PMI Insurance what is it ?

Mortgage loans for more than 80% loan-to-value typically require private mortgage insurance. Mortgage insurance reimburses the lender if a borrower defaults on a loan. PMI is expensive, and homeowners should be aware of how to remove it when certain conditions have been met.31001236-250.jpg

A borrower can request in writing for the lender to cancel the PMI when the mortgage balance has reached 80% of the home’s original appraised value. However, they are required to eliminate it when the balance reaches 78%. It is a good idea to monitor this, especially if additional principal contributions are being made to pay off the loan early.

Other methods to eliminate PMI sooner than through normal amortization include the following:

  • If the value of the home has increased, the owner may consider refinancing with a loan that does not require PMI. There will be refinancing charges involved but you can determine how long it will take to recapture those costs from the monthly savings.
  • Some lenders will consider using a new appraisal to verify that the home’s mortgage is below the 80% requirement. Find out in advance from your lender if they will accept this procedure and get the names of approved appraisers they will recognize. The cost of an appraisal could range between $450 to $600.
  • Another strategy is to make additional principal contributions on a regular basis to reduce your mortgage balance to 78-80% level that would allow the lender to eliminate the PMI.

Mortgage insurance is not required on VA loans regardless of the loan-to-value. FHA mortgages made after June 3, 2013 are required to have Mortgage Insurance Premium for the life of the loan. For FHA loans made prior to that date, the MIP should automatically cancel when the loan-to-value ratio reaches 78% and has been in effect for a minimum of five years.

To obtain additional information specific to cancelling your mortgage insurance, contact info can usually be found on the annual statement provided by your mortgage servicer.

Rent vs. Own

The new tax law doubles the standard deduction and it is estimated that over 90% of taxpayers will elect to use it. However, even without considering tax benefits, homeownership has convincing advantages.26694742-250.jpg

Besides the personal and social reasons for owning a home, one of the most compelling is that it is cheaper. Principal reduction and appreciation are powerful dynamics that reduce the effective cost of housing.

Amortized loans apply a specific amount of each payment to the principal amount owed to retire the loan over the term. Some people consider it a forced savings account; when the payment is made, the unpaid balance is reduced.

The price of homes going up over time is appreciation. While there are lots of variables and it is not guaranteed, it is easy to research the history of an area and make predictions based on supply and demand.

Interest rates are still low and can be locked-in for 30 years. Without considering the tax benefits at all, the appreciation and the amortization dramatically affect the “real” cost of owning a home.

Consider a $250,000 that appreciates at 2% a year for the next seven years instead of paying $2,000 a month in rent. In the example, the payment is less than the rent being paid even including the property tax and insurance.

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When you factor in the monthly principal reduction and appreciation and consider additional owner expenses like maintenance and possible homeowners association, the net cost of housing is considerably lower than the rent. In this example, reduced cost in the first year alone is more than the down payment required on a FHA loan.

Based on the assumptions stated, the down payment of $8,750 could grow to $73,546 in equity in seven years. Can you name another investment with this kind of potential that also provides you a place to live, enjoy, raise your family and share with your friends?

Use this Rent vs. Own to make projections using your own numbers and price range. We’re available to answer any questions you have and to find out what it will take to own your own home.

What Buyers want Most from Agents

Some buyers think that finding the right home is the critical part of the buying process and that is how they determine which agent to use. While it is important, there may be a broader skill set to consider when selecting your real estate professional.what buyers want-2017.png

The most recent NAR Profile of Home Buyers and Sellers indicate that 52% of buyers do want help in finding the right home to purchase. There was a time when the public did not have access to all the homes on the market, but the Internet has changed that.

Helping to negotiate the price and terms of sale were identified by almost 25% of the buyers. No one wants to pay more than is necessary and the terms of the sale can be as important as the price.

The next largest area of assistance that buyers value has to do with financing and the paperwork. Even if a buyer has been through the process before, it very likely could have been several years and things have probably changed.

Since the cost of housing is dependent on the price paid for the home and the financing, a real estate professional skilled in these specialized areas can be very valuable in finding the “right” home. An agent’s experience and connections to allied professionals and service providers is equally important.

Ask the agent representing you to specifically list the tools and talent they have available to address these areas.

