Category: Real Estate News & Tips

Posted on

Top Tax Advantages of Buying a Home

tax credits

Save money with these deductions and credits.

There are plenty of perks to owning your own home rather than renting. You can knock down walls if you want to, you can install a professional home theater system, or you can paint the walls with purple polka dots if you like. But there are other benefits—the financial kind.

If you rented in the past, all of your money went to a landlord, and none of it came back to you as a tax deduction. That changes if you’re a homeowner.

Whether you buy a mobile home, townhouse, condominium, cooperative apartment, or single-family home, several tax breaks can save you money at tax time.

The downside is that your taxes will get more complicated. You can’t just plug your W-2 information into Form 1040 and finish your taxes in 10 minutes. As a homeowner, you can take advantage of itemizing, which can save you a lot of money.

KEY TAKEAWAYS

    • The Internal Revenue Service (IRS) provides several tax breaks to make homeownership more affordable.
    • Common tax deductions include those for mortgage interest, mortgage points, and private mortgage insurance (PMI).
    • To claim the deductions, you have to itemize your taxes rather than taking the standard deduction.
    • Tax credits are available for qualified first-time homebuyers and homeowners who invest in energy improvements like solar panels and energy-efficient windows.1

The standard deduction for the 2024 tax year is $29,200 for couples filing jointly, and $1,460 for singles. That’s up from $27,700 for couples and $13,850 for singles in 2023.2 You might do a quick calculation of your deductions and see if the standard deduction saves you more.

Tax Credits vs. Tax Deductions

In the tax world, there are deductions, and there are credits. Credits are better.

    • A credit is directly subtracted from your tax bill. If you get a $1,000 tax credit, your total tax amount due will decrease by $1,000.
    • A tax deduction reduces your adjusted gross income (AGI), which reduces the amount of taxes you owe. For example, if you’re in the 24% tax bracket, your tax liability will be reduced by 24% of the total claimed deduction. If you claim a $1,000 deduction, your tax liability will drop by $240 ($1,000 × 24%).

Tax Deductions for Homeowners

Most of the favorable tax treatment that comes from owning a home is in the form of deductions. Here are the most common deductions:

Mortgage Interest Deduction

You can deduct your home mortgage interest on the first $750,000 ($375,000 if married filing separately) of mortgage debt. The old limit—$1 million ($500,000 if married filing separately)—applies if you bought your home before Dec. 16, 2017.3

You can’t deduct home mortgage interest unless you itemize deductions on Schedule A Form 1040 or 1040-SR. You can deduct mortgage interest on a second home as long as the mortgage satisfies the same requirements for deductible interest as on your primary residence.4

In January, after the end of the tax year, your lender will send you Internal Revenue Service (IRS) Form 1098, detailing the amount of interest that you paid in the previous year.5

If you just bought your home, be sure to include any interest that you paid as part of your closing. Lenders will include interest for the partial first month of your mortgage as part of your closing. You can find it on the settlement sheet. Ask your lender or mortgage broker to point this out to you. If it’s not included on your 1098, add this to your total mortgage interest when doing your taxes.

Mortgage Points Deduction

You may have paid mortgage points to your lender as part of a new loan or refinancing. Each point that you buy generally costs 1% of the total loan and lowers your interest rate by 0.25%. For example, if you paid $300,000 for your home, each point would equal $3,000 ($300,000 × 1%).

With a 4% interest rate, for instance, that one point would lower the rate to 3.75% for the life of the loan. As long as you actually gave the lender money for these discount points, you get a deduction.

Like the mortgage interest deduction, discount points are deductible on the first $750,000 of debt.

If you refinanced your loan or took out a home equity line of credit (HELOC), you receive a deduction for points over the life of the loan. Each time you make a mortgage payment, a small percentage of the points is built into the loan. You can deduct that amount for each month that you made payments. So, if $5 of the payment was for points, and you made a year’s worth of payments, your deductible amount would be $60.40

Your lender will send you Form 1098, detailing how much you paid in mortgage interest and mortgage points. Using that information, you can claim the deduction on Schedule A of Form 1040 or 1040-SR.67

Private Mortgage Insurance (PMI)

Lenders charge private mortgage insurance (PMI) to borrowers who put down less than 20% on a conventional loan.8 PMI usually costs $30 to $70 a month for each $100,000 borrowed. Like other types of mortgage insurance, PMI protects the lender (not you) if you stop making mortgage payments.

Depending on your income and when you bought your home, you might be able to deduct your PMI payments.9

Mortgage insurance premiums are no longer deductible.10

State and Local Tax (SALT) Deduction

The state and local tax (SALT) deduction lets you deduct certain taxes paid to state and local governments if you itemize on your federal return.

The $10,000 cap applies whether you are single or married filing jointly and drops to $5,000 if you’re married filing separately.11 The deduction limit relates to the combined total deduction of state income, local income, sales, and property taxes.

You must itemize your deductions to claim the mortgage interest deduction, mortgage points deduction, and SALT deduction. You can’t claim these deductions if you take the standard deduction when filing your tax return.

If you pay your property taxes through a lender escrow account, you’ll find the amount on your 1098 form.5

Otherwise, you can look at your personal records in the form of a check or automatic transfer if you pay directly to your municipality.

Be sure to include payments that you made to the seller for any prepaid real estate taxes (you can find them on your settlement sheet).

State and local income taxes withheld from your paycheck appear on your W-2 form, which your employer(s) should send by the end of January following the tax year.1213 If you elect to deduct state and local sales taxes instead of income taxes (you can’t deduct both), you can use your actual expenses or the optional sales tax tables found in Schedule A (Form 1040).1415

Home Sale Exclusion

Chances are you won’t have to pay taxes on most of the profit that you make when you sell your home, thanks to the home sale exclusion.

If you’ve owned and lived in the home for at least two of the five years before the sale, you won’t pay taxes on the first $250,000 of profit (that is, the capital gain). The number doubles to $500,000 if you’re married filing jointly. However, at least one spouse must meet the ownership requirement, and both spouses must meet the residency requirement that they have lived in the home for two out of the previous five years.16

You might be able to meet part of the residency requirement if you had to sell your home early due to a divorce, a job change, or some other reason.

If you have a taxable gain on the sale of your main home that is greater than the exclusion, report the entire gain on Form 8949: Sales and Other Dispositions of Capital Assets.17

Depending on how long you owned the home, any gains will be taxed at either the short-term or long-term capital gains rate:

    • Short-term capital gains tax rates apply if you owned the home for less than a year. These gains are taxed at your ordinary income tax rate, which will be somewhere between 10% and 37% depending on your income for the year. 18
    • Long-term capital gains tax rates apply if you owned the home for more than a year. The rate is 0%, 15%, or 20%, depending on your filing status and income.19

Tax Credits

You might be eligible for a mortgage credit if you were issued a qualified mortgage credit certificate by a state or local governmental unit or agency under a qualified mortgage credit certificate program.20

Also, check energy.gov to find out whether your state offers tax credits, rebates, and other incentives for energy-efficient improvements to your home.

Which Expenses Can I Itemize?

Homeowners can generally deduct home mortgage interest, home equity loan or home equity line of credit (HELOC) interest, mortgage points, private mortgage insurance (PMI), and state and local tax (SALT) deductions.

Whether or not you’re a homeowner, you may be able to deduct charitable donations, casualty and theft losses, some gambling losses, unreimbursed medical and dental expenses, and long-term care premiums.

You itemize your deductions on Schedule A Form 1040.

Who Should Itemize Deductions?

All taxpayers have the option of taking the standard deduction or itemizing deductions. You can take whichever option saves you the most.

The standard deduction for the 2024 tax year is $29,200 for couples filing jointly and $1,460 for singles. For the 2023 tax year, it’s $27,700 for couples and $13,850 for singles.2

Note that these numbers are double the standard deduction amounts available before 2018 when the tax code got an overhaul. You might do a quick calculation of your deductions and see if the standard deduction saves you more.

What Are the Standard Deduction Amounts for 2023?

