Category: Real Estate News & Tips

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The Guide to a Real Estate Bidding War

Real Estate Bidding

Many real estate markets across the country right now are marked by low inventory. This is due in large part to higher interest rates, making new mortgages more expensive and hindering construction starts. Homeowners who might like to move (and thus put their home on the market) are not willing to give up a lower interest rate on their mortgage to take on a notably higher rate for a mortgage on the property they might buy. Many people are feeling locked in; there are fewer sellers, and thus, inventory is significantly reduced.

In a low inventory environment, even when fewer active buyers are pounding the pavement, it’s common for a well-priced and well-presented property to attract attention and possibly receive multiple bids. So buyers today should be prepared for competition when they’re ready to make an offer on a well-priced property. And if sellers have truly priced their property in line with today’s nuanced market conditions, they should prepare for the possibility of multiple bids. Most sellers hope for a bidding war when they list, but a competitive bidding situation can fall apart quickly if not handled properly by all parties.

Will We See Bidding Wars This Spring?

Each year, spring brings new market activity, even in a high interest rate environment. “With seasonal demand starting to tick up, we are seeing more bidding wars than expected, given the generally low volume of the market,” says John Walkup, co-founder of Urban Digs, a New York City data and analytics company that tracks Manhattan and Brooklyn real estate. “For many people, there is only so long you can postpone a move, so as those forces run into continual tight supply, you’re going to see bidding wars spring up where, on paper, at least, there should be easy deals for buyers.”

With the spring market almost upon us and interest rates ticking down, it’s likely that many buyers will come off the sidelines, adding to the competition in this low inventory market. “It’s a question of alternatives,” says Walkup. “In a ‘normal’ market, a buyer might be able to find an alternative home within a few weeks as more listings come on. In a tight supply market, that timeline could be extended to months, so a ‘finders keepers’ mindset takes over because the opportunity cost of losing a deal is much higher. That focuses conversations on the cost of not bidding aggressively when the time comes. In a nutshell, agents need to help their buyers understand that lowball bids will likely fail in today’s lower inventory environment.”

If a buyer loves a property and wants to beat out the competition, there are certain strategies they may employ. Additionally, and perhaps less obviously, the seller and listing agent need to handle the bidding war properly, or they run the risk of upsetting all of their suitors and ending up with nothing. A badly managed bidding war can end in disappointment for the seller if the potential buyers feel misled or used – after all, no one wants their offer shopped around.

If you are in the market right now, here are a few evergreen best practices for buyers and for sellers to navigate a bidding war, no matter the market conditions. “Four walls and a roof don’t change,” says Gail Roberts, a realtor with Coldwell Banker in Cambridge, Massachusetts. “The rules of the game haven’t changed, even if market conditions have. When properties are priced well and show well, there’s a good chance they will get multiple bids. The market will always tell us what a property is worth.”

How to Navigate a Bidding War as a Buyer

For buyers, a proper offer on a home includes a strategic number (offer price), a proposed closing date, and financing terms. A buyer should arrive at each of these three terms based on the comps, as well as timing and financial needs. Arming yourself with current and relevant data and information will help you approach the process with confidence and efficiency, which can work to your advantage. And when it’s time to make an offer, being flexible and friendly are two of the best ways to win over the seller and/or the listing agent.

Get smart. The buyer or the buyer’s agent should schmooze with the listing agent and get some intel. Who are the sellers and what are the factors that will influence their decision? Is the seller an investor looking to cash out? An older couple selling their long-held nest egg? If the seller is moving, do they know where yet? And have they emotionally moved on to this new property and chapter of life? If the seller has flexibility on a closing date versus a need to sell quickly, this timeline may greatly influence how they assess offers. And who are the other buyers? Are the other offers all cash? Are there contingencies you can waive to strengthen your position in comparison with the other bidders? Information gathered about the seller and about competition helps a buyer craft a more compelling offer.

Jump in early and come prepared. If you love a property, make an offer. That offer should include not only your bid but also accompanying documentation like a loan preapproval letter or proof of funds. This shows that you’re serious, and should give the sellers confidence that your financing won’t fall through. Start the negotiation quickly, before another shark enters the water. Being first in the swimming pool has its advantages, as many sellers feel a sense of loyalty to the first bidder. Even if someone else comes along, a smart listing agent will circle back to the first buyers who submitted an offer to see if they can improve their bid. If you start a negotiation before another buyer, you won’t be negotiating against the competition (yet).

If you can, drop contingencies and be flexible. “For a buyer, the cleaner your offer, the better,” says Roberts. “This includes a certain amount of flexibility with dates and terms, especially in a competitive market.”

Sometimes, the best offer isn’t the highest. If two offers come in and the higher bid comes with many contingencies (financing, appraisal, inspection contingencies, etc.), the seller may go with the lower number. Talking with the listing agent can give you some insight as to which contingencies can be dropped, and a window into what the competition’s offer comes with.

Decide beforehand when you’re OK walking away. If you’ve done your homework, then you know the comps and you have a good idea of the subject property’s value. Are the sellers being overly ambitious with their asking price? Or did they price it tightly, so if you bid above the asking price you’re still in the ballpark of market value? More importantly, how much can you afford? At a certain number, the property won’t be attractive anymore, so identify that number beforehand and be ready to walk away without regret. Stay cool-headed and don’t let your emotions get the best of you – buying a home is an emotional process, so make sure you understand the numbers and the math beforehand.

Take note also: “How bad will you feel if someone else gets it for just a small amount more than your bid?” asks Roberts. “A good agent helps a buyer understand the market, and can educate you to say ‘this is the value for me’ and to not regret losing a property.”

Make it personal. It may sound silly, but a flowery personalized letter to the sellers along with your offer can add a human touch and differentiate you from the competition. A warm and fuzzy letter may appeal to the sellers, making them feel good about choosing you over the other bidders. Perhaps you remind them of themselves 20 years ago, passing along a dream home from one family to the next. Flattery can go a long way. That said, “your offer should speak for itself,” Roberts says.

Strategize. One tool that buyers can call upon in a bidding war is something called an escalation clause. An escalation clause is “a tool to stay above other offers coming in, while not potentially going over budget, or wildly outbidding any other offers,” says Kate Jay Zweifler, a realtor with Berkshire Hathaway HomeServices Fox & Roach in Philadelphia. “An escalation clause is an addendum to an agreement of sale that will automatically increase the amount of the purchase price above any other offers in competition, up to a certain amount set by the buyer.”

“However,” says Zweifler, “this is a strategy that comes with its own risks. In a bidding war, sellers are looking for a decisive and strong best and final offer, and they don’t want to drag the process out in small increments. And if there’s emotion wrapped up in the sale, it can be tricky to use an escalation clause. In those cases, sellers want to feel that the buyer really wants the home and isn’t playing games.”

End with an odd number. If your offer is almost identical to another offer, add a few dollars to your offer to tip you over the edge.

How to Navigate a Bidding War as a Seller

Pricing a home correctly is the first step in laying the groundwork for a bidding war. “To get the right buyers, you need to nail the right asking price,” says Roberts. Pricing too ambitiously is often a turnoff for many buyers, but “pricing too low doesn’t help buyers understand how high they need to go. Price with energy that makes buyers say: ‘This seems fair. I don’t want to lose out.’ ”

Roberts adds: “I want to hear buyers say to their broker: ‘How high do you think we have to go?’ I don’t want to hear them say: ‘What do you think they’ll take?’ or ‘What’s it really worth?’ I don’t want them to question the value.”

For sellers, properly handling this exciting but likely stressful process is paramount and an experienced real estate agent should be able to guide you. Above all, it is important to manage the offers and buyers so nobody feels misled. Sellers and their agents must keep in mind that many buyers who enter a bidding war might have already lost out on another property, so their emotions may be running high. This is especially true when inventory is low. You should be timely in your response to each offer, and also do the following:

Get smart: Who are the prospective purchasers? Sellers and their agents should gather as much information as possible about each buyer. Are they financing or all cash, and if they’re taking out mortgages, have they submitted preapproval letters from reputable financial institutions to accompany their bids? What is the debt-to-income ratio for each party? Are these buyers flexible on the closing date? All of this is relevant in helping to choose not just the right buyer from the pack, but also the best backup offer just in case the first deal falls through. Sometimes the winning bidder gets cold feet, so keep those backups in play.

