It Isn’t Final Until It’s Funded

Mortgage approval isn’t final until it’s funded. Things can change prior to the loan being closed that can affect a pre-approval such as changes in the borrowers’ financial situation or possibly, factors beyond their control like interest rate changes.40783733-250.jpg

Good advice to buyers is to do nothing that can affect your credit report until the loan closes. Opening new credit cards, taking on new debt for a car or furniture or changing jobs could affect the lender’s decision if they believe you may no longer be able to repay the loan.

The benefits of buyer’s pre-approval are definitive: it saves time, money and removes the uncertainty of knowing whether the buyer is qualified. The direct benefits include:

  • Amount the buyer can borrow – decreases as interest rates rise
  • Looking at “Right” homes – price, size, amenities, location
  • Find the best loan – rate, term, type
  • Uncover credit issues early – time to cure possible problems
  • Bargaining power – price, terms, & timing
  • Close quicker – verifications have been made

It is a very common practice for mortgage lenders to require income and bank verifications and to re-run the borrowers’ credit one final time just prior to closing. Mortgage approval isn’t final until it’s funded.

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Gift or Inheritance – Does It Matter?

A person called into a radio talk program with a situation that was troubling to the caller and disturbing based on the potential tax liability that may have been avoided.18732493-250.jpg

The caller’s elderly father had deeded his home to his daughter a few years earlier because in his mind, his daughter was going to get the home eventually and this would be one less thing to be taken care of after his death. The daughter didn’t really care because the father was going to continue to live in the home and take care of it so that it would be no expense to her.

Obviously, unknown to either the father or the daughter, transferring the title of a home from one person to another could have significant tax implications. In this case, when the father “gave” the home to his daughter, he also gave her the basis in the home which is basically what he paid for it. If she sells the home in the future, the gain will be the difference in the net sales price and her father’s basis which could be considerably higher than had she inherited it.

If the home was purchased for $75,000 and worth $250,000 at the time of transfer, there is a possible gain of $175,000. However, when a person inherits property, the basis is “stepped-up” to fair market value at the time of the decedent’s death. If the adult child had inherited the property, at the time of the parent’s death, their new basis would be $250,000 or the fair market value at the time of death and the possible gain would be zero.

In most cases, there are less tax consequences with inheritance than with a gift. There are other factors that may come into play but being aware that there is a difference between a gift and inheritance is certainly an important warning flag that would indicate that expert tax advice should be sought before any steps are taken.

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5 Reasons to Sell Now

puppiesPeople across the country are beginning to think about what their life will look like next year. It happens every fall; we ponder whether we should relocate to a different part of the country to find better year-round weather, or perhaps move across the state for better job opportunities. Homeowners in this situation must consider whether they should sell their house now or wait.

If you are one of these potential sellers, here are five important reasons to sell now instead of in the dead of winter.

1. Demand Is Strong

The latest Realtors’ Confidence Index from the National Association of Realtors (NAR) shows that buyer demand remains very strong throughout the vast majority of the country. These buyers are ready, willing and able to purchase… and are in the market right now!

Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now

According to NAR’s latest Existing Home Sales Report, the supply of homes for sale is still under the 6-month supply that is needed for a normal housing market (which is 4.5-months).

This means, in most areas, there are not enough homes for sale to satisfy the number of buyers in that market. This is good news for home prices. However, additional inventory is about to come to market.

There is a pent-up desire for many homeowners to move, as they were unable to sell over the last few years because of a negative equity situation. Homeowners are now seeing a return to positive equity as real estate values have increased over the last two years. Many of these homes will be coming to the market soon.

Also, as builders regain confidence in the market, new construction of single-family homes is projected to continue to increase, reaching historic levels in 2017. Last month’s new home sales numbers show that many buyers who have not been able to find their dream homes within the existing inventory have turned to new construction to fulfill their needs.

The choices buyers have will continue to increase. Don’t wait until all this other inventory of homes comes to market before you sell.

3. The Process Will Be Quicker

Fannie Mae announced that they anticipate an acceleration in home sales that will surpass 2007’s pace. As the market heats up, banks will be inundated with loan inquiries causing closing timelines to lengthen. Selling now will make the process quicker & simpler. 