For the 2023 tax year, the standard deduction is $13,850 for single people or married couples filing separately, $20,800 for heads of household, and $27,700 for married filing jointly couples.

For the 2024 tax year, the deduction is $14,600 for single people or married couples filing separately, $21,900 for heads of household, and $29,200 for couples who are married filing jointly.18

The Bottom Line

Let’s keep this in perspective: If you’re in the 24% tax bracket, you’re still paying nearly 75% of your mortgage interest without any deductions.

Don’t fall into the trap of thinking that paying interest is beneficial because it reduces your taxes. In many cases, paying off your home as quickly as possible is the best financial move, particularly with the much larger standard deduction now in effect.

Source: investopedia.com ~ By: By TIM PARKER ~ Image: Canva Pro

Posted on

Buying or Selling a Home in Winter: What You Need to Know

Buying or Selling a Home in Winter

Nobody buys or sells a home in the winter, right? Well, if you checked the numbers, you’d find that plenty of homes are sold during the coldest months of the year. From December 2022 to February 2023, nearly 800,000 homes sold in the U.S. That’s a lot of houses!

In other words, the number of homes bought and sold during the winter is nothing to sneeze at. Plus, since most buyers search for homes online these days, it’s not like outdoor temperatures are keeping potential buyers from looking around.

If you’re wondering whether you should put off buying or selling a home until spring, there’s no need to wait. In fact, there are several advantages to buying or selling while Jack Frost is nipping at your nose. Let’s look at some of the biggest ones and go over some tips that’ll get you moving in the right direction.

Tips for Selling in the Winter

Nothing says welcome home quite like the smell of a gingerbread candle and some Christmas lights—it’s easier to stage a house and make it feel like home in the wintertime!

Here are a few tips to help you set the buying mood:

    • Keep it simple. If you’re selling around a holiday and have decorations up, make sure they accent—not overpower—a room. Less is more.
    • Crank up the cozy. Light a fire in the hearth, play soft holiday music in the background, and prepare fresh-baked goods or mulled cider for guests.
    • Shine a light outside. Winter days get dark early. Brighten your home’s exterior with outdoor spotlights.
    • Take down outside decor. Nothing says “my home won’t sell” like a house with reindeer inflatables on the lawn in February.
    • Avoid a winter wonderland. Snow is great—unless we’re talking about outside shots of your home. Buyers want to see details of the house, not a blanket of snow. Make sure you have clear-weather photos of your home.

Remember, the nicer your home looks, the more likely it is to sell—and for more money.

Advantages of Selling Your Home in the Winter

Okay, huddle up, home sellers. Let’s unpack the perks of selling when the air gets chilly.

1. You’ll face less competition.

Come spring, more sellers will flood the market and your home will be just another fish in a great big pond. But in winter, you’ve got a limited number of sellers on the market. For example, the number of active home listings in the U.S. during 2021 and 2022 dipped during the winter and didn’t begin rebounding until the spring of the following year.2

If that pattern repeats in 2023–2024, you’ll have less competition on the market if you list your home during the winter! Buyers have fewer homes to choose from, which means you could sell your house faster.

2. Buyers often mean business.

Most folks want to curl up under a blanket next to a warm fire on a cold winter day. If a buyer is trudging around in freezing weather or breaking away from their holiday schedule to look at your home, they must be serious. That’s because many winter buyers are working against a deadline, whether it’s an expiring lease, relocation, or a contract on their current home. They may also be trying to snag some tax breaks before the end of the year.

3. People have time off during the holidays.

You may think people are less likely to see your home in the midst of their hectic holiday schedules. That can definitely be true. But keep in mind, that many people also have more time off around the holidays. That means more time for browsing their favorite home apps, dreaming about their future decor, and even scheduling home showings.

Tips for Buying in the Winter

Alright, home buyers. Now it’s your turn. Below are some tips for buying a house when the weather outside is frightful.

    • Don’t buy until you’re debt-free with an emergency fund. Hold off on buying a home if you haven’t paid off all your consumer debt (think credit cards, car notes, and student loans) or saved up a full emergency fund worth 3–6 months of your typical expenses. You should prioritize those financial goals first.
    • Save up a strong down payment. You need to make a strong down payment when you buy a home because a bigger down payment means smaller monthly payments and less debt overall. Aim for a 20% down payment since that’ll keep you from having to pay monthly private mortgage insurance fees. (A 5–10% down payment is fine if you’re a first-time home buyer, though.)
    • Stick to your budget. Sure, home prices might drop a bit with the temperatures. But that doesn’t mean you should justify spending any more than 25% of your monthly take-home pay on monthly housing payments. To make sure your winter home purchase is a blessing and not a curse, calculate how much house you can afford and stick to it.
    • Negotiate with confidence. Remember, there isn’t much competition. So, sellers will probably be willing to work with you. If the home inspection brings up some issues, don’t be afraid to ask your seller to make repairs or lower the asking price.

Advantages of Buying Your Home in the Winter

Now, here are some of the biggest advantages to buying a home in winter:

1. You’ll have less competition.

Home sellers aren’t the only ones who face less competition during the winter! As we saw earlier, home sales take a bit of a plunge during the winter. So, typically, you won’t have to deal with as many competing buyers as you would if you waited to buy in spring. This probably means you don’t have to worry as much about someone else snagging your dream home before you can submit an offer, or about getting caught in a bidding war.

It’s kind of like when someone brings in holiday treats to share with the office but most of your coworkers are out of town. You get first dibs on the best desserts!

2. You may get a better deal.

Since supply and demand for housing are both down during the winter months, you might be able to save money on your purchase! Hard to believe? Get this: The median sales price of homes sold from December 2022 to February 2023 was about $20,000 lower than homes sold from March to May 2023.

That means people who bought their homes during winter saved tens of thousands of dollars compared to those who waited to buy in the spring or summer! That might make any challenges of buying during the wintertime worthwhile.

3. You can lock in the current mortgage rate.

As you’ve probably heard, interest rates have climbed up a lot lately. Well, there’s a chance that the trend will continue moving forward since the Federal Reserve (the Fed) could raise the national interest rate again at its next meeting. So, if you’re going to use a mortgage to buy a house, locking in your rate now could save you from paying even more down the road. And if rates wind up going down over the next year or so, you can always refinance.

If you follow these tips, there’s hope you’ll find the house you want and get a good price on it this winter.

Ready to Buy or Sell Your Home in Winter?

With all these advantages on your side, hopefully buying or selling your home in the winter won’t feel so daunting. We know you’ve probably got a lot on your plate this time of year though. So, we’ve put together some resources to help you check everything off your list. For a step-by-step plan that’ll walk you through every part of the process, use our free Home Buyers Guide or Home Sellers Guide.

Source: ramseysolutions.com ~ Image: Canva Pro

Posted on

Why Home Prices Keep Going Up

Why Home Prices Keep Going Up

If you’ve ever dreamed of buying your own place, or selling your current house to upgrade, you’re no stranger to the rollercoaster of emotions changing home prices can stir up. It’s a tale of financial goals, doubts, and a dash of anxiety that many have been through.

But if you put off moving because you’re worried home prices might drop, make no mistake, they’re not going down. In fact, it’s just the opposite. National data from several sources says they’ve been going up consistently this year (see graph below):

Here’s what this graph shows. In the first half of 2022, home prices rose significantly (the green bars on the left side of the graphs above). Those increases were dramatic and unsustainable.

So, in the second half of the year, prices went through a correction and started dipping a bit (shown in red). But those slight declines were shallow and short-lived. Still, the media really focused on those drops in their headlines – and that created a lot of fear and uncertainty among consumers.

But here’s what hasn’t been covered fully. So far in 2023, prices are going up once more, but this time at a more normal pace (the green bars on the right side of the graphs above). And after price gains that were too high and then the corrections that followed in 2022, the fact that all three reports show more normal or typical price appreciation this year is good news for the housing market.

Orphe Divounguy, Senior Economist at Zillow, explains changing home prices over the past 12 months this way:

“The U.S. housing market has surged over the past year after a temporary hiccup from July 2022-January 2023. . . . That downturn has proven to be short lived as housing has rebounded impressively so far in 2023. . .”