Mortgage Rate History

In 1968, mortgage rates were 8.5%. The next year, rates went down to 7%. Homeowners could buy a 15-20% larger home for the same payments if they could find someone to assume their mortgage.Mortgage rate history2a.png

FHA and VA mortgages were very popular in certain price ranges and they allowed anyone to assume the mortgage regardless of the credit. If you could find a person to take over your note, you were free to qualify for another mortgage.

In October 1981, mortgage rates reached 18.63%. A $250,000 mortgage had a monthly principal and interest payment of $3,896.46. As astronomical as that rate sounds, people were still buying homes and were good investments.

Four years later, they were still over 12%. The monthly payment was $2,571.53. Believe it or not, people were excited to be paying only 2/3 what they had to pay a few years earlier.

Fast forward to late 1991 when the rates went below 9% and that same payment was to $2,015.16. At the turn of the 21st century, rates were 8.15% and that made the payment $1,860.62. Not much change in rates during that decade.

If we look around the housing bubble, late 2008, the rates were 6.04% and the payment was $1,505.31. By 2009, mortgage rates had fallen below 5%. The lowest mortgage rate was 3.31% on November 2012 with a payment of $1,096.27.

Rates fluctuated for the next few years until now, and most of the experts are expecting them to be above 5% by the end of 2018.  Rates have increased each week for the last six weeks to 4.38% with payments of $1,240.12.

The average mortgage rate for the past 47 years is a little over 8%. The real estate and mortgage markets are cyclical. Rates have been historically low for a long period but will probably continue to rise. Most buyers don’t pay cash and mortgages enable them to purchase now. Based on history, even 8% would be an excellent rate. Until it reaches that point again, everything lower is a bargain.

How to Manage an Inheritance Wisely

 
Receiving a sudden inheritance can help relieve financial stress, but it can also be an emotionally and logistically overwhelming experience. Here’s how to make sure any lump sum of money you receive is ultimately used to its greatest potential.

Pause to reflect. Receiving an inheritance usually comes with the tragedy of losing someone you love. Instead of making rash decisions under the influence of intense emotions, put the money into a high interest-bearing account and give yourself plenty of time to grieve your loss before you decide what to do with the money.

Create financial goals. Before you give to charity or start investing, it’s essential to have a long-term financial plan. Look at the bigger picture and imagine how the inheritance will affect you down the road. Talk to advisors, get some perspective, and sit down with a qualified planner to help you develop a solid list of priorities and goals.

Pay down debts. Since paying off a 6 percent debt has a pretax equivalent of over 9 percent, tackling your debt could be the best investment move you make. Conversely, not using inheritance money to get rid of debt is essentially the same as leaving funds in savings while financing something of the same value.

Enjoy it. It’s important to have balance in every area of life, and the same goes for your inheritance. Set aside up to 10 percent as “fun money” and indulge a little bit. Again, just be sure you’ve made a solid financial plan before you start spending.

Through careful planning and good advice, you’ll be able to use your inheritance in a way that creates lasting value. Please reach out if you have any questions.

Reasons to buy now

Buyers who have been concerned about what might happen to the tax laws affecting home ownership should feel more comfortable about moving forward with their decision to purchase. The 2017 Tax Cut and Jobs Act passed by Congress and signed by the President continues to treat real estate as a favored investment.31496145-250.jpg

Whether it is for a home to live in as your principal residence or to use as rental property, the tax laws are in place but other dynamics to be concerned with are not; mortgage rates are expected to rise as well as prices.

Reasons to buy now:

  1. The mortgage interest deduction is intact for most taxpayers.
  2. The capital gain exclusion for principal residences up to $500,000 remains in place.
  3. Taxpayers can elect annually to take newly increased standard deduction or itemize deductions whichever will benefit them the most.
  4. The house payment with taxes and insurance is most likely cheaper than the rent.
  5. Rents will continue to rise making the difference even greater in the future.
  6. Lock-in the principal & interest payment with a fixed-rate mortgage.
  7. 30-year mortgage terms are available to most borrowers.
  8. Prices will likely increase due to lower inventories and several years of low housing starts.
  9. Section 1031 exchanges, capital gains and depreciation remain the same for rental properties.

For a summary of specific real estate provisions in the 2017 Tax Cut and Jobs Act, click here.