Maintain a schedule and deadlines. In a multiple bid situation, it’s important to set a schedule and keep to it. Determine the deadline for receiving new offers, and clearly communicate this to all interested parties. If you plan to go an additional round with your potential buyers, often referred to as “best and final” offers, set the deadline and be disciplined about this. Once the initial offers are submitted, a “best and final” round allows the buyers to improve their offers. If the market is very active, it makes sense to end the bidding process and make a deal before new inventory comes onto the market. In certain particularly active markets, new properties may be listed on Thursdays, with open houses over the weekend and offers submitted by Sunday night or Monday. If this is the case, for example, “wrap it up before new stuff comes onto the market, ideally by Tuesday,” says Roberts.

During the process, stay in close communication with all bidders. “We need to get back to our prospective buyers in a timely fashion,” Roberts says. “Sellers should not be unreachable during this process, even if they’re in another time zone.”

Know that the best offer might not be the highest. Even if one party is offering you more money, it might not be the best offer. Money is money, but a cash offer is generally stronger than an offer that comes with financing. An offer that includes a mortgage will take longer to close than a cash deal, and if the buyers’ financial profile is at all questionable (for example, how is their credit?) there’s a chance they might not secure their financing, especially if they are heavily invested in unstable assets. And do these offers come with contingencies? Offers that have an inspection contingency waived might be particularly attractive, for example.

If financing is involved, the seller must understand the buyer’s financial profile and their likely ability to secure a loan. But if the purchase requires further approval, perhaps from a homeowners association or from a co-op or condo board, then vetting each buyer is even more relevant and imperative. It’s possible that the second-highest bidder might have a more straightforward and simple financial profile, and thus be more of a slam dunk to make it to the closing table. For example, if the highest bidder is taking out a large mortgage and presents a financial profile that includes student debt, outstanding child support payments or a lackluster credit score, it might be wiser to accept a lower bid that might be all cash from a buyer with no debt.

Leave the door open with your backups. In a competitive bidding situation, buyers can become overly enthusiastic, get caught up in the moment and bid above their comfort level or well above their perceived value of the property. There is always a good chance that the winning bidder may walk away for any number of reasons, including buyer’s remorse or a reassessment of value after a few nights of sleep while the contract is being drawn up. It is prudent to stay in touch with the backup bids and keep them in play, if possible, to be called upon if needed.

Even if the market is slow, in low inventory environments bidding wars should be expected for well-priced properties. The New York City market, for example, seems sluggish, but the data tells a different story. “About 20% of deals are trading at or above the asking price,” says Walkup. “In a true buyer’s market, this would be lower. Historically, discounts for deals signed within 30 days remain very low, including for Q4 2023. This is a sign that the market remains robust and transactional.”

Of course bidding wars are more common under certain housing market conditions than others, but a great property that is priced well will almost always get the attention it deserves. And for buyers, it’s important to note that just because there isn’t a bidding war and you’re the only interested party, it doesn’t mean it’s not a great home. If it’s meant to be, well, it’s meant to be.

Source: realestate.usnews.com ~ By: Steven Gottlieb ~ Image: Canva Pro

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Down Payment on a House: How Much Do You Really Need?

Down Payment on a House

Your minimum down payment depends on the type of mortgage, the lender and your finances.

Coming up with enough cash for a down payment to buy a house can be the single biggest roadblock for prospective home buyers. But how much of a down payment do you really need? That depends on the type of loan, your lender and your priorities.

What is a down payment?

A down payment is the cash you pay upfront to make a large purchase, such as a home. You use a loan to pay the rest of the purchase price over time. Down payments are usually shown as a percentage of the price. A 10% down payment on a $350,000 home would be $35,000.

When applying for a mortgage to buy a house, the down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The mortgage lender provides the rest of the money to buy the property.

Lenders require a down payment for most mortgages. However, some types of loans backed by the federal government may not require down payments. (More on that below.)

Do you need to put 20% down on a house?

You may have heard that you need to make a 20% down payment on a home, but that’s really just the threshold many lenders use for requiring mortgage insurance on a conventional loan. You don’t have to make a 20% down payment to buy a house.

In 2023, the typical down payment for first-time home buyers was 8%, according to the National Association of Realtors. The typical down payment was 19% for repeat buyers.

Minimum down payment requirements

The minimum down payment required for a house varies depending on the type of mortgage you plan to apply for to purchase a home.

Loan type

Minimum down payment required

Conventional

3%

FHA

3.5% (with a credit score of at least 580)

10% (with a credit score of 500-579)

VA

0%

USDA

0%

Jumbo

5-10%

Second homes or investment properties

Varies

VA and USDA loans: 0% down payment

Guaranteed by the U.S. Department of Veterans Affairs, VA loans usually do not require a down payment. VA loans are for current and veteran military service members and eligible surviving spouses.

USDA loans, backed by the U.S. Department of Agriculture’s Rural Development program, also have no down payment requirement. USDA loans are for rural and suburban home buyers who meet the program’s income limits and other requirements.

Conventional mortgages: As low as 3% down payment

Some conventional mortgages, such as HomeReady and Home Possible, require as little as 3% down, provided you meet certain income limits. Conventional loans are not backed by the government, but they follow the down payment guidelines set by the government-sponsored enterprises — or GSEs — Fannie Mae and Freddie Mac.

FHA loans: As low as 3.5% down payment

FHA loans, which are backed by the Federal Housing Administration, require as little as 3.5% down if you have a credit score that’s at least 580. If you have a credit score that’s between 500 and 579, FHA loans require a 10% down payment.

Jumbo loans: As low as 5%-10% down payment (varies)

Jumbo loans are home loans that fall outside of the Federal Housing Finance Agency’s conforming loan limits. Because these outsized loans can’t be guaranteed by the GSEs, lenders tend to ask for higher down payments to offset some of the risk.

With low- or no-down-payment loans, you pay for the guarantee through fees or mortgage insurance, depending on the program.

Benefits of a larger down payment

Saving enough money for a substantial down payment takes time, so a zero- or low-down-payment requirement may speed up your ability to buy a home. But making a larger down payment has advantages that include:

  • A better mortgage interest rate. Lenders may shave a few fractions of a percentage point off your interest rate if you make a larger down payment. When you borrow less of the home’s price, there’s less risk for lenders, and they tend to reward this with more favorable terms.

  • More equity in your home right away. Your home equity is your home’s value minus the amount you owe on your mortgage. In other words, it’s the extent to which your home is an asset rather than a debt. More equity means more wealth.

  • A lower monthly mortgage payment. Borrowing less of your home’s price lowers your principal, which also means you’ll pay less interest over the life of the loan.

  • Lower upfront and ongoing fees. Low- or no-down-payment government-backed mortgage programs reduce lenders’ risk by guaranteeing a portion of the loans. If a borrower defaults on one of these loans, the associated government agency will reimburse the lender. To offset some of that cost, these loans can come with significant one-time costs, like the VA funding fee, or added ongoing costs like FHA mortgage insurance.

How much should you put down on a house?

The right down payment for you depends on your goals and financial situation. While there are plenty of pluses with a larger down payment, putting down too much could leave you strapped for cash after you move in.

Conventional mortgages usually require you to pay for private mortgage insurance if you put down less than 20%. Once you start making mortgage payments, you can ask to cancel PMI after you have over 20% equity in your home.

Try out some different scenarios to help you better understand how changing the size of your down payment can affect other costs.

Other considerations to determine your down payment

Your mortgage payment is just one piece of your overall household budget. With that in mind, here are some other factors to consider when planning for the size of your down payment:

  • Keep some savings in the bank. Avoid using your entire savings for a down payment. You could end up “house poor,” spending too much of your income servicing your mortgage or depleting your emergency fund.

  • Don’t forget about closing costs. It’s also important to make sure you have enough cash on hand to cover closing costs, which are usually 2%-6% of the home’s purchase price.