Looking ahead, home price appreciation typically starts to ease up this time of year. As that happens, there’s some risk the media will confuse slowing price growth (deceleration of appreciation) with home prices falling (depreciation). Don’t be fooled. Slower price growth is still growth.

Why Are Home Prices Increasing Now?

One reason why home prices are going back up is because there still aren’t enough homes for sale for all the people who want to buy them.

Even though higher mortgage rates cause buyer demand to moderate, they also cause the supply of available homes to go down. That’s because of the mortgage rate lock-in effect. When rates rise, some homeowners are reluctant to sell and lose their current low mortgage rate just to take on a higher one for their next home.

So, with higher mortgage rates impacting both buyers and sellers, the supply and demand equation of the housing market has been affected. But since there are still more people who want to purchase homes than there are homes available to buy, prices continue to rise. As Freddie Mac states:

“While rising interest rates have reduced affordability—and therefore demand—they have also reduced supply through the mortgage rate lock-in effect. Overall, it appears the reduction in supply has outweighed the decrease in demand, thus house prices have started to increase . . .”

Here’s How This Impacts You

  • Buyers: If you’ve been waiting to buy a home because you were afraid its value might drop, knowing that home prices have gone back up should make you feel better. Buying a home gives you a chance to own something that usually becomes more valuable over time.
  • Sellers: If you’ve been holding off on selling your house because you were worried about how changing home prices would impact its value, it could be a smart move to work with a real estate agent and put your house on the market. You don’t have to wait any longer because the most recent data indicates home prices have turned in your favor.

Bottom Line

If you put off moving because you were worried that home prices might go down, data shows they’re increasing across the country. Work with a local real estate agent to understand how home prices are changing in your local area.

Source:  keepingcurrentmatters.com ~ Image: keepingcurrentmatters.com

Posted on

Here are 3 major ways debt can affect your ability to buy a home

Debt can affect ability to buy a home.

Debt — and the way you manage it — can help or harm your ability to buy a home.

If you’re preparing to buy a home in the future, you likely have a laundry list of things you need to do to get ready — and that includes getting your finances in tip-top shape.

Aside from double-checking your credit score and credit report and making sure you have enough money saved up to purchase in your desired market, you should also consider the ways your current debt balance might affect your ability to buy a home.

1) It shows lenders you can handle paying back lenders

Having some debt on your credit report is still really important because lenders need “clues” about how good you are at managing different forms of debt. So having a student loan that you paid off on your credit report can be a green flag to lenders.

Or, maybe you’ve been managing two credit cards really well over the last five years; this is another positive trade line that will show up on your credit report and help you appear less risky as a borrower.

If you don’t have any history of managing debt — even one credit card — lenders may not feel comfortable giving you such a large loan because you lack those clues about your debt management habits.

2) Managing debt well can improve your credit score

Healthy debt management habits can set you up to have an easier time getting approved for your home loan. Not only do you have a history of managing debt, but you also have clues that point to positive management habits — and that can be reflected in your credit score.

Most mortgage lenders look for a credit score of at least 620. Some lenders, like Rocket Mortgage, may still consider applicants who have credit scores of at least 580 for some home loans. But the higher your credit score, the lower your mortgage interest rate will be. That’s why working to improve your credit score before you apply can work to your advantage.

Payment history makes up 35% of your credit score. So just by consistently making your credit card, auto loan, and other payments every month, you’re contributing to improving your credit score. Likewise, if you were to miss a payment, this could have a big impact on your credit score.

The amount of money you owe is the second most important factor in determining your credit score (it makes up 30% of your score). This is usually a measure of your credit utilization, which is the amount of money you owe in relation to your total credit limit. Experts typically recommend keeping your credit utilization below 30%.

So if you have $5,000 as a total credit limit and owe $2,500, your credit utilization is 50% and it would be a good idea to continue making payments so you can lower your utilization.

Because of that credit utilization rate, carrying too much debt could drag down your credit score. Coming close to maxing out your available credit makes lenders think that you’re spending beyond your means and would therefore be a risky borrower.

3) Having too much debt can make you ineligible for some home loans

One criteria mortgage lenders assess when reviewing your home loan application is known as the debt-to-income ratio. Your debt-to-income ratio is a comparison of how much you owe to how much money you earn. Your gross income (pre-tax income) is used to measure this number.

A lower debt-to-income ratio suggests that you have a healthy balance between debt and income. However, a higher debt-to-income ratio suggests that too much of your income is going toward paying down debt, and this will make a mortgage lender see you as a risky borrower.

According to a breakdown from The Mortgage Reports, a debt-to-income ratio of no more than 43% is considered good; a ratio closer to 45% might be acceptable depending on the loan you apply for, but a ratio that’s 50% or higher can raise some eyebrows.

A higher debt-to-income ratio could make you unable to be approved for some home loan programs with attractive features, like lower down payment minimums. For instance, the HomeReady loan program from Ally Bank requires applicants to have a debt-to-income ratio of no more than 50%, among other criteria.

If you want to calculate your debt-to-income ratio, here’s what you do: Add up all your monthly debt payments, which include credit card payments, student loan payments, and payments to any other lines of credit you may have. Then Divide this number by your gross income amount. The result is your debt-to-income ratio.

How to consolidate and best payoff debt

If you have an unhealthy amount of debt and are preparing to get a mortgage, consider these strategies to consolidate and pay down your debt.

The debt snowball method is one debt management method where you focus on eliminating the smallest debt balance first while paying just the minimum on all your other debts. On the other hand, the debt avalanche method involves eliminating your highest-interest debt first. Both methods can be instrumental in helping you crush your debt balance in a more organized way.

Debt consolidation is another popular method for paying down debt if you carry balances on multiple credit cards or have multiple loans. Essentially, you’ll apply for a personal loan that’s enough to cover the total amount of debt on all your credit cards. Then, once you’re approved, the lender sends the funding amount to your creditors, which pays off your credit cards. From there, you’ll just have to pay back the personal loan you borrowed.

This method can potentially help you save on interest since personal loan lenders typically offer much lower interest rates compared to credit card issuers. The Happy Money personal loan is one of the best debt consolidation loans out there since this lender will send your funds directly to creditors.

Balance transfer credit cards with a 0% intro APR period are another useful option for getting rid of debt since these credit cards allow you to make interest-free monthly payments for a limited time. Interest charges can eat into your monthly payments and make it feel like your balance is barely going down. With this method, you basically transfer the balance of your current credit card onto a new credit card and you try to pay off the balance before the interest-free period is over.

The Citi® Diamond Preferred® Card offers an intro APR period of 0% for 21 months on balance transfers (after, the 18.24% – 28.99% variable). So you’ll basically have almost two years to make interest-free credit card payments. Just keep in mind that you’ll have to pay a 5% transfer fee on each balance that you transfer ($5 minimum). Balance transfers must be completed within 4 months of account opening.

The Wells Fargo Reflect® Card also offers an intro APR period of 0% for 21 months from account opening on purchases and qualifying balance transfers (after, 18.24%, 24.74%, or 29.99% variable). Balance transfers made within 120 days from account opening qualify for the intro rate, BT fee of 5%, min $5.

Bottom line

Having experience managing debt in a healthy manner can help you get approved for a mortgage, but the key here is to make sure you’re practicing positive habits with your debt. Continue making on-time monthly payments toward your debts, don’t let your credit utilization rate get too high, and be wary of the amount of debt you have in relation to how much you earn.

Source: cnbc.com ~ By: Jasmin Suknanan ~ Image: Canva Pro

Posted on

Tips for First-Time Home Buyers

Celebrating moving

Learn strategies for saving a down payment, applying for a mortgage, shopping for a house, and more.

It’s exciting — and a little scary — to think about buying your first home. Even when you know you’re ready to buy a house, you might not be sure where to begin. These tips for first-time home buyers will help you navigate the process from start to finish.

