Yogi Berra said he’d give his right arm to be ambidextrous. While most first-time home buyers are not going to that extreme, it is interesting to see what sacrifices are being made according to the National Association of REALTORS® 2016 Profile of Home Buyers and Sellers.
- 43% – cut spending on luxury or non-essential items
- 34% – cut spending on entertainment
- 27% – cut spending on clothes
- 14% – canceled vacation plans
9% – earned extra income through a second job
- 7% – sold or decided not to purchase a vehicle
- 44% – did not need to make any sacrifices
Forty-percent of first-time buyers experienced some difficulty during the mortgage application and approval process. Single, male buyers expressed a higher incidence of difficulty than single females and married or unmarried couples.
Pre-approval from a qualified mortgage lender before the home search process begins is still considered the best advice for all buyers who will purchase with a mortgage. Your real estate professional can make recommendations for a loan officer that could help you avoid unnecessary aggravations.
Occasionally, when dealing with close relatives who might also become heirs, signing a note and handling the paperwork properly may seem like a needless effort but it could mean the difference in being able to take a legitimate interest deduction.
Home mortgage interest is deductible only if the loan is a secured debt which involves the buyer signing an instrument like a mortgage or deed of trust that makes the ownership of the home security for the debt. That instrument must then be recorded or otherwise perfected according to state or local law and the home, in case of default, must be able to satisfy the debt.
In a family situation, a parent, grandparent or other relative may decide to loan a buyer the money to purchase a home because they have it available and it isn’t earning much in certificates of deposit. They offer to loan it for a rate equal to what a conventional lender is charging but without the fees.
While it may appear to be a win-win situation, there could be problems if things are not done correctly. Even if the borrower makes the payments, they are not entitled to an interest deduction unless three criteria are met: 1) sign a debt instrument specifying the terms 2) securing and record the debt properly and 3) the home is sufficient collateral for the loan.
It would be prudent to consult with an attorney before you sign the final settlement papers to be comfortable that both buyer and the lender-relative are complying with IRS regulations. For more information, see IRS Publication 936 – Home Mortgage Interest.
People who experience a property loss are usually asked by their insurance company for proof of purchase which can come in the form of a receipt or current inventory of their personal belongings.
Even the most organized people might find it challenging to find receipts for all the valuables in their home. If the inventory isn’t up-to-date, a homeowner might forget to add some items to the claim and may not recognize the omission for long after the claim is settled.
The inventory can serve as a guide to make sure a homeowner gets compensated for all the loss.
Photographs and videos can be adequate proof that the items belonged to the insured. A series of pictures of the different rooms, closets, cabinets and drawers are helpful. When video is used, consider commenting as it is shot and be sure to go slow enough and close enough to things becoming recorded.
For your convenience, download a Home Inventory, complete it, and save a copy off premise. Good places for your inventory could be a safety deposit box or digitally, in the cloud if you have server-based storage available like Dropbox.
There seems to have been an accepted progression for homeowners going from starter home, to gradually moving into one’s dream home, then, downsizing after becoming an empty nester and finally, into a retirement home. However, Marianne Cusato’s 2016 Aging-in-Place Report indicates that many older Americans don’t plan on following that pattern.
61% of homeowners above the age of 55 intend on staying in their homes indefinitely. 2/3 of them believe that the home’s layout will serve their needs without having to make aging-related improvements.
Some of the reasons being cited for staying in place are:
- 66% say their home is conveniently located
- 38% say they live close to their family
- 68% say they feel independent in their home
- 54% say they are familiar with their neighborhood
- 66% say the feel safe in their home
Typical renovations that might be considered for their current home are things like grab bars in the tub or shower, shower seats, taller toilets, handheld showerheads and additional handrails on stairways.
It seems that the report’s conclusion is that regardless of a homeowner’s age, they want to thrive in their home. The same emotional reasons that causes a person to want to buy a home are the things that cause them to hold onto them if is practical.
There is a common body of knowledge among real estate professionals that indicates that the longer a home is on the market, the lower the price will be. Many sellers discount this belief in the beginning because they feel confident their home will sell quickly.