  • Plan for the ongoing costs of homeownership. Leaving a cushion for home maintenance and repairs, as well as potential emergencies, is a good idea even if you’re purchasing a move-in-ready home. In all, you want to be sure your down payment leaves you with enough room to cover all the costs of buying a house — and furnishing it once you’ve moved in.

  • Shop around. Do your research and compare mortgage rates from three to five lenders. Don’t forget to look into programs offered by lenders and consider down payment assistance options, especially if you’re a first-time home buyer.

    Source: nerdwallet.com ~ By: Kate Wood ~ Image: Canva Pro

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Insider Insights: 12 Housing Market Experts Highlight Key Strategies For Home-Buying Success In 2024

Strategies For Home-Buying Success

Aspiring homeowners experienced a lot of challenges in 2023. Elevated interest rates, eye-watering home prices, and abysmal housing stock resulted in inflated costs that stymied buyers. While experts say the housing market should see some easing in 2024, don’t expect much.

If you plan to dive into the housing market in 2024, you’ll need to plan strategically to outpace the competition and attain a home that meets your preferences and goals.

Forbes Advisor spoke with 12 top industry experts to weigh in on what hopeful buyers should do as they pursue homeownership in 2024.

1. Watch Interest Rate Trends To Get the Best Mortgage Rate in 2024

Mortgage rates are steadily declining after flirting with 8% in late October. Most housing market experts agree that rates will trend down further in 2024 but remain elevated.

Nonetheless, rates can jump around quickly, and even a fraction of a percentage point change can impact the cost of a monthly mortgage payment.

Given this, Michael Merritt, senior vice president of mortgage servicing at BOK Financial, advises buyers to monitor the news and the Federal Reserve’s interest rate decisions to stay on top of trends.

Merritt explains that keeping an eye on the Fed’s monetary policy moves can give borrowers a heads-up for where mortgage rates will go in 2024, as the central bank’s policy rate actions tend to impact mortgage rate movements indirectly.

“It’s hard to forecast rates in a volatile market, but most indicators predict lower rates by the end of 2024,” Merritt says.

Pro Tip
Bonus Advice: “The first step in getting the best mortgage is understanding what you want to achieve. The best mortgage product might be different for a purchase than a refinance or for a home you plan to own five years versus 10 years.” — Michael Merritt, senior vice president of mortgage servicing at BOK Financial

2. Attend Local Real Estate Investor Meetings

The housing market remains competitive mostly due to historically low inventory. However, house hunters can stay ahead by using less conventional methods to track down available homes—especially those that buyers won’t find in traditional listings.

Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm, suggests attending real estate investor meetings in areas where you’re interested in buying.

“Almost every city or county across the country has investor groups made up of people who are more or less your neighbors,” Sharga says. “A lot of these investors fix and flip properties and might be willing to give a buyer a little bit of a break if they can save the investor the time and money involved in marketing the property.”

Pro Tip
Bonus Advice: “Focus on homeowners who need to sell, not on homeowners who might want to sell. About 70% of homeowners with a mortgage have an interest rate of 4% or lower and just aren’t going to put their home up for sale unless they have to.” — Rick Sharga, founder and CEO of CJ Patrick Company

3. Investigate Expired or Withdrawn House Listings

Blake Blahut, a broker associate and real estate agent at Realty ONE Group Inspiration in Florida, offers a unique tactic to uncover unidentified for-sale homes—asking real estate agents to scour local neighborhoods for expired or withdrawn listings.

“They can also do mailers or door-knocking in those same areas in the hope of finding someone that is looking to sell,” Blahut says. “In a market with unique challenges, it’ll sometimes require a unique method to overcome them.”

Pro Tip
Bonus Advice: “Be patient and start your search early. … [B]eginning your search at least 75 to 90 days before your lease ends or you need to move would take a lot of unnecessary pressure off [you].” — Blake Blahut, broker associate and real estate agent at Realty ONE Group Inspiration

4. Consider an Adjustable-Rate Mortgage (ARM)

Hybrid ARMs are mortgages that start with a low fixed interest rate and change to a variable rate at the end of the fixed term. For example, a 5/1 ARM has a low fixed rate for five years, and then the rate resets once a year until the end of the loan term. Each rate adjustment could move higher or lower.

While ARMs gained a bad reputation due to their role in the 2008 housing crisis, they’re considered less risky now due to higher lending standards. Mark Fleming, chief economist at First American Financial Corporation, suggests an ARM can be a good fit for some people.

“While we are all familiar with the 30-year fixed-rate mortgage, remember that we rarely live in one home for 30 years,” Fleming says. “Why pay for the privilege of fixing the rate for 30 years when you’re likely not going to use it? And you get an affordability boost now when you need it.”

Pro Tip
Bonus Advice: “They say to date the rate and marry the house because you can refinance later. But beware, that [assumes] the rate will be lower in the future and there are costs associated with refinancing—it’s not free.” — Mark Fleming, chief economist at First American Financial Corporation

5. Don’t Wait Until Spring to House Hunt

Spring can be a busy time for the housing market, as listings often climb when the weather warms up.

Louis Gordon, a broker at Century 21 Revolution in Massachusetts, says to get out there early in the year before the temperature—and home prices—start rising.

“The best deals are usually found in winter when inventory is limited and sellers are more desperate to get a deal done,” Gordon says. While on the hunt, Gordon advises you to keep your eyes open for homes already a few weeks on the market and need a little TLC.

“Those sellers are more willing to negotiate on price and terms, like offering a rate buydown,” he says.

Pro Tip
Bonus Advice: “[D]on’t wait until the rates come down. If the rates go back into the 6’s or 5’s, the prices will shoot up like they did in 2021 and early 2022.” — Louis Gordon, a broker at Century 21 Revolution

6. Review Your ‘Must-Haves’ Before Home Shopping

As you embark on your house-hunting journey, Bob Driscoll, senior vice president and director of residential lending at Rockland Trust Bank, advises buyers first to take stock of the home features most essential to them.

“Not every house will become a home to everyone—something that one person may consider a need, like a yard for a pet, could be a want for someone else.”

Though you understandably want to keep costs down, Driscoll says buying a home because it’s affordable is not the best approach.

“For example, if hosting large gatherings is a priority for a certain home buyer, they shouldn’t let the frustrating market pressure them into settling for a home without the space needed to accommodate those activities,” Driscoll says.

Ultimately, homeownership is a major purchase that is as much a financial investment as it is about investing in a home that aligns with your priorities and values.

Pro Tip
Bonus Advice: “Instead of focusing on external factors beyond their control in 2024, prospective buyers should be focusing on their personal timelines, goals, and desires.” — Bob Driscoll, senior vice president and director of residential lending at Rockland Trust Bank

7. Research New Construction Options

With resale housing stock hovering at historic lows—and expected to remain there for the foreseeable future—Nick Bailey, president and CEO of RE/MAX, says buyers should consider researching new construction homes.

“Given such low supply and demand softening, builders have returned to offering competitive mortgage rates through their partner lenders and offering builder incentives and complimentary upgrades to entice buyers,” Bailey says.

Moreover, between October 2022 and 2023, the national median price of new homes dropped over 17%, maintaining a narrow enough gap between new home prices and existing home prices that could prove attractive to some buyers.

Bailey points out that buyers should also consider building a new custom home, which you can finance with a construction loan.

“With the crazy lack of inventory still causing headaches in the market, building a home becomes an attractive option, and with spec homes and semi-custom-building options, it’s easier than most consumers think,” Bailey says.

Pro Tip
Bonus Advice: “I wouldn’t write off older or outdated homes and would encourage buyers to picture what something could look like. For (sometimes) simple repairs and few upgrades, you could turn a house with potential into the house of your dreams.” — Nick Bailey, president and CEO of Re/Max

8. Shop for Homes Outside City Centers

If your dream is to live in a place that offers plenty of culture, sports, entertainment, and dining options, but the housing prices and cost of living exceed your budget, Danielle Hale, chief economist at Realtor.com, advises you to look outside city centers.