Preparing to buy tips

1. Start saving early

When calculating how much money you need to buy a house, consider one-time expenses as well as new, recurring bills. Here are the main upfront costs to consider when saving for a home:

  • Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit require as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. Use a down payment calculator to decide on a goal, and then set up automatic transfers from checking to savings to get started.

  • Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 6% of the loan amount. Your closing costs on a $300,000 loan could be between $6,000 and $18,000. That’s additional money you’d have to pay, on top of your down payment. In a buyer’s market, you can often ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around.

  • Move-in expenses: Remember to budget for moving costs, which typically run up to $2,500 for most local moves. (Long-distance moves can be much pricier.) You’ll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.

2. Decide how much home you can afford

Figure out how much you can safely spend on a house before starting to shop. NerdWallet’s home affordability calculator can help with setting a price range based on your income, debt, down payment, credit score and where you plan to live.

3. Check and polish your credit

Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Having a higher score will generally get you a lower interest rate, so take these steps to polish your credit score to buy a house:

  • Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax, and TransUnion — and dispute any errors that could hurt your score.

  • Pay all your bills on time, and keep credit card balances as low as possible.

  • Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.

  • Avoid opening new credit accounts while you’re applying for mortgages. Opening new accounts could put a hard inquiry on your credit report and lower the overall average age of your credit accounts, which could hurt your score. 

    • Standard inspections don’t test for things like radon, mold or pests. Understand what’s included in the inspection and ask your agent what other inspections you might need.

    • Make sure the inspectors can get to every part of the house, such as the roof and any crawl spaces.

      • An existing home generally costs less than buying a new construction home. But if local inventory is low and you have the means, a brand-new home offers enticing options to customize.

      • A condominium or townhome may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy. Don’t forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities.

      • A manufactured home, including the type commonly called a mobile home, can be an affordable option if you have a tight budget. You’ll need to title it as real property and affix it to a permanent foundation if you want to finance it with a traditional mortgage. Many manufactured homes are financed through chattel loans, which have higher interest rates than mortgages.

      • Fixer-uppers, or single-family homes in need of updates or repairs, usually sell for less per square foot than move-in-ready homes. However, you may need to budget extra for repairs and remodeling. Renovation mortgages finance both the home price and the cost of improvements in one loan.

        The buyer doesn’t have to attend the inspection, but it could be useful to be there. By following the inspectors around you can get a better understanding of the home and ask questions on the spot. If you can’t attend the inspections, review the reports carefully and ask about anything that’s unclear.

        4. Explore mortgage options

        A variety of mortgages are available with varying down payment and eligibility requirements. Here are the main categories:

        • Conventional mortgages are the most common type of home loan and are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down.

        • FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%.

        • USDA loans are guaranteed by the U.S. Department of Agriculture. They are for suburban and rural home buyers and usually require no down payment.

        • VA loans are guaranteed by the Department of Veterans Affairs. They are for current military service members and veterans and usually require no down payment.

        You also have options when it comes to the mortgage term. Most home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger.

        If you plan to stay in the home for only a few years, you might consider an adjustable-rate mortgage or ARM. ARMs often start with a lower fixed-interest introductory rate, enabling you to buy a more expensive home for the same monthly payment, but they can also increase (or decrease) over time.

        5. Research first-time home buyer assistance programs

        Many states and some cities and counties offer first-time home buyer programs, which often combine low-interest-rate loans with down payment assistance and closing cost assistance. If you meet low- to moderate-income benchmarks, you could qualify for a grant or forgivable loan that doesn’t need to be paid back.

        Tax credits, known as mortgage credit certificates, are also available through some first-time home buyer programs.

        6. Compare mortgage rates and fees

        Plan to shop around for mortgage lenders and compare three to five different quotes. Doing so could save you thousands of dollars in interest over the lifetime of the loan.

        The Consumer Financial Protection Bureau recommends requesting loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible origination fees.

        Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate. Buying points can make sense if you have the money and plan to stay in the home for a long time. Use a discount points calculator to decide.

        In a buyer’s market, some motivated sellers may offer to pay some or all of the buyer’s points to close the deal.

        7. Gather your loan paperwork

        Before you’re approved for a mortgage, your lender will ask you for financial records to verify your income, assets, and debt, including:

        • Proof of income and employment, such as tax returns, W-2s and 1099s.

        • Statements for bank, retirement, and brokerage accounts.

        • Records of debt payments, such as student loans, auto loans, or any real estate debt.

        • Documentation of other events that impact your finances, such as divorce, bankruptcy, or foreclosure.

        Pull these documents ahead of time to stay organized throughout the process — you’ll need them for a mortgage preapproval as well as when you apply for the loan.

        8. Get a preapproval letter

        A mortgage preapproval is a lender’s offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you’re a serious buyer and can give you an edge over home shoppers who haven’t taken this step yet.

        Apply for preapproval when you’re ready to start home shopping. A lender will pull your credit and review the documents you organized in the previous step. Applying for preapproval from more than one lender to shop rates shouldn’t hurt your credit score as long as you apply for them within a limited time frame, such as 30 days.

        Home shopping tips

        9. Choose a real estate agent carefully

        A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing processes. Get agent referrals from other recent home buyers. Interview at least a few agents and request references. When speaking with potential agents, ask about their experience helping first-time home buyers in your market and how they plan to help you find a home. You might also ask how they find homes that aren’t yet on the market, which can be a handy skill when buyer competition is fierce.

        10. Narrow down your ideal type of house and neighborhood

        Weigh the pros and cons of different types of homes, given your lifestyle and budget.

      Think about your long-term needs and whether a starter home or forever home will meet them best. If you plan to start or expand your family, it may make sense to buy a home with extra room to grow.

      Research potential neighborhoods thoroughly, including property values, property taxes, and safety considerations. Choose one with amenities that are important to you, including schools and entertainment options. If you work away from home, test out the commute during rush hour.

      11. Stick to your budget

      To avoid financial stress down the road, set a price range based on your budget — and then stick to it.

      A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer in a bidding war.

      In a competitive market, consider looking at properties below your price limit to give some wiggle room for bidding. In a buyer’s market, you may be able to view homes a bit above your limit. Your real estate agent can suggest a range for your offering price.

      12. Make the most of walk-throughs and open houses

      Online 3D home tours have become more popular as technology improves. They don’t supply all the information in-person visits do — like how the carpets smell — but they can help you narrow the list of properties to visit.

      It’s possible to buy a house sight unseen, but it’s always best to visit in person. Open your senses when walking through a home. Listen for noise, pay attention to any odors, and look at the overall condition of the home inside and out. Ask about the type and age of the electrical and plumbing systems and the roof.

      Home purchasing tips

      13. Don’t skip the home inspections

      A home inspection is a thorough assessment of the structure and mechanical systems. Professional inspectors look for potential problems, so you can make an informed decision about buying the property. Here are some things to keep in mind

    14. Negotiate with the seller

    You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs. But keep in mind that lenders may limit the portion of closing costs the seller can pay.

    Your negotiating power will depend on the local market. It’s tougher to drive a hard bargain when there are more buyers than homes for sale. Work with your real estate agent to understand the local market and strategize accordingly.

    15. Buy adequate home insurance

    Your lender will require you to buy homeowners insurance before closing the deal. Home insurance covers the cost to repair or replace your home and belongings if they’re damaged by an incident covered in the policy. It also provides liability insurance if you’re held responsible for an injury or accident. Buy enough home insurance to cover the cost of rebuilding the home if it’s destroyed.

    It may be worth buying an umbrella policy if you need to cover your home, cars, and other major assets.

    Source: nerdwallet.com ~ By: Barbara Marquand ~ Image:

Posted on

Real Estate Technology & Property Trends for 2023

Future of Real estate Technology

Real estate technology has been rapidly evolving in recent years, and the introduction of cutting-edge technologies in real estate promises to change the way business is conducted in this age-old industry. The real estate market is a major component of the world’s economy, with a global value of over $7 196 billion.

real estate tech trends 2022
Real Estate Tech Trends 2022

In some respects, the adoption of technology in real estate has lagged behind its use in other business sectors. It was partially due to a reluctance to change methods that had worked well in the past. Another factor that slowed down the widespread use of real estate technology was major players’ attempts to develop proprietary real estate technology tools.

