If your home sells for more than you paid for it ­– your tax or cost basis — that extra money can be considered taxable income at capital gains rates subject to certain thresholds and rules. But home improvements can lower your taxes by increasing your tax basis.

“You can include the cost of improvements made to the property in the cost basis of the property when you’re determining any capital gains on the sale,” Christakos said. “Make sure you keep your receipts for major improvements so you can prove the costs you claim.”

 

Home Energy Tax Credits

Now for the bad news: Two property-related home improvement tax credits have been eliminated as of Jan. 1, 2017. That means both credits will no longer apply beginning with the 2017 tax year.

·        Nonbusiness Energy Property Tax Credit: This credit covered 10 percent of the cost of qualified home energy-efficient products between $50 and $500.

·        Residential Energy Property Tax Credit: This credit was equal to 30 percent of the cost of installing renewable energy sources.

You can still claim these credits if you made qualifying improvements to your home during the 2016 tax year. However, you won’t qualify for the credit if you write the check before the clock runs out and the contractor does the actual work in 2017.