“Buyers will generally find that they get more value for their dollar further away from city centers, so shoppers with flexibility should consider expanding the geography of their home search,” Hale says.

For example, if you want to put down roots in the Los Angeles metro area where the median home price was $1,159,000 in October 2023, according to Realtor.com data, consider expanding your search to Riverside, where the median home price during the same period was $580,000.

Pro Tip
Bonus Advice: “No matter how buyers decide to compete, it’s important to make sure that they understand the terms and implications of waiving contingencies, which may be more likely to help them win the bid but may put them on the hook for more financial risk.” — Danielle Hale, chief economist at Realtor.com

9. Pre-qualify Yourself

Before becoming attached to a home that requires a loan you can’t afford, Keith Gumbinger, vice president at mortgage website HSH.com, encourages prospective buyers to determine their income and debt loads ahead of time to get a sense of how much financing they qualify for.

“Borrowers should pre-qualify themselves at a few different interest rates to see whether or not a rate that is likely to appear in the next year is sufficient to allow them to participate in their housing market,” Gumbinger says.

Plugging various rates into a mortgage prequalification calculator can help borrowers determine their maximum loan amount.

Pro Tip
Bonus Advice: “[B]e both opportunistic and flexible. A great house that checks 80% of the boxes and is available at a price you can afford with a mortgage rate that works well enough is likely to be better than waiting for a 100% match.” — Keith Gumbinger, vice president at mortgage website HSH.com

10. Look Into House Hacking

High mortgage rates and house prices may keep homeownership out of reach for some would-be buyers in 2024.

If that’s the case for you, Sherry Chen, a real estate agent with Kappel Realty Group at Compass in California, says house hacking could be the answer.

For instance, Chen says you could buy a four-bedroom house and rent out the other three rooms. She also suggests buying a home with an accessory dwelling unit, or ADU, to generate rental income.

“These strategies can oftentimes cut your mortgage in half or even allow you to live for free,” Chen says.

Pro Tip
Bonus Advice: “Get a fully underwritten preapproval.” — Sherry Chen, real estate agent with Kappel Realty Group at Compass

11. Be Prepared To Bid Over Asking Price

Though bidding wars are less common than they were a few years ago, demand will likely continue to outpace supply, and borrowers will still face plenty of competition in the coming year.

Consequently, Glenn Brunker, president of Ally Home, says to expect to make offers a little over the asking price to improve your chances of landing a home in 2024.

“You may be competing with buyers that have more cash to put towards a house, but if you have a plan in place and know your budget, you’ll be better equipped to make a decision that you’re comfortable with, ” Brunker says.

Pro Tip
Bonus Advice: “Buyers must do their homework in advance by researching lenders and securing a preapproval so you have a competitive advantage when making offers.” — Glenn Brunker, president of Ally Home

12. Build Your Home Buying Team Early

Shopping for a home can be an overwhelming experience, especially for first-time home buyers. To minimize the stress, Cerita Battles, managing director, and head of community and affordable lending at JPMorgan Chase, recommends assembling your team sooner rather than later.

“You don’t have to go through the home-buying process alone—in fact, it’s best to get help very early in the process,” Battles says. She advises buyers to prioritize working with a lending advisor team “because they can help you navigate the home-buying process, with everything from considering homeownership to walking through your new front door to getting connected with a reputable real estate agent.”

Battles also says a trusted lender can guide you through the current rate environment, and educate you on loan products, terms, and fees.

Pro Tip
Bonus Advice: “It’s important to keep in mind that this will be your first home! Even if it lacks some bells and whistles, you can still add more features in the future or use the property as a stepping stone for your dream home.” — Cerita Battles, managing director, head of community and affordable lending at JPMorgan Chase

How To Prepare for Your 2024 Home-Buying Journey

Perhaps the first bit of advice that most housing experts offer hopeful buyers is to confirm you can afford this big step.

“[M]ake sure your financial house is in order and that you’ve factored in all of the costs associated with homeownership beyond a mortgage, like insurance, maintenance, and HOA fees,” Merritt says.

Using a home affordability calculator prior to beginning your search can help you determine a home price range based on your income, debts, mortgage rate, desired loan term, and down payment capability.

Taking these preparatory steps will also improve your borrowing strength, reduce stress, and keep you a few steps ahead of the competition in this fast-moving market:

    1. Create a realistic housing budget that considers all monthly costs
    2. Boost your credit score to help secure a lower mortgage rate and better loan terms
    3. Lower your debt-to-income (DTI) ratio to increase borrowing power
    4. Set aside savings for a down payment
    5. Research and compare loan products
    6. Look into down payment assistance programs in the state where you plan to buy
    7. Gather financial and personal documents lenders require for your mortgage application
    8. Explore different neighborhoods in person to optimize your time when you’re ready to check out homes
    9. Get to know the local real estate agents

Experts Reveal How To Get the Best Mortgage Rate in 2024

Qualifying for the most competitive mortgage rate requires a multi-pronged approach.

Besides keeping on top of mortgage rate trends, here are some other essential actions experts advise you to take to increase your chances of locking in a solid mortgage rate:

    • Save for a larger down payment. “Remember: the higher your down payment, the more likely that you’ll be approved for the loan, the less likely you’ll need to get a loan with mortgage insurance, and the lower your monthly payment will be,” Sharga says.
    • Boost your credit score. “There are dozens of factors that influence a borrower’s mortgage interest rate, and credit score is one of the most important,” Chen says.
    • Shop multiple lenders. “Today’s market is very challenging for mortgage companies who are all hungry for business,” Sharga explains. “[T]hat’s a perfect environment for a consumer to do comparison shopping in.”
    • Strategize and consider points. Blahut advises buyers to budget for mortgage points or to “strategize with their trusted real estate professional” and figure out how to get the seller to contribute closing concessions.
    • Determine the best loan product for your situation. “Discussion about rates typically focuses on the 30-year fixed rate,” Bailey says. However, the average homeowner lives in their home for eight years, so Bailey suggests buyers weigh all their lending options, including ARMs.

Source: Forbes.com ~ By Robin Rothstein ~ Image: Canva Pro

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How Do LLC Tax Benefits Work? A Guide for Small Businesses

How LLC Tax Benefits Work

Here’s a look at the LLC tax rate, which can be lower for small businesses in some cases.

Taxation is one element to consider when choosing a business structure for your company. One unique aspect of Limited Liability Companies (LLCs) is your ability to decide how they will be taxed. That choice determines which LLC tax benefits you get – and how you will file your taxes. Either way, you gain more tax advantages with an LLC than you will if you choose a sole proprietorship. This overview reviews the tax advantages of LLCs and how you might be able to take advantage of them.

How Is an LLC Taxed?

Generally, the IRS does not tax LLCs directly. Unlike a corporation, an LLC does not need its own tax return. Its profits are disbursed to its members, who report them as self-employment income. This setup is known as a “pass-through entity,” meaning business income is treated as members’ personal income. A pass-through entity is the LLC default tax status.

The LLC tax rate is then based on the member’s individual income tax rate. So, tax brackets for LLCs depend on the member’s filing status and combined income.

However, the pass-through entity approach is not the only way to tax an LLC. One of the advantages of LLCs is flexibility with tax classification.

Tax Classification for LLC Structures

Tax classification is one of your LLC tax benefits. Your LLC is not limited to pass-through taxation. You and any other members charged with governing your LLC can elect to tax the LLC as an S corporation. This election classifies the LLC as a corporation for tax purposes and requires the LLC to file a return as an entity. You can change the tax classification by completing Form 8832, Entity Classification Election.

Mainly, the S corporation classification allows you to save on Social Security and Medicare taxes since members and managers gain employee status. The members and managers also avoid paying self-employment tax. However, it introduces the double taxation issue; the LLC must pay a corporate tax rate, and the members must pay personal income taxes on their LLC income.

If you choose pass-through taxation, your return requires a Schedule C for single-member LLCs or a 1065 Partnership Return for multiple-member LLCs. In some cases, going the pass-through route produces fewer taxes than if you file as an S corporation and pay corporate income tax rates. Since every business is different, you can’t know which route is best for you unless you audit your financial records.