But now, these issues are fading, and the market has seen an increase in real estate tech in recent years.

Moreover, the industry players are starting to understand the benefits of investing and using modern technologies. According to the Technology and The Future of Real Estate Investment Management report created by the University of Oxford, in 2020, 53% of digital real estate companies are now directly investing in technology. 42% of Statista respondents confessed they see potential in Smart Building technologies, while 56% of respondents have already noticed the impact from the tech sphere.

Real Estate Innovations in 2022
Real Estate Innovations in 2022

It is poised to see even more growth in how new technologies are genuine real estate disruptors and will affect everyone involved in the industry.

What Is Proptech: Industry Overview

Proptech is a rather amorphous term that is formed from the words property and technology. It encompasses the various solutions that are involved in the growth of commercial real estate software.

Proptech is also known as CREtech for commercial real estate technology or REtech for real estate technology. It usually refers to the software employed in real estate tools and applications.

Six months through 2021, VC deal activity in residential real estate tech has already reached an annual record of $6.2 billion, according to PitchBook data. And with $2.6 billion in funding, the commercial segment is on track to make 2021 the second-most valuable year for venture activity.

The industry shows no signs of slowing down with new generations of consumers and realtors opting for smart solutions that facilitate faster rentals and more convenient living arrangements.

Real Estate Technology Trends For 2023 That Disrupt the Industry

The successful adoption of a specific technology in the real estate industry will be determined by its ability to provide value for its users.

According to the 2021 NAR Home Buyer and Seller Generational Trends report, certain features are important to users. Photos, detailed information, floor plans, real estate agent contacts, and virtual tours are among them.

Real Estate Tech Trends 2023
Real Estate Tech Trends 2023

Technologies help to cover the users’ needs and bring them valuable information they use for decision-making.

Automated Rental and Purchasing Property Platforms

This real estate innovation is truly changing the industry. Nowadays, how clients find the new property they bought is changing to the Internet more than meeting with real estate agents.

The 2021 NAR Home Buyer and Seller Generational Trends report states that 43% of all buyers look online for properties for sale.

Digital Trends in Real Estate 2023
Digital Trends in Real Estate 2023

The benefits of using automated property technologies are overwhelming. Consumers and real estate professionals will be at a distinct disadvantage if they choose not to use these valuable real estate technology tools to find or sell a home.

3D Virtual House and Apartment Tours

Closely associated with search applications are solutions that enable prospective buyers to take a virtual tour of properties while selecting. It is among the main tech trends in real estate for 2023 as it eliminates the time and expense of visiting multiple properties, many of which can be removed from the buyer’s list of potential purchases through virtual viewing.

Of course, most buyers will want to tour the property before making a final decision physically. Still, the time and money savings for the customer and real estate agent in determining the best fit can quickly add up. Moreover, today VR technologies allow having almost realistic virtual tours to houses where you can easily examine the property state, interior details, and furniture. And the real estate photo editing services allow to make photos as true to life as possible.

Real estate software customers expect to get the best service and experience from using the technologies. Contact channels must be available 24/7, the response time must be as fast as possible, and the error rate should be close to zero.

An automated service desk with the conversation AI can easily fulfill the requirements. This technological approach goes beyond common chatbots making it one of the main real estate innovations in 2022. According to Deloitte, ‘these assistants would be built for purpose, have a rich set of capabilities, and be integrated into the end-to-end process landscape of the enterprise.’

Big data

Databases and data warehouses are used to store the immense quantities of information that is gathered concerning consumer preferences.

According to McKinsey’s research, real estate applications based on machine-learning models can predict changes in rent rate with 90% accuracy, while the changes in other property metrics can predict with 60%. That can pretty well help clients understand what property is a better choice for their investment, as in the case of commercial property and non-commercial.

Blockchain

Tech-savvy readers may not immediately make the connection between blockchain technology and real estate. While many individuals are familiar with how the blockchain is used in cryptocurrency, it has wide applications in other areas of commerce, including the real estate industry.

Blockchain technology can be used to verify encrypted transactions and ensure that no tampering impacts financial records. It will prove useful in fractional property investment and allow landlords to sell portions of their stake in a given holding.

The property technology will also enable important documents such as property titles to be stored securely. As with other market sectors, the surface has only been scratched as far as the potential in employing the blockchain for other cases in the real estate industry makes it one of the top real estate tech trends in 2023.

Fractional Property Investment

Fractional ownership refers to percentage ownership in an asset. It is a common investment strategy when purchasing expensive items such as aircraft or vacation homes. Using the blockchain mentioned above technology, fractional property investment is flourishing for a variety of reasons.

The high price of homes put them out of reach to many would-be buyers. Fractional property investment allows these individuals or groups to build a deposit on a future full purchase.

Communal investors can all share rental income from a shared property, opening up an additional income stream. Employing a fractional ownership approach will enable more diversified investment and allow people to unlock the value in their homes.

Mobile Apps

One of the most efficient technologies used in the industry is mobile, e.g., developing different real estate apps. The most popular ones are rental and purchasing mobile platforms.

These apps offer several advantages to potential renters over the traditional means of locating an apartment or house. Databases are frequently updated, providing more timely information on new properties put on the market and those that are no longer available.

Consumers interested in purchasing, selling, or renting a property can also use apps tailored to their needs. They can help you locate the house you want and put you in touch with a real estate agent to help facilitate the deal.

Internet of Things (IoT)

Smart homes, apartments, and devices are changing the way we live in many ways. Smart devices, in general, are powered by the Internet of Things (IoT) and are becoming one of the main property management technology trends.

The IoT refers to the practice of embedding sensors and computing technology into various items with which we interact every day. The ultimate goal of this technology is to provide individuals with a more convenient and pleasurable life.

Let’s investigate in what way IoT technologies are changing our homes and transform them into smart homes. There are three main characteristics of a smart apartment:

    • Smart amenities include devices such as smart lights and locks and integrated services like home cleaning and package delivery.
    • Connectivity is designed into a smart apartment when it is built to enable devices, building systems, residents, and management to communicate. Items such as WiFi, smart sensors, and intelligent access controls are benefits afforded by enhanced connectivity.
    • Community management by providing services that save residents time, money, and minor difficulties is the final component of a smart apartment. Built-in event calendars, resident assistance, and on-demand services are some of the features that help property managers and renters build a more vibrant community.

By the way, this is one of the most demanded trends in proptech for apartment websites and real estate platforms. While new construction is prime territory for implementing smart apartments, older structures can be retrofitted to provide the same level of connectivity.

Analytics and data management

Among other tech trends impacting real estate, it is worth mentioning data management. Data will influence decisions, and since there is still no centralized national system for agents, new startups will have unlimited opportunities to develop and change the existing process. Accordingly, now is the perfect time to create an innovative solution in this industry. You can build an application that will analyze a huge amount of data to provide valuable information necessary for decision-making by real estate market participants. For example, your solution might show the level of reliability of a developer and their buildings.

Digital twins

As more information is made available online, prospective buyers will have more opportunities to study and explore properties. Imagine seeing a 3D digital model of each building when looking for housing. Such applications will make predictions of the critical parameters of environmental conditions that a particular house can withstand (earthquakes, tornadoes, landslides, etc.). Maintain companies will know the current conditions of buildings (existing and potential damage, date, and place of repair) and fire escape plan.

Moreover, digital twins can be useful during constructing houses, which helps the developer understand how safe their project will be. Such applications can prevent the collapse of buildings and use developers’ resources rationally.

Direct digital engagement

More touchless services are offered to end-users, resulting in a safer and healthier process. Traditional procedures, such as in-person home tours, would be automated due to direct digital interaction and disruptive technology in real estate. Buyers and real estate agents will no longer need to travel to every apartment or house to make a decision. Therefore, photos, digital brochures and virtual tours should be of high quality. Thus, people can see each element in detail.