4. There Will Never Be a Better Time to Move Up

If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by 5.2% over the next year, according to CoreLogic. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.

According to Freddie Mac’s latest report, you can also lock-in your 30-year housing expense with an interest rate around 3.57% right now. Interest rates are projected to increase moderately over the next 12 months. Even a small increase in rate will have a big impact on your housing cost.

5. It’s Time to Move On with Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

Only you know the answers to the questions above. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to move on and start living the life you desire.  

That is what is truly important.

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It’s the Principal of the Thing

Most people think they’ll have a house payment and a car payment for the rest of their lives but it doesn’t have to be with a plan and a little discipline. The plan is to make additional principal contributions to a fixed rate mortgage to shorten the term and save tens of thousands in interest. 65125303-250.jpg

If a person were to make an additional $100 payment each month applied to principal on a $175,000 mortgage, it would shorten the loan by five years six months. If the person were to make $200 a month additional payments, it would shorten the loan by 9 years. $459 additional payment would shorten it to 15 years.

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If a person does make a decision to regularly pre-pay their mortgage, it will be their responsibility to verify that the lender is applying the money to the principal each time as opposed to being placed in the reserve account for taxes and insurance.

In today’s market, a savings account pays around 0.5% or less. Even with the low mortgage rates available, there is still a considerable savings. People who might need the funds in the near future should carefully consider this option due to the difficulty to access equity easily from one’s home.

Make your own projections using the Equity Accelerator.

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A Cost to Consider

Homeownership, part of the American Dream: a home of your own where you can feel safe, raise your family, share with your friends and enjoy life. The benefits are easily recognizable but maintenance is just as real and should be considered.Maintenance.png

Property taxes and insurance are two of the largest expenses homeowners have aside from their mortgage interest. But, as any homeowner knows, there will be occasional expenses for repairing toilets, faucets, windows and other things. There are also the significantly larger expenses that arise like replacing a water heater or HVAC unit. And don’t overlook the periodic maintenance like painting or floor coverings.

Financial experts suggest that homeowners save one to four percent of the home’s value per year for repairs and maintenance. Two to eight thousand dollars a year may sound like more than you’ll need but the cost of an air conditioning unit can easily be $6,000 and some homes have more than one unit, which hopefully, won’t need to be replaced in the same year.

Some homeowners purchase home warranties to avoid the unexpected costs. An annual premium instead of an unexpected large expenditure. Coverage varies from company to company and are not intended to cover existing conditions.

The alternative to not saving for these anticipated expenditures means that a homeowner might have to put it on a credit card at a very high interest rate or get a home improvement loan. Appreciation is a distinct benefit of home ownership and deferred maintenance can limit the value as well as lengthen the market time when it sells.

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Turn your clocks back this week end

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Dial Down Risk for Retirement

There is certainly no shortage of retirement planning strategies available to individuals who actually take the time to consider them. What most financial experts do agree on is that the closer you are to retirement, the less time you have to recover from a loss. For that reason, many people start dialing down their risk factors as their age increases.

24141125-250.jpgOne way to minimize risk is to invest in things that you know and understand. For the majority of homeowners, their largest asset is the equity in their home which they generally have more familiarity than other types of investments.

Buy the home you’d like to retire to today and use it as a rental property. Finance it with a 15 year loan so it will amortize quickly and possibly be paid for at retirement.

Continue living in your current home until you’re ready to move into the home you’ve designated at your retirement home which will not create a taxable event. Prior to moving in, you can rehab the home so that it fits your style and needs exactly.

If you’ve lived in the current home for at least two of the last five years, you can exclude up to $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers. The proceeds could then, be invested for income.

Some of the attractive features of this proposal is that you’re familiar with the operation of a rental due to similarity of owning a home. Most experts agree that home prices will continue to rise and so will rents. The maintenance people that you use for your home can also work on your rental. If you don’t want to deal with tenants that can easily be delegated to a property manager. Low mortgage rates with short terms and high rental values contribute to positive cash flows that will pay for the property.

Obviously, there are many other considerations you’ll want to investigate with your tax and real estate professionals these can get the conversation started.

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