Tax Advantages of LLCs

LLC tax benefits are most evident if you switch from a sole proprietorship to an LLC. Here are the advantages business owners discover when they form an LLC.

Flexibility

LLCs are different; you can treat LLC profits as self-employment income and file a personal income tax return. Or you can elect to have your LLC treated as an S corporation for income tax purposes and enjoy corporate tax benefits. When you choose a sole proprietorship or a corporation, you don’t have options regarding how you are taxed.

Corporate Tax Deductions

If they choose S corporation status, LLC tax benefits include the same corporate tax deductions. Popular deductions include:

  • Insurance: Premiums paid for health or disability insurance are deductible. These policies can be available to members, managers, executives or employees. If the LLC pays for the premiums, it can deduct that cost.
  • Vehicles: Vehicle deductions apply to company fleet vehicles and reimbursements to employees when they use those vehicles. You can also receive the deduction if you lease vehicles for company purposes. The requirement is the vehicle, and any expenses tied to it must be for business use only.
  • Home office: LLCs are an excellent entity for at-home businesses, and now the IRS allows reimbursement for those expenses. However, there are requirements. For example, the home office must be reserved for business use, including administration and management. Reimbursable home office expenses include maintenance, cleaning, telephone, utilities and insurance. The IRS determines the deduction by the square footage in your home used by the LLC.

Other relevant business expenses may also be deductible. Since excessive deductions lead to audits, you must discuss deductions with your tax professional before finalizing them in a tax return.

Pass-Through Deduction

The Tax Cuts and Jobs Act (TCJA) added the latest LLC tax benefits. This act allows LLC members to deduct up to 20% of their business income before calculating tax. If you don’t choose S corporation tax status for your LLC, members can often avoid higher self-employment and income taxes with this deduction. It’s just another benefit to weigh when deciding between S corporation and pass-through taxation.

Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.

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How to Get Your Finances Ready to Buy a House

Home Buying Financial Readiness

In fact, your finances are so important that you’ll want to start working on them well before you’re ready to apply for a mortgage. That way, if you need to improve your finances or your credit, you’ll have some time.

We’ll delve into tips about how to get your finances ready to buy a home so you can prepare for the process.

Step 1: Know what lenders are looking at when assessing your finances

When you apply for a home loan, lenders want to assess whether you’ll be able to pay them back. They’ll check to see that you have a steady income and look at how much cash you have available to cover a down payment, closing costs, taxes, and other expenses. Recent banking activity, investments, and other aspects of your finances will come under the microscope too.

If you’re a candidate for a no-down-payment loan, such as a VA loan through the Department of Veterans Affairs, you’ll need documentation to prove it.

Lenders will also check your credit to assess your history of paying your debts and look at how much outstanding debt you have.

Different lenders may look at different things when checking your finances, but the goal is the same — to help decide whether to risk lending you money and how much interest to charge. Here’s a list of what lenders are likely to consider.

    • FICO® credit scores and credit history
    • Down payment amount
    • List of assets (stocks, real estate, etc.)
    • Income and employment history
    • Tax returns
    • Bank statements for two to three months
    • Desired loan amount compared to the value of a home
    • Total debt compared to income — your debt-to-income ratio
    • Rental history (if you’re currently renting or have rented in the past)

To improve your chances of getting a home loan with the best possible terms, you should save as much as you can for your down payment, get your debt-to-income ratio under 43%, and do what you can to improve your credit scores. Specifically, we’re talking about the scores compiled by Fair Isaac Corp., known as FICO, which are the mortgage industry benchmark.

Step 2: Take stock of your credit scores and credit reports

It’s not possible to say exactly how to raise your FICO® scores — everyone’s personal situation is different — but there are a few practices that can usually help, especially if you adopt them a year or more before you apply for a mortgage.

    • Pay your bills on time — Your credit scores will fall if you’ve missed payments on a credit card or another debt.
    • Use less of your available credit — Your credit utilization ratio, which measures how much debt you’ve taken on compared to what’s available to you, is an important factor in your scores. Using less than 30% of your available credit may lift your scores. Paying down your debts may also lower your debt-to-income ratio, another measure that doesn’t affect your credit scores but is used by banks to assess your creditworthiness. (We’ll explain later.)
    • Hold off on opening new credit accounts — When you apply for credit, a lender will initiate a hard credit inquiry, which will have a temporary negative effect on your scores.
    • Maintain a mix of credit accounts — Your credit scores are affected by what kinds of credit accounts you have, how old they are, and how many of them you have. If you’re managing a mix of different types of credit without trouble, you’ll look less risky to lenders. Note that you shouldn’t open new accounts just for the sake of creating this mix (see point above).

If you have poor credit and stick with these approaches, your credit scores are likely to rise over a period of months. If your credit improves, lenders may see you as a better risk and charge you a lower interest rate on your mortgage.

Why should you worry about your credit scores? Imagine getting a $250,000 mortgage that lasts 30 years and has a fixed interest rate. Take a look at the table below to see how credit scores affect how much you could pay just in interest (not counting the actual money you borrowed) over the life of the loan. You can plug in your own information on FICO’s site to get a better idea of what your interest payments could be.

FICO® score APR Total interest paid
760 to 850 2.422% $101,970
700 to 759 2.644% $112,384
680 to 699 2.821% $120,811
660 to 679 3.035% $131,145
640 to 659 3.465% $152,384
620 to 639 4.011% $180,245
Note: Rates change frequently. The rates in this example were selected on Oct. 7, 2020.

Step 3: Save for your down payment: Bigger is better

You should save as much as you can for a down payment. A bigger down payment means you’ll own more of your new home from the start. This makes you a lower-risk borrower in the eyes of lenders and usually translates into a lower interest rate on your home loan.

Another reason to put down more cash is to avoid private mortgage insurance or PMI. Most lenders will require you to buy PMI — which protects the lender in case you default on your loan — if your down payment is less than 20% of the purchase price of your home.

The cost of PMI depends on the type of mortgage you get, how much you put down and some other factors, but usually costs between 0.5% and 1.5% of the loan amount each year and can add up to thousands of dollars.

Plus, you’ll want to factor in additional closing costs, which can include home inspections, an appraisal, and escrow costs, like homeowners insurance and property tax payments.

Step 4: Measure your debt-to-income ratio: Getting to 43%

Your debt-to-income ratio, or DTI, — which measures your outstanding debt as a percentage of your income before taxes — is used by lenders as another way to gauge your ability to repay your mortgage.

Your DTI ratio is calculated by adding up all your current monthly debt payments (think student loans, personal loans, credit cards) and your proposed mortgage principal, interest, taxes, and insurance payments, and then dividing that number by your gross monthly income (your income before taxes and other deductions).

For a qualified mortgage — a home loan that meets certain regulatory requirements put in place in 2014 to protect lenders and borrowers — you’ll need to have a DTI ratio of 43% or less.

Lenders can extend loans to borrowers who have a DTI ratio higher than 43%, but you generally need a compensating factor like high cash reserves, and even then it’s rare. Lenders consider a higher DTI risky for both you and the lender, as it suggests to them that you may struggle to pay your mortgage and keep up with all your other debts.

If your DTI ratio is too high for lenders’ comfort, you’ll need to lower your debt increase your income, or both. Since changing jobs or demanding a raise mid-mortgage application may not be practical, you may want to focus on paying down debt.

There are differing opinions about the best way to tackle the job. Some experts recommend paying off your smallest debt first — which research has shown can be effective. Some say it’s better to start with the highest-interest loans — that way you pay less interest over the long term. Still, others say that paying down your debt with the biggest monthly bill is the best way to lower your DTI quickly.

Whichever way you decide to go, keep in mind that the goal is to lower the amount of debt you have as a percentage of your income, so choose a method that you can commit to and that effectively moves you in that direction.

Tips for choosing a home you can afford

It may take a while for you to save for a down payment, lower your DTI ratio, or improve your credit scores. But if you work hard and stick with it over time, you may begin to see some rewards, like easier loan approval and better loan terms.

In the meantime, here are some things to consider as you think about what home you’d like once your finances are ready.