But it’s much more important when, in applications, buyers can look at houses that are still under construction. At the same time, the developer posts photos every month about the state of the future building, increasing its reliability in the buyers’ eyes, thus making direct engagement one of the most popular digital trends in real estate.

Digital Transaction Management

That’s one of the important property technology trends, and we recommend paying attention to it. Buyers and agents value their time. Thus, you can create a solution to remove paperwork and enable signing documents electronically. Consequently, the parties to the transaction can be in different parts of the world and still access the contracts from any device.

Hyper-personalized messages

Among emerging technologies in real estate, this is another very interesting one. Datasets and predictive analytics allow agents to understand their customers better and group them with those who share similar lifestyle characteristics. As a result, agents can now build highly targeted messages and content that target particular audiences. They send emails to describe the housing, the benefits, and the documents needed to conclude a deal. What’s more, agents use Facebook and Instagram to conduct tours of apartments or houses. They can also create their own YouTube channel, where they talk about the latest news on the real estate market, share life hacks in this industry, and much more.

Lead generation and engagement automation

Conversation chatbots powered by artificial intelligence will initiate conversations and respond instantly to inquiries. It will assist agents in capturing, engaging, and qualifying online leads. These bots will also manage the initial stages of working with a potential customer using natural language processing. This technology helps agents be with their customers 24/7 and get new leads they connect with during business hours.

These trends in real estate have been very helpful throughout 2023 and in our view will continue to be relevant in 2023.

Essential Technology for Real Estate Agents

Some technological innovations are equally important to consumers and real estate professionals. Today, real estate agents begin to use specific technology for realtors designed to help them provide services to their clients. Here are some popular real estate agent technology tools that are in use today:

    • Multiple Listing Services (MLS)
    • In-app communication
    • Social media

Advertising automation

Ad campaigns for new listings can now be generated automatically by software systems. They can also display ads to the appropriate audiences and include real-time statistics such as views, clicks, and demographics. Real estate agents can understand which housing is best for sale or rent. And accordingly, they concentrate their efforts on the objects that bring them the most profit.

Robotic process automation

Real estate transactions can be challenging to handle, especially when it comes to communication. New technologies are being implemented to fix these issues that allow two groups of users to communicate online. Real-time chat, file sharing, and transaction tracking will also be possible. You can also develop an application where potential buyers can solve some of their small questions using a chatbot, significantly saving real estate agents’ time.

Or, you can create an AI-powered Virtual Assistant solution where a customer interacts with a robot that speaks like a human. This assistant can connect potential clients already with a real agent for deeper discussions of real estate issues. Sensely has done something similar in the healthcare industry (a virtual nurse app).

High-Tech Devices in the Real Estate Industry

The innovative use of new technology in real estate has been incorporating drones into showcasing and selling homes. Here are some of the advantages that drones offer real estate agents and those buying and selling homes:

    • Aerial photography
    • A better view of large properties
    • Additional interest in listings

The Future of the Real Estate Technology

Proptech is one of the young industries that is expected to grow dramatically in the upcoming years. As the world population is predicted to double by 2050, the demand for real estate will also double.

Anyway, as the world’s citizens become more comfortable with technology, the possibilities will continue to expand. Since everyone interacts with the real estate industry to some degree, it will impact the lives of countless individuals in the years to come.

 

Source: softerii.com ~ By: Andrii Horiachko ~ Images: softerii.com

 

Posted on

What to Expect From the Housing Market in the Second Half of 2023

What to Expect From the Housing Market in the Second Half of 2023

The outlook of the U.S. housing market in the second half of the year comes down to two familiar words: mortgage rates.

In the first half, high rates have kept housing in a state of suspended animation, as borrowing costs priced out prospective buyers, while homeowners with mortgage rates of 3% or less are unwilling to sell and face having to borrow for their next home at something closer to 7%.

KEY TAKEAWAYS

  • Experts expect mortgage rates to even out around 6% by the end of the year.
  • A new trend of domestic migration into Sun Belt cities is expected to continue.
  • New single family home building will make a dent in the need for housing inventory.

Despite high demand and home prices that are now starting to fall, the market is still relatively sluggish at a point in the year where it’s historically at a peak. While new construction is rising to meet some of the demand for single-family homes, it won’t be enough to meet the current market needs.

So what can homebuyers expect for the latter half of 2023? While the Federal Reserve is expected to continue raising rates through the end of the year, industry leaders foresee mortgage rates dropping and homebuying subsequently picking up as home prices fall and affordability improves.

Still, few expect a recovery that would allow the market to catch up with the pace of activity the U.S. saw in 2022.

Rates Will Determine Trajectory of Market

The Federal Reserve has signaled that more rate hikes may be in store before the end of the year. Once the rate hikes slow or stop, affordability concerns will slowly start to ease, according to Realtor Chief Economist Danielle Hale.

“It means affordability will start to improve, but not drastically,” Hale said.

Experts see mortgage rates headed on a more stable path. As inflation is expected to continue cooling, mortgage rates are expected to decline.  Another peak is anticipated for June, but Hale predicts it could be the final uptick before conditions begin to even out.

“We think that June will have been another temporary peak in mortgage rates and we’ll see them gradually ease from the 6.7% range they’ve been in recently, down to near 6% at the end of the year, likely hovering just above 6%,” Hale said in an email.

That evening out around 6% will help homebuyers who have been waiting on the sidelines to re-enter the market, according to National Association of Realtors Chief Economist Lawrence Yun, but it may not be enough to ease the lack of inventory just yet.

“That will help boost both housing demand and supply. For homeowners who are mishoused (i.e., new child in the family, new job in the other part of town, etc.) but have been unwilling to sell due to locked-in low rates, the cost of a move becomes less costly with falling mortgage rates,” Yun said in a statement provided to Investopedia.

Inventory Boost Expected to Help Meet High Demand

As mortgage rates cool, inventory is expected to tick up again throughout the latter half the year. Chronically low inventory of existing homes is dampening market conditions.  Analysts at Fannie Mae anticipate low inventory when it comes to existing homes through the end of the year.

“We continue to expect that existing home sales will decline modestly through the rest of the year amid a broader economic slowdown, ongoing affordability constraints, and limited inventories of homes available for sale,” Fannie Mae’s economic and strategic research group wrote online.1 “The ongoing lack of existing home inventory continues to provide a boost to the new home market, though, as May represented the largest single-month jump in single-family starts in percentage terms since June 2020.”

Compass CEO Robert Reffkin told CNBC he thinks when rates drop back down to around 5.5%, that’s when the inventory logjam should begin to clear.

“The issue we are seeing is that we need to have an unlock of inventory. It’s probably going to happen when mortgage rates get to 5%, 5.5% at a sustainable level. At that point, I would expect there to be a flood of inventory in the market, and it’ll feel like the pandemic craze all over again,” Reffkin said.2

Meanwhile, homebuilding is picking up to help fill inventory gaps across the country. May brought a significant uptick in the sale of new single-family homes, which rose 20% year-over-year and 12.2% from April.3

Home Prices Likely To Decline

Weak home prices are expected over the summer months, when they are typically at their peak, according to Realtor’s Hale.

“Specifically, while June is expected to be the seasonal peak for home prices in 2023, like it is most years, we won’t see as big of a month to month climb as we did in 2022, which will mean ongoing mild declines when we’re comparing home sale prices to one year ago,” Hale said.

The declines are expected to run through the early fall, depending on the Federal Reserve.

“By the time we get to the fourth quarter, mortgage rate and seasonal home price relief could be enough to stanch the declines” Hale added. “On net, we expect average home prices in 2023 to fall 0.6% compared to 2022.”

As supply boosts and mortgage rates and home prices fall, sales are expected to rise through the end of the year, according to NAR’s Yun.

“We’re likely approaching the bottom in home sales with steady improving home sales in the second half of the year and into 2024,” Yun said.

Source: investopedia.com ~ By: MEG CUNNINGHAM ~ Image: Canva Pro

Posted on

What Is a Home Appraisal and Who Pays for It?

What Is a Home Appraisal and Who Pays for It?

Get to know the basics on what a home appraisal is, when it takes place and how it factors into your ability to buy a home.