Lowering the price is the most obvious thing that can be done to encourage buyers but it might be good to look at what builders do. Builders offer a variety of incentives such as upgrades, seller-paid closing costs, interest rate buy downs, washers, dryers, refrigerators or big screen TVs.
Interestingly, much of the resale market doesn’t employ these techniques. According to the latest NAR Home Buyers and Sellers Profile, 64% of sellers did not offer any incentives at all.
21% of sellers offer a home warranty. 16% of sellers offered assistance with closing costs and 6% offered credit toward remodeling or repairs.
The attached chart indicates that while 80% of sellers were not willing to offer incentives in the beginning of their marketing period, as weeks passes and their home hasn’t sold, closer to half did add incentives.
The ideal outcome is to maximize proceeds in the shortest time possible with the fewest unexpected issues. This involves having a firm understanding of current, local market conditions and crafting a marketing plan that will insure results.
There is so much at stake, the value of a trusted real estate professional is essential.
The ironic thing about people who think they can’t afford to buy a home for themselves, end up buying the home for their landlord. There are several facts that support this notion.
Mortgages, whether held by an owner-occupant or an investor, are usually amortized so that each payment reduces the principal amount owed so that the loan will be repaid totally over the term. A tenant is inadvertently retiring the landlord’s mortgage with his monthly rent.
In most cases, the mortgage payment including taxes and insurance will be lower than the rent tenants are paying. Some experts are saying that we may never again experience the incredibly low mortgage interest rates currently available.
Renting precludes a person from enjoying the advantage a home has as a leveraged investment. When the borrowed funds cost less than the investment is returning, the rate of return on the down payment grows much faster. As you can see from the chart, a 2% appreciation on a home could result in big returns on the down payment. In most cases, there are very few or no alternative investments that offer homeowners similar returns.
Even if a buyer agrees with all of these things but doesn’t have the down payment or cannot qualify for a loan, they still need to investigate further. To find out exactly what types of loans are available and the specific down payment required which can be a whole lot less than 20%, they need to consult with an experienced, trusted loan professional (an Internet lender or a “BIG” bank may not be the best choice.) Call for a recommendation.
- “It’s impossible to get low down payment loans.” – MYTH!
FHA down payments are 3.5% and VA is 0%. In some areas, there may be some 0% down payment USDA loans available. FNMA and Freddie Mac have 3% down payment programs.
- “It takes perfect credit to get a loan.” – MYTH!
There is a relationship of better rates to better credit but many issues on a credit report can be explained or corrected. The way to know for sure is to speak to a reliable lender.
- “If I’ve had a bankruptcy or foreclosure, I can’t qualify.” – MYTH!
Credit history following a bankruptcy or foreclosure is very important and there can be extenuating circumstances. It only takes a few moments with a reliable lending professional to find out if your individual situation will allow you to qualify for a new mortgage.
- “Getting pre-approved is expensive.” – MTYH!
Usually, the only expense to getting pre-approved is the cost of the credit report which could be around $35. The advantage is that you will know that you qualify for a particular mortgage amount.
- “I should wait to qualify until I find a home.” – MYTH!
It can take weeks to qualify for a mortgage especially if there are issues that need to be corrected. The best interest rates are only available for the highest credit scores. It is to your advantage to start the qualifying process early in your home search.
- “All lenders are the same.” – MYTH!
Reliable lending professionals will explain the entire process before collecting fees, quote fees up-front, have competitive products, do what is necessary to get the loan approved and close at the locked rate and terms. Ask for recommendations from recent borrowers.
- “Adjustable Rate Mortgages are more expensive than fixed rate mortgages.” – MYTH!
Adjustable Rate Mortgages can be less expensive than fixed rate mortgages if the buyer’s circumstances warrant it. If a buyer is only going to be in a home for a few years before selling, it can be determined if an ARM loan will result in the lowest way to finance the property. There are many variables and you need to be aware of them before deciding which type of loan to finance your home purchase.
Buyers and Sellers need solid information to make good decisions. Call us with your questions or to get a recommendation of a reliable lender who can give you the real facts.