Set a budget

To figure out how much you can afford, consider getting preapproved for a mortgage. But when you do, remember that the lender is making a mostly mathematical calculation and not taking into account your comfort level or preferences. Make sure you’re comfortable with the amount you plan to borrow, even if the lender says you can borrow more.

Your mortgage payment isn’t the only expense you’re responsible for.

Narrow down location and neighborhood

Before you begin looking for a home, take some time to think about the type of environment you want to live in — city, suburbs or rural.

Next, narrow your search to a few neighborhoods. Here are some things to consider.

    • Safety — Some websites offer crime statistics by area. If you’re especially concerned about crime, check with the local police department.
    • School district — Houses in good school districts typically have higher property values. Look up ratings of schools in the area. But don’t rely on ratings alone. Check out online reviews or talk to parents who send their children to local schools.
    • Activities — Find out whether there’s a park nearby. Can you get to hiking trails quickly? What about playgrounds, pools or playing fields?
    • Convenience — Do a test run of your morning commute and check the drive time to the local grocery store. Time spent on the bus or driving to the store adds up and will affect how you spend your time when you move into your new home.

Type of home and other considerations

You’ve got the location and neighborhoods. But what type of home do you want — single-family, townhouse, condo or apartment? Here are some other considerations.

    • Condition — Move-in ready or fixer-upper? Consider how much you’re spending, whether you’re handy or hate the sight of a screwdriver, and how long you’re willing to wait to move in.
    • Resale — If you’re planning to stay in your home for a shorter time period, resale value will be more important than if you’re planning to stay long-term.
    • Other features — Central air conditioning, swimming pool, garage, granite countertops, hardwood floors, walk-in closets. Have some fun figuring out what you can and can’t live without — and how much it will cost you.

Source: creditkarma.com ~ By: Erin Dunn ~ Image: Canva Pro

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Home Inventory: What Is It and Why Do You Need One?

home inventory

You never know when your home might get damaged in a flood, fire or other disaster. And you can’t rule out the possibility of a home break-in, either. Ideally, you’ll have homeowners or renters insurance in place to cover your damaged or stolen items. But it’s best to have an extensive list of your belongings before they’re damaged or stolen. That’s where a home inventory comes in.

What Is a Home Inventory?

A home inventory is a comprehensive list of your personal belongings, along with their monetary value. While you don’t have to list every single item you own as part of your inventory, you should include all items of significant value.

Why Do You Need a Home Inventory?

Your insurance company may not require you to have a home inventory, but it’s a helpful thing to have nonetheless. If your home is subject to damage or a break-in, the last thing you’ll want to have to do after the fact is rack your brain trying to figure out which items of yours were impacted. With a home inventory, you will have an easier time getting at that information. That could, in turn, make it easier to file a claim against your insurance policy, and also, get paid on your claim much sooner.

Furthermore, if your home is damaged in the course of a major storm, you may be eligible for local or federal assistance. Having a record of your damaged goods could help you quality for the maximum amount of aid and help you move forward more quickly.

“Having a loss in your home can be very stressful,” says Jennifer Brault, AVP, Claims Property Personal Lines at Nationwide. “This is a good way to restore and put your life back together faster during that time.”

Plus, according to Pat Howard, a licensed property and casualty insurance expert at Policygenius, “A home inventory also helps ensure you’re purchasing the right amount of home or renters insurance coverage and accounting for items that require additional coverage, like an art collection.”

What Should Be Included in a Home Inventory?

Your home inventory should include everything you own of substantial value. There’s no specific threshold for what that entails, but generally speaking, you don’t want to list every $20 item you own, but you may want to list items costing $100 or more.

Some of the items you may want to list include:

  • Jewelry
  • Higher-end apparel
  • Handbags
  • Kitchenware
  • Footwear
  • Electronics
  • Small appliances
  • Musical instruments
  • Furniture
  • Home décor and artwork

Once you narrow down your list of items to include, you should record each item’s:

  • Purchase date
  • Description
  • Estimated value

If you have receipts documenting your purchases, it pays to retain them. Brault adds that capturing items’ brands and serial numbers can be especially helpful when it comes to electronics.

How to Do a Home Inventory

The first step in conducting a home inventory is deciding how you want to keep a record of your belongings. Here are some options to consider:

A written inventory. Using a notebook or spreadsheet, you can create a comprehensive list of the items you own, along with details such as purchase date and value.

A digital inventory. There are a host of home inventory apps you can use to compile your data digitally. Many of these are free, though some limit you to a certain number of items before imposing a fee. Last year, the National Association of Insurance Commissioners introduced its own home inventory app. Sortly offers a free inventory app up to 100 entries, but if you want to take a more extensive inventory, you pay. Then there’s the UPHelp Home Inventory app from United Policyholders.

With a home inventory app, you typically take photos of your belongings and put them into categories. If you’d rather not use a home inventory app (or pay for one), you can take photos or videos of your belongings yourself. From there, you can add captions or edits to include details about each item, such as when it was purchased and how much it cost.

Once you decide how you’ll conduct your home inventory, your next step is doing the actual work. To that end, a good bet is to tackle your home room by room until you’ve covered all items of value. Don’t forget to check your shed, garage and attic for items you may want to include.

You should also account for items being stored outside of your home. “If you have items in a self-storage unit, make sure to include them, as they are usually covered under your home insurance policy,” says Amy Harris, State Farm spokesperson.

Now if you’re in the process of moving, you find it easier to conduct your inventory then. “The best time to tackle a home inventory is during a move,” insists Howard, “as you can make a list of everything as you pack up or unpack in your new abode. But ultimately there is no bad time to make a list of everything you own — as long as you’re doing so in advance of a loss.”

Where to Store Your Home Inventory

It’s important to keep your home inventory someplace safe and easily accessible. If you have a written inventory, make sure to scan and email yourself a copy and store it digitally in the cloud. You can keep a hard copy in a fire-proof home safe or a safe deposit box, if you rent one. You may even want to send a copy to your insurance company.

If you have a digital inventory, don’t just keep a copy on your phone or laptop. If those items are damaged, you’ll be out of luck. Instead, email yourself a copy and store one digitally in the cloud as backup.

How Often Should You Update Your Home Inventory?

Any time you acquire an item of value, be sure to update your home inventory. The goal is to have a comprehensive list of what you own, so it pays to get into the habit of updating your inventory as you go.

Source: realestate.usnews.com ~ By: Maurie Backman ~ Image: Canva Pro

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Housing Market Forecast: 4 Expert Predictions for 2024

Real Estate 2024 Predictions

Here’s a piece of good news for rate-weary buyers: Relief is on the way. After months of turmoil, the housing market should be slightly calmer in 2024.

Although the factors that tanked affordability in 2023 — mainly high mortgage rates and lack of inventory — will still be at play in 2024, no one expects conditions to get any worse for buyers and sellers. In fact, many housing experts believe the new year will be a turning point for real estate: They say home sales should (somewhat) rebound, mortgage rates and prices should move lower, and more sellers will list their homes.

To be sure, these improvements will be gradual, and “housing affordability is still going to be the No. 1 issue for homebuyers,” says Danielle Hale, chief economist at Realtor.com. But slightly lower mortgage rates and prices will help lower the costs of homeownership.

What else can we expect from the 2024 housing market? Here’s what experts predict will happen with mortgage rates, inventory, home prices, and sales in the near future.

Mortgage rates will decrease

Mortgage rates were one of the main obstacles for homebuyers in 2023. After starting the year on a downswing, they quickly turned tail and headed up to two-decade highs, even flirting with 8% at one point.

But rates have eased lower in the last two months. A slowing economy, weakening labor market, and steady improvement in the battle against inflation led the Federal Reserve to hold the federal funds rate steady over the past few months and signal the possibility of rate cuts in 2024.

As a result, 10-year Treasury yields and the mortgage rates that follow their movement have dropped. Freddie Mac’s 30-year fixed-rate loan averaged below 7% for the first time since mid-August, and all the experts Money spoke to agree the downward trend will continue in the new year (although it’s not guaranteed).

However, don’t expect a dramatic drop into the 3% or 4% range. As with home sales, there’s a wide range of predictions for how low rates will go.