For homebuyers financing their purchase with a mortgage, a home appraisal is often a required step of the process in order to get an approved loan and close on the deal.

A home appraisal can be a valuable step outside of a pending real estate deal as well, either for a homeowner looking to determine the right asking price to put it on the market, or when looking to estimate the monetary value of a deceased loved one’s estate.

The best way to use an appraisal to your advantage is to understand what it is and how it’s used by others in the homebuying or selling process. Here’s what you need to know:

    • What is a home appraisal?
    • What does a home appraiser look for?
    • How much does a home appraisal cost?
    • Who pays for a home appraisal?
    • Who pays for a home appraisal if a deal falls through?
    • How to find an appraiser.

A home appraisal is an estimate of the market value of a residential property at a specific point in time, completed by a professional.

Once a home is under contract between the buyer and seller, a lender will typically require an appraisal during the underwriting process to determine whether the agreed-upon sale price of the home reflects the market value of the property.

“The appraisal is really used for the lender to determine the value of the collateral,” says Brian Smith, regional manager, mortgage adviser and executive coach for Union Home Mortgage in Sandusky, Ohio. A lender won’t want to approve a mortgage for $350,000 if the home is only appraised for $300,000, for example.

What Happens if a House Doesn’t Appraise for its Sales Price?

If an appraiser reports the valuation as lower than the agreed-upon sale price, the lender will likely be unwilling to approve a mortgage above the appraised price. If a home does not appraise for its sales price, you have what is known as an appraisal gap. An appraisal gap is the difference between the sticker price and the appraisal – in Smith’s example, that gap between $300,000 and $350,000 would be $50,000.

To fix the appraisal gap, the buyer can come up with the cash to make the difference, or ask the seller to agree to the lower price – if the seller won’t budge on the price and the buyer doesn’t have enough cash, the deal falls apart.

Who Hires the Appraiser?

While there are many situations when an individual can hire a home appraiser for a private appraisal, unrelated to a loan application, lenders often have a list or network of approved local appraisers they will accept valuations from, depending on the location of the property in question.

“What you want when you get a home appraisal is you want a very unbiased opinion,” says Rodman Schley, a licensed appraiser in Denver and former national president of the Appraisal Institute, an international association for professional appraisers. Schley explains that lenders will often have an employee to liaise between the appraiser and loan underwriter to avoid any possible influence on the valuation.

A home appraisal can involve a few factors, including sales comparisons of similar properties in the area, how condition or improvements can add to or detract from value as it compares to those other properties and the potential income for a piece of real estate, if it’s intended to be used as a rental or other type of income-producing property.

An appraiser will take the details of the home, including “the age of the house, size of the entire property, number of bedrooms, number of bathrooms, how big the yard is,” Smith says. “They’re looking for homes that are recently sold that are closest in proximity to that house.”

Schley notes an appraiser is typically looking for three to four deals to compare. The closer in location and more recent the comparable sales are, the better. But when a property is unique for the area or few homes have sold recently, “you might have to expand your location parameters to find a similar home throughout a wider area,” Schley says.

When possible, an appraiser will also visit the property to examine the home’s condition and see any features that would affect the appraised value. “The preference is always to go in and see the improvements,” Schley says.

Appraisal Requirements for Government-Backed Mortgages

If you’re not getting a conventional mortgage and are instead opting for something like a VA or FHA loan, for example, the appraisal has additional steps the government agencies require.

The VA, for example, has minimum property requirements, including working electricity, functional heat and air, an adequate roof and no lead paint or evidence of mold, termites or dry rot, among others. While a VA appraisal may involve more in-depth information about the condition of the property than an appraisal for a conventional loan, “it’s not as granular as a home inspection,” says Chris Birk, vice president of mortgage insight and director of education for lender Veterans United and author of “The Book on VA Loans.”

The average single-family home appraisal costs $353, according to HomeAdvisor. Costs can vary depending on the individual appraisal company, location of the property, size and condition of the home and required details either by you or the lender. Home services information company Fixr calculates a similar national average price range for a home appraisal, $375-$450, though it notes larger houses with lots of updates can drive the total price up as high as $1,200.

Traditionally, the buyer pays for a home appraisal because it is required by a lender. When a private appraisal is ordered by a homeowner or executor of an estate, the individual who orders the appraisal will pay for it.

While an appraisal fee may be included in a list of closing costs, or one-time fees due at closing, it’s likely the appraisal fee will be due ahead of closing. “(The lender) might include the appraisal fee upfront, because that is a cost incurred prior to closing,” Schley says.

If your real estate deal falls through after an appraisal has taken place, consider it a sunk cost. “The appraiser completed a service, he got paid for it – unfortunately the money is spent,” Smith says.

In the case of a VA appraisal where the minimum property requirements reveal issues like an HVAC system that needs repair or a crawl space that needs venting, the VA requires the issue be dealt with in order for the loan to be approved. Often, that means the seller is responsible for covering the repairs, “but the veteran themselves can look at paying for repairs if that’s what it takes to keep the deal going,” Birk says.

When your lender requires an appraisal, the appraiser will be contacted by the lender directly, and in the case of specialty appraisal like that for the VA, the government agency handles initiating the appraisal. But if you’re looking to get a private appraisal done for another reason, you’ll want to find one local to you.

A simple online search for home appraisers in your area may help you find local companies. The Appraisal Institute also has a search feature to help you find licensed appraisers local to you that are a part of the organization. Regardless of where you’re searching, Schley recommends looking for an appraiser with an SRA designation, which means he or she is trained in appraising residential properties.

Source: realestate.usnews.com ~ By: Devon Thorsby ~ Image: Canva Pro

Posted on

How to Decide Between Multiple Offers on Your Home

Multiple Offers on Your Home

You’ve worked hard to get your home to market, and you’re finally reaping the reward of all that effort. But instead of just a single, great offer, you’ve got several to choose between. This is a common situation in seller’s markets across the country, and one you, too, may be facing. How do you pick the right offer out of a stack of contenders?

  • What Situations Prompt Multiple Offers?

With only 2.1 months of existing housing supply available nationwide, according to the U.S. News Housing Market Index, there simply aren’t enough good homes for buyers to not have to compete with one another. A balanced market, where there is considered to be an equal number of buyers and sellers, has around six months of supply. Such low inventory creates the ideal conditions for sellers to receive multiple offers. Of course, some areas are going to be much more competitive than others, but the circumstances that generate multiple offer situations are pretty consistent across the country.

Still, high mortgage rates are keeping some potential buyers on the sidelines. In May 2023, on average, the number of homes sold was down 16.8% year over year, according to Redfin, with 493,5123 homes sold in May this year, down from the 592,347 homes sold in May last year.

Mortgage rates ticked up slightly as of June 15, with the average 30-year fixed rate increasing to 7.14% from 7.11% the week before. Most fixed and adjustable rates crept higher or stayed about the same as a week ago. Mortgage interest rates are widely expected to fall through 2023 but have remained elevated during the spring homebuying season.

“There are various circumstances that are more likely to generate this situation,” says Adie Kriegstein, real estate agent at Compass Real Estate in New York City. “High demand and low inventory is the number one way this occurs. When there are more buyers than homes available, competition increases. Homes that are priced competitively, in desirable locations and in good condition are more likely to attract multiple offers. Also, a unique or rare home can also cause more interest.”

Should You Consider a Letter From the Potential Buyer?

It’s become a bit of a trend that buyers submit letters to the sellers of homes they believe will have multiple offers to try to sway the seller to their side. Although the idea is sweet on the surface, it’s not a great way to help you eliminate offers because you can easily run afoul of housing discrimination laws when selecting a buyer.

“I strongly discourage these, and if a buyer insists, I explain that they really can’t tell (the seller) anything about themselves that reveals traits that violate fair housing laws, which means there is not much to them at that point,” says Christa Ross, real estate agent at RE/MAX Select Realty in Pittsburgh. “On my listings, I specifically ask that (letters) not be included with an offer. Letters seem like something that the internet recommends to buyers, which is a terrible idea in practice.”