Get the hard, cold facts for the homes and mortgages

One of the silver linings to filing your income tax return is finding out that you are going to receive a refund. If you happen to be one of these fortunate taxpayers, your next decision is what to do with it. With the average tax refund around $3,000, it could be the difference that makes a home a reality sooner rather than later.46795263-250.jpg

Many would-be buyers think it takes 10% or more down payment to purchase a home, but actually, it can be much less. There are VA and USDA mortgages that have no down payment for qualified buyers. FHA has a 3.5% down payment program and FNMA has 3% down payment mortgages for qualified creditors.

Closing costs for originating new mortgages can easily range from two to three percent of the purchase price but most lenders will allow the seller to pay part or all of them based on the agreement in the sales contract.

While the average tax refund might not cover the down payment on the median price home, it certainly helps. Your refund could make it as simple as 1-2-3 to get into a home.

  1. Get the hard, cold facts for the homes and mortgages in your area and price range.
  2. Get pre-approved with a trusted mortgage professional.
  3. Start looking at homes.

Call me at (843) 368-9022 or Nick@NextHomeRealtor.com to get started.

Buyers or Sellers Marker ?

In any given market, inventories fluctuate based on supply and demand considering area and price range. The National Association of REALTORS considers a balanced market to be a six-month supply of homes.47945268-250.jpg

If it takes longer than six months to sell, it is thought to be a buyer’s market and less than six months, a seller’s market. Most buyers and sellers probably feel a balanced inventory is more like three months’ supply of homes.

The inventory of existing homes has been reduced to approximately 1.5 million houses which is 10.3% lower than a year ago. According to the Federal Reserve Bank of St. Louis there are 5.7 months’ supply of new homes currently on the market in the U.S.

Inventory has a direct impact on price. When demand is constant, but inventory is reduced, price tends to increase because the same number of people are trying to buy a smaller than normal number of homes.

As easy as it is to recognize the signs of spring, one should be able to spot the direction prices will be moving. When prices and mortgage rates are increasing, buyers are affected by not being able to afford the same price or size of homes.

Retirement, Sell or Buy

As people near or enter retirement, one of the decisions that typically comes up is whether to sell their “big” home and buy a smaller one. If you know anyone who has been faced with that situation, selling one home and buying a smaller one may not save enough money to make it worthwhile.79996505-250.jpg

There are sales expenses on the property being sold and acquisition costs on the replacement home. Generally speaking, homeowners may not mind a home with less square footage, but they usually don’t want to give up amenities or locations that they’ve become accustomed.

After a little number crunching, the move may not make enough difference in savings and they end up staying in their current home even if it doesn’t fit their needs anymore.

What if while this couple were still in their peak earning years, they acquired a home in an area where they would consider retiring and rent it during the interim. They could put it on a 15-year mortgage and possibly, even accelerate the principal payments to have it paid off by their anticipated move.

In the meantime, they could continue living in the “big” home until it is time to make the transition. Sell the “big” home that may be paid for by then and avoid up to $500,000 of capital gain. Take part of the proceeds and remodel the rental/transitional home and invest the proceeds for retirement income.

Ideally, the former rental would be mortgage free by this point, so the retirees would not have a house payment. Even if at this point, they changed their mind about retiring to this particular home, they still have a property that acted as a hedge against rising prices and have sufficient equity to purchase something else without using the proceeds from the “big” home.

It is difficult to know what the situation will be years from now when a person retires. It is clearly advantageous to have a plan that allows for options and choices. To find out more about purchasing your retirement home today, give me a call at (843) 368-9022.

Have you done your taxes

Taxpayers can decide each year whether to take the standard deduction or their itemized deductions when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions.Standard or Itemized-250.png

Beginning in 2018, the standard deduction, available to all taxpayers, regardless of whether they own a home, is $24,000 for married filing jointly and $12,000 for single taxpayers.

Let’s look at an example of a couple purchasing a $300,000 home with 3.5% down at 5% interest. The first year’s interest would be $14,630 and property taxes are estimated at 1.5% of sales price would be $4,500.

The interest and property taxes would provide a combined total of $19,130 which is less than the $24,000 standard deduction. Unless this hypothetical couple has other itemized deductions like charitable contributions that would make the total exceed $24,000, they would benefit more from taking the standard deduction.

If the mortgage rate were at 8%, the combined total of taxes and interest would be almost $28,000 which would make itemizing the deductions more beneficial.

Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most. For more information, see www.IRS.gov and consult a tax advisor.