On the higher end, listing site Zillow expects interest rates to stay between 7% and 7.5% throughout the year. The National Association of Realtors is a little more optimistic, expecting rates to average below 7% by the start of the upcoming spring buying season and end the year at around 6.3%. In contrast, Realtor.com expects rates to end 2024 averaging 6.5%. With mortgage rates averaging 6.61% and trending lower at the end of December, it’s looking good for rates to stay below 7% this year.

Inventory will increase

Last year, sellers were loath to list their homes because they didn’t want to give up the low mortgage rates they’d previously locked in. As a result, there weren’t a lot of homes to choose from in 2023.

Thankfully, buyers can expect to see some improvement in the number of homes up for sale in 2024. Overall, inventory could increase by as much as 30% compared to last year, according to Lawrence Yun, chief economist at NAR, with some markets seeing even faster growth.

Skylar Olsen, chief economist at Zillow, says she has noticed in recent research that some homeowners who bought when rates were in the 5% and 6% range have readjusted their expectations around how low rates will go. They “are much less sensitive” to the rate-lock effect, Olsen says, adding that the rate homeowners consider “low enough” to prompt them to sell is increasing.

Home prices will likely stay flat

While there should be some improvement in housing supply and mortgage rates, the dynamics that have kept home prices high will continue.

Inventory is still well below demand. Before the pandemic, the number of active listings on the market averaged over 1 million homes, according to the St. Louis Fed. At the end of November, there were 754,846.

What does this mean for the market? Buyers are competing for fewer available homes, keeping upward pressure on home prices. So, on a national level, prices aren’t going to plummet unless we get a sudden and large influx of listings. Most experts forecast home prices will remain flat or decrease by about 1% in 2024.

That doesn’t mean there won’t be some markets where home prices majorly decline. There are currently a handful of cities where prices have decreased significantly, such as San Francisco and Las Vegas, and there’s a probability more cities will see considerably lower prices — just not on a level that could jeopardize the housing market as a whole.

Home sales will increase

Most housing analysts expect sales to improve this year thanks to improving overall market conditions. But not everyone agrees just how much better it will be.

The most conservative estimate for home sales comes from Realtor.com, which forecasts existing home sales to increase by 0.1% year-over-year, or a jump of about 4 million homes sold. At the opposite end of the spectrum is NAR, which is forecasting sales to increase by 13.5% compared to 2023.

It all goes back to — you guessed it — the hope that mortgage rates will continue to edge lower, which Yun says “will bring out more buyers and may even nudge some sellers to list their homes.”

Source: money.com ~ By: Leslie Cook ~ Image: Canva Pro

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What Does Homeowners Insurance Cover?

What Does Homeowners Insurance Cover

Homeowners insurance covers damage to your home from fire, heavy wind, and other disasters.

Nerdy takeaways
    • Homeowners insurance provides coverage in case a disaster damages your home or personal belongings.
    • It can also pay out if you’re held responsible for an accident or injury.
    • Home insurance generally covers damage due to fire, wind or snow, but it won’t cover floods or earthquakes.

Your home is more than just a roof over your head. It may be your most valuable asset — and one you likely can’t afford to replace out of pocket if disaster strikes. That’s why protecting your place with the right homeowner’s insurance is important.

What does homeowners insurance cover?

Homeowners insurance covers your house and belongings in case of events such as fires, hail, tornadoes, and burst pipes. If one of these scenarios damages your home, your policy can pay to repair it. Homeowners insurance can also reimburse you for theft or vandalism of your belongings.

But a homeowners policy doesn’t just cover your house and your stuff. It can also pay to defend you from lawsuits or cover medical bills for someone who gets hurt on your property. And if you can’t live at home after a covered disaster, your homeowner’s policy could pick up the tab for a hotel or rental apartment.

The 6 standard types of home insurance coverage

Standard homeowners insurance policies generally include these six types of coverage:

What Does Homeowners Insurance Cover

Dwelling coverage

Dwelling coverage covers the structure of your home, including the walls, floors, windows, and roof. Built-in appliances, such as furnaces, are typically included in your dwelling coverage. An attached garage, porch, or deck would fall under your dwelling coverage, too.

Which events are covered: Most homeowner’s policies cover your dwelling for any cause of damage that isn’t specifically excluded. According to the Insurance Information Institute, some of the most common causes of homeowners insurance claims include wind, hail, freezing, fire, and lightning.

How it works: A severe thunderstorm uproots a tree that falls onto your home, crushing part of the roof and attic. You’d pay your share of the repair cost — known as the homeowners insurance deductible — and then the insurer would pay the rest, up to your dwelling coverage limit.

Other structures coverage

Just like it sounds, other structures coverage provides insurance for structures on your property that aren’t attached to your house. That could include a shed, fence, or detached garage.

Which events are covered: As with dwelling coverage, most homeowners insurance policies cover other structures for any event that isn’t specifically excluded. That means you’d likely have coverage for fire, wind, hail, and snow, among other issues.

How it works: Part of your fence collapses under the weight of heavy snow. The insurance company would pay to repair it, minus your deductible.

Personal property coverage

Personal property refers to your personal belongings — like clothes, furniture, electronic devices, and appliances that aren’t built in. Most homeowners’ policies cover these items anywhere, not just inside your house. So if someone steals your bike from outside a store, it’ll likely be covered (minus your deductible).

Which events are covered: In most homeowner’s policies, personal property coverage works differently than dwelling and other structures coverage. Instead of covering your belongings for anything that isn’t specifically excluded, homeowner’s policies often cover only disasters that are listed.

These events, typically called “perils” in your policy, tend to include:

    • Fire or lightning.
    • Smoke.
    • Windstorms and hail.
    • Explosions.
    • Theft.
    • Vandalism.
    • Weight of ice, snow, and sleet.
    • Sudden damage from a power surge.
    • Volcanic eruptions.
    • Falling objects.
    • Water overflow or discharge from household systems like plumbing, air conditioning, and appliances.
    • Freezing of those same household systems.
    • Sudden tearing, cracking, or bulging of a hot water system, steam system, air conditioning, or fire protective system.
    • Riots.
    • Damage from aircraft or vehicles.

How it works: A pipe bursts on a frigid winter night, sending water cascading into your kitchen and dining room. Although dwelling coverage would pay for damage to built-in items such as cabinets, personal property coverage would take care of ruined furniture, minus your deductible.

Loss of use coverage

Sometimes called “additional living expenses,” the loss of use a section of your homeowner’s policy can come in handy if your home is too damaged to live in. Loss of use coverage may pay for hotel stays, restaurant meals, or other expenses associated with living somewhere else if your home is uninhabitable after a disaster your policy covers.

Which events are covered: As long as your home is undergoing repairs for a covered claim, you’ll likely be eligible for loss of use coverage. But if your home’s damage is from a disaster that isn’t covered — such as a flood — your insurer won’t pay your additional living expenses, either.

How it works: After a kitchen fire spreads to your living room, your home is out of commission for a few months while contractors make repairs. Your insurance company would pay for you and your family to rent a similarly sized house nearby.

Liability coverage

Personal liability coverage offers financial help if you’re responsible for injuring someone or damaging their property. Coverage generally extends to anyone in your household, including pets — so if your dog bites someone at the park, you may have coverage. (See Does Homeowners Insurance Cover Dog Bites? for more information.)

Which events are covered: Liability insurance covers bodily injury and property damage to others, with some exceptions. For instance, your policy won’t cover criminal acts or harm you cause on purpose. Nor will it pay for injuries or damage from a car accident (your liability car insurance would cover those).

How it works: A delivery person slips on your icy sidewalk before you can salt it. He breaks his wrist in the fall and sues you for medical bills and lost wages. Your liability coverage could pay your legal fees, plus any damages you’re responsible for in the lawsuit, up to your policy limit.

Medical payments coverage

Like liability coverage, medical payments coverage pays if you cause physical injury to someone outside your household. However, you don’t need to be found at fault for medical payment coverage to pay out.