What Do Sellers Do With Multiple Offers?

If you’re facing down a multiple offer situation, don’t panic. Your agent will have the experience to help you through the process. Depending on your state, you may have the options to accept the best offer, make a counteroffer on the offer you believe is the closest to the terms you prefer, or make a counteroffer on multiple offers you’ve received (this is not possible in all states, ask your agent if this is something you’re considering).

If you’re in a state where multiple counteroffers are possible, you may receive multiple offers back again, or even have multiple acceptances. You’ll have to decide at that point which offer is right for you. Once you’ve committed to a buyer, that’s it, you’re ready to start your real estate transaction and sell your home.

Does the Highest Offer Always Win?

Real estate contracts have a lot of moving parts, and much of the time, you’ll face juggling the merits of different offers with varying additional conditions from your potential buyers. These can include anything from financing contingencies to the date when the buyer might want to close the deal.

“Conditions in a housing contract can be all over the map sometimes, but ones that you can usually expect to see are: inspection periods, timeline of the withdrawal to get the earnest deposit, who is paying for a home warranty, who is paying for the appraisal, and close of escrow date,” says Bryson Taggart, Opendoor agent in Phoenix. “While conditions aren’t always the same, they all do have to be figured out and agreed upon to make the contract valid.”

Everyone has heard the saying “cash is king,” but it’s not always true in a real estate transaction. Even though a cash transaction might cut out a lot of potential contingencies, it isn’t automatically better than a contract with some basic, reasonable conditions from the buyer.

“A cash offer may not always be the best, as occasionally a cash offer will come in lower than the homeowners want,” says Maureen McDermut, real estate agent with Sotheby’s International in Montecito, California. “Also, the seller’s schedule may dictate which offers they consider. If they are on a tight timetable, then a cash offer might be the best option, but if they have time, they may end up with a better offer that is financed via conventional mortgage or FHA or VA loans.”

Elements of a Great Offer

Real estate professionals agree that the best offer is the one that’s best for you, but it’s difficult to apply advice if you don’t have much experience selling homes. So, before you even put your house on the market, imagine what an ideal contract might look like for you. For example, do you need extra time to pack and move? A later closing date might be important in that case. Or, if you’re selling a home you’ve inherited and don’t know much about, you might not want to be on the hook for repairs.

“Priority should always be given to the offer that meets the seller’s needs and wants, and also those that aren’t going to fall apart through the process,” says McDermut. “If (you have) a need to move quickly, cash offers will be those that are prioritized. However, there may be stronger offers, so if you are seeking the best offer in terms of the amount offered, then a conventional mortgage offer might be considered above a cash offer that is at or below asking price.”

If you’re not in a hurry to sell, or don’t need someone who will take your property as it sits, meaning you can accept a financed offer, your ultimate decision comes down to how much money a contract will bring to you and whether or not the transaction is likely to close at all. Remember, in a multiple offer situation, you generally choose the contract that’s in front of you, there’s rarely negotiation that happens like with a solitary offer.

“A key factor in determining between multiple offers is net cash: If net cash is similar, which offer brings the least amount of risk to the transaction?” says Taggart.

Should You Consider a Contingency Contract?

The likelihood a contract closes is a huge consideration, and the bigger the contingencies, the greater the risk to the contract. You may find yourself faced with a contract that’s great on the surface, but with a buyer who needs to sell their home before they can buy yours. While this can work out, you’re shouldering an increased risk.

“Accepting a contingent contract comes with risks,” says Kriegstein. “This means that the sale of one’s home becomes dependent on the sale of another property, which may take longer than expected or fall through entirely.”

This can delay the sale and potentially cause the seller to miss out on other potential buyers who are not contingent on the sale of another property. “Keep in mind once you have a signed contract, you have to change the status of your home online so buyers would be unlikely to see your home as an option for them, since it won’t be listed as active,” Kriegstein says.

If your market is active and houses are moving fast, it might be worth it to accept a contract that is contingent on another home selling, but you’ll want to make sure the buyer is sweetening the pot to make your risk worthwhile.

“A home sale contingency tends to get rejected pretty quickly unless there is something else about the offer that makes it more attractive,” says Ross.  “The price will matter. If the seller is making more money on the house, they may be more willing to take on the risk with the contingencies.”

Having multiple offers on your home can be a dream come true, if most of them are pretty good. Choosing the right offer means you’ll be able to move on to the next story in your life with fewer headaches and more cash in your pocket.

Source: realestate.usnews.com ~ By Kristi Waterworth ~ Image: Canva Pro

Posted on

Making an Offer On a New Home: Real Tips From Real Estate Agents

Offer accepted, sale pending

Think of making an offer on a home as setting the roller coaster in motion: You might have sharp drops in emotion and slow, trudging climbs to success, but the ride won’t end until the car slows down and the safety bar is lifted. (OK, this metaphor is now officially over.)

But to begin the process, you need to know how to make the right offer, an offer that will end with your receiving the keys to your new house. So check out some of these agent-approved negotiation tactics to make the offer process a whole lot less bumpy.

Pick the right price

Just because a home is listed for $400,000, it doesn’t mean the home is actually worth that much.

It all depends on the current conditions of the local market. If you’re buying in a hot market—especially places with low inventories—offering substantially below asking price is “probably wasting your time,” says Mindy Jensen, a Realtor® with Equity Colorado. But if a home has been sitting unsold for a few months, the sellers may not expect full price. Your best bet at measuring prices in your target area are comps, or what similarly sized homes nearby have sold for recently.

Work with your real estate agent to determine a fair offer. They will have the best read on pricing and marketplace dynamics, and can walk through the local comps with you. Your agent can also help you determine what a fair discount might be without offending the seller. While specific numbers will depend on your market, a rule of thumb is that it is unrealistic to go below 5% of a home’s list price unless it’s been sitting on the market for months. Which leads us to…

Lowball with care

Sometimes a home is priced just too high—no ifs, ands, or buts—or perhaps it’s been sitting unsold for half a year. In those situations, a lowball offer well under asking price might be the right strategy to get the home you love for a bargain price. However, this is a tool to be deployed rarely and with great care—especially if the current owners have lived there for many years.

“Longtime owners usually have tons of pride in their home, and want the new owners to love it like they do,” says Jodie Burns, a Realtor with McEnearney Associates. “Buyers who lowball run a risk of angering the seller and losing the house. Ideally, you’re looking for a closing where both sides feel like they got a fair deal.”

So don’t lowball unless both you and your agent agree that it’s the best tactic to sway a seller. It can be perilous, so it’s best to keep this strategy on the sidelines unless you’re fairly certain it won’t cause a seller to walk away entirely.

Also, think about the big picture. Don’t let a (relatively) small amount come between you and a house you adore. “If a couple of thousand dollars is going to keep them out of a home they love, I remind buyers how little that amount translates into a monthly payment,” Burns says.

Consider contingencies

Along with the price, you’ll also want to factor contingencies into your contract. The more hurdles in the way of the sale, the more likely one of them will trip you up.

For example, do you need to sell your own home first, which requires a selling contingency? Work with your agent to decide what you’ll ask for off the bat—and consider dropping some requests if the market is hot.

As Jensen explains, “Your chances are best if you ask for the fewest things.”

That said, don’t put yourself at risk to get the home you love. Some aggressive buyers might advocate dropping the home inspection clause to sweeten an offer, but that can be dangerous, especially in older homes.

Keep your emotions in check

Yes, the search seems to have dragged on forever; yes, this home has everything you need. But keep your wits about you.

“Don’t fall in love,” Jensen says. “Falling in head over heels with a home can make you do ridiculous things, like overpay.”

Plus sometimes, even an “excellent offer may not be accepted,” says Vici Boguess, a Realtor with the Burke Boguess Zimmerman Group in Alexandria, VA. Don’t assume a rejection is an insult—the sellers might just dislike some of your contingencies or are holding out for a better offer. So, don’t assume it’s over until it’s over.

Source: realtor.com  ~ By Jamie Wiebe ~ Image: Canva Pro