Which events are covered: You could tap your medical payments coverage if someone suffers a minor injury on your property or you cause harm to someone outside your home. Similar restrictions apply to liability and medical payments, with no coverage for intentional acts or car accidents, among other exclusions.

How it works: Your dog bites the hand of a visiting friend. There’s no serious harm, but your medical payments insurance covers the cost of their trip to urgent care for stitches.

What homeowners insurance won’t cover

Even the broadest homeowners insurance policy won’t cover everything that could go wrong with your home. For example, you can’t intentionally damage your house and then expect your insurer to pay for it. Policies also typically exclude damage from other causes such as:

    • Flooding from external sources like heavy rainfall or storm surges.
    • Drain and sewer backups.
    • Earthquakes, landslides, and sinkholes.
    • Infestations by birds, vermin, fungus, or mold.
    • Wear and tear or neglect.
    • Nuclear hazard.
    • Government action, including war.
    • Power failure.

However, you can buy separate coverage for some of these risks. Flood insurance and earthquake insurance are available separately, and in hurricane-prone states, you may need or want windstorm insurance.

Expand your coverage with endorsements

Talk to your insurer if you have concerns about problems your policy doesn’t cover. In many cases, you can add endorsements — which usually cost extra — that offer more coverage.

Below are a few of the most common home insurance endorsements. Note that availability may vary by state and company.

Scheduled personal property covers a specific valuable item such as a ring or musical instrument. You may need an appraisal — a document that states the value of the item — to get this coverage.

Ordinance or law coverage pays to bring your home up to current building codes during repairs or rebuilding.

Water backup coverage pays for damage due to backed-up sewer lines, drains, or sump pumps.

Equipment breakdown coverage pays for heating, ventilation, and air conditioning, or HVAC, systems, and large appliances if they stop working for reasons other than normal wear and tear.

Service line protection pays for damage to water, electricity, or other utility lines that you’re responsible for.

Identity fraud coverage pays expenses associated with identity theft such as lost wages and legal fees.

Does homeowners insurance cover …?

This table shows common problems and whether your homeowner’s insurance policy will cover them.

Problem

Covered?

Details

Dog bites

Usually.

Your liability coverage typically covers expenses if your dog bites someone outside your household. See Does Homeowners Insurance Cover Dog Bites?

Fallen tree

Maybe.

If a covered event knocks a tree onto your home, your policy will probably pay to remove it. But if the tree simply falls on your lawn, you’re on your own. Learn more about home insurance and tree removal.

Fire

Usually.

Fire is one of the standard perils most homeowners insurance policies cover. Learn about home insurance and wildfires.

HVAC problems

Maybe.

If a covered event such as a windstorm damages your heating or cooling system, your homeowner’s policy would likely pay to repair it. Adding an equipment breakdown endorsement to your policy could give you additional coverage for mechanical failures. However, homeowners insurance won’t pay for normal wear and tear. Learn more about homeowners insurance and AC units.

Lost jewelry

Usually not.

A standard homeowners insurance policy covers jewelry only for theft, fire or other named events, not for accidental loss. That’s why it’s a good idea to add broader coverage for valuable jewelry. Learn more about jewelry insurance.

Mold

Maybe.

It depends on the cause of the mold. Most insurers will cover mold only if it’s caused by a covered problem such as a burst pipe. Learn more about homeowners insurance and mold.

Plumbing

Maybe.

Damage from sudden, accidental leaks may be covered, but slow leaks that develop over time generally won’t be. (The latter are considered a maintenance issue.) See Does Homeowners Insurance Cover Plumbing Problems?

Roof leaks

Maybe.

It depends on why your roof is leaking. Insurance typically covers damage due to a sudden, accidental event such as hail or wind, but it won’t cover simple wear and tear. Learn more about homeowners insurance and roof leaks.

Termite damage

Usually not.

Insurance companies generally consider dealing with infestations to be a part of regular home maintenance, which they don’t cover. Learn more about homeowners insurance and termite damage.

Water damage

Maybe.

It depends on the type of water damage. Most home insurance policies won’t cover floods, for example. They won’t cover damage from a backed-up drain or sewer unless you’ve paid for that endorsement. But if a pipe freezes and bursts, your insurer will typically pay for the resulting damage. To learn more, see Does Homeowners Insurance Cover Water Damage?

Types of homeowners insurance policies

Homeowners insurance comes in several types, called “policy forms.” Some types have more expansive coverage than others, so it’s worthwhile to know the difference. Note that different insurance companies may have different names for these policies.

Most popular: HO-3 insurance

HO-3 insurance policies, also called “special form,” are the most common. If you have a mortgage, your lender is likely to require at least this level of coverage.

HO-3 insurance policies generally cover damage to your home from any cause except those the policy specifically excludes, such as an earthquake or a flood. However, where it concerns your belongings, HO-3 insurance typically covers only damage from the perils listed in your policy.

Broadest coverage: HO-5 insurance

An HO-5 insurance policy offers the most extensive homeowners coverage. It pays for damage to your home and belongings from all causes except those the policy excludes. It’s typically available only for well-maintained homes in low-risk areas, and not all insurers offer it.

Limited coverage: HO-1 and HO-2 insurance

Much less popular are HO-1 and HO-2 homeowners insurance, which pay only for damage caused by events listed in the policy.

Other policy types include HO-4 insurance for renters, HO-6 for condo owners, HO-7 for mobile homes, and HO-8 — a rarely used type that provides limited coverage for older homes.

How homeowners insurance works

If your home is destroyed, your homeowner’s insurance company isn’t likely to simply write you a check for the amount listed on your policy. First, you’ll have to file a claim, documenting the damage. And your payout could vary depending on your coverage and deductibles.

Replacement cost vs. actual cash value

One key factor in your payout is whether your coverage will pay whatever it takes to rebuild your home, even if that cost is above your policy limits. This situation may arise, for instance, if construction costs have increased in your area while your coverage limits haven’t changed. Here’s a rundown of several options you may encounter.

Actual cash value coverage pays the cost to repair or replace your damaged property, minus a depreciation deduction. Most policies don’t use this method for the house, but it’s common for personal belongings. For items that are several years old, this means you’ll probably get only a fraction of what it would cost to buy new ones. Learn more about actual cash value coverage.

Functional replacement cost coverage pays to fix your home with materials that are similar but possibly cheaper. For example, your contractor could replace damaged plaster walls with less expensive drywall.

Replacement cost coverage pays to repair your home with materials of “like kind and quality,” so plaster walls can be replaced with plaster. However, the payout won’t go above your policy’s dwelling coverage limits.

Some policies offer replacement cost coverage for personal items. This means the insurer would pay to replace your old belongings with new ones, with no deduction for depreciation. If this feature is important to you, check the policy details before you buy. It’s a common option, but you typically need to pay more for it. Learn more about replacement cost coverage.

Extended replacement cost coverage will pay more than the face value of your dwelling coverage, up to a specified limit, if that’s what it takes to fix your home. The limit can be a dollar amount or a percentage, such as 25% above your dwelling coverage amount. This gives you a cushion if rebuilding is more expensive than you expected.

Guaranteed replacement cost coverage pays the full cost to repair or replace your home after a covered loss, even if it goes above your policy limits. Not all insurance companies offer this level of coverage.

Homeowners insurance deductibles

Homeowners’ policies typically include a deductible — the amount you must cover before your insurer starts paying. The deductible can be:

  • A flat dollar amount, such as $500 or $1,000.
  • A percentage, such as 1% or 2% of the home’s insured value.

When you receive a claim check, your insurer subtracts your deductible amount. Say you have a $1,000 deductible and your insurer approves a claim for $10,000 in repairs. The insurer would pay $9,000, and you would be responsible for $1,000.

Be aware that some policies include separate — and often higher — deductibles for specific types of claims such as damage from wind, hail, hurricanes or earthquakes. For example, a policy might have a $1,000 deductible for most losses but a 10% deductible for optional earthquake coverage. This means if an earthquake damages a home with $300,000 worth of dwelling coverage, the deductible would be $30,000.

Liability claims generally don’t have a deductible.

Source: nerdwallet.com ~ By: Sarah Schlichter ~ Image: Canva Pro

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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

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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