Using Gifts for A Down Payment

moneyMerry Christmas, homebuyer! Don’t cash Mom and Dad’s check yet! Your loan could be denied if the money isn’t carefully documented.

Why? Gifts can cause confusion. Is your parents’ money a gift or a loan? Unless the terms are clearly defined, don’t mix the gift with your own funds. It alters your bank statements and raises your income both of which could muddy your financial picture.

Lenders require a paper trail for all monies, so no phone deposits. They also limit the size of gifts in relationship to the total down payment. Some loan programs require the borrower to contribute at least 3% to 5% of the down payment if the down payment is less than 20%, while other programs allow the entire down payment to be supplied by a gift.

To avoid questions, provide a certified down-payment gift letter or sign an affidavit that explain:

  • The amount of the gift, accompanied by a corresponding cashier’s check, including a photocopy of the check
  • The name and address of the gift-giver and relationship the gift-giver has to the homebuyer
  • The purpose of the gift – to be used only as a down payment on the subject property, complete with the property’s address
  • A statement confirming that the gift is not a loan, and does not need to be repaid
  • Signatures of the borrower and the gift-giver

If you’re planning to use a gift as part or all of your down payment, ask your lender how to meet all the appropriate requirements.

How Long Should You Own a House Before Selling?

If you purchased a starter home and are now considering moving up, you may wonder how long you should own your house before selling. While it’s impossible to know for sure what market conditions will be like in the Greater Lansing area in five or ten years, trends and calculations can help you make an informed decision.

5 Factors to Decide How Long You Should Own Your House Before Selling
Answers to this question vary because there is no one-size-fits-all for how long you should own your house before selling. This depends on your mortgage, capital gains, closing costs, equity, market conditions, and your own circumstances.

1. Your Mortgage
If you want to make money on your home sale and upgrade to a bigger home, the sale price must be greater than your remaining mortgage. During the first few years of your mortgage, you’re paying far more in interest than the principle. This makes it difficult to make money on a sale in under five years. However, if you purchased a more modest home with a larger down payment, you probably have a smaller mortgage amount and interest rate. With this arrangement, you can sell your first home faster and make a profit.

2. Capital Gains Tax
Regardless of other factors, it’s best to live in the home at a minimum of two years before selling. If you live in your home as a primary residence for at least two of the five years prior to sale, you can exclude $250,000 ($500,000 for married couples) of the profit from your sale.  If you don’t live in your home for at least two years,  you’re generally not eligible for a capital gains exclusion.  This means you must report any profits (sale price received minus sale price paid and expenses) from the sale on your taxes and deduct capital gains tax at a rate dependent on your income.

3. Equity
You build home equity when you pay off the principle on your mortgage or when you make improvements to the home that increase its value. How much equity you’ve acquired depends on your mortgage and on renovations or remodeling you’ve done. If the first home you purchased was already in pristine condition, it’s difficult to build sweat equity. However, if you remodeled the bathroom or kitchen, added a deck, refinished the floors, finished the basement or made other improvements, you’ve increased the home’s value and gained equity. You can conduct these projects quickly or slowly, but it’s best to take on projects that maximize your investment before selling.

4. Market Conditions
Real estate markets have highs and lows that tend to follow an 18-year pattern. If you purchased your home during a recession such as that between 2008 and 2013, selling now while the markets is at a sales peak may maximize the home’s value. However, if you purchased a home later during the recovery stage, such as around 2014 to 2016, selling too soon could cause you to lose money.

5. Buying and Selling Costs
The costs of buying and selling are an important, often overlooked, factor when determining how long you should own your house before selling.  When selling your home, a qualified realtor will generally require a commission of 6%. When buying a new home, you’re likely to pay closing costs between 3 and 6% of the new home’s price. Calculate these expenses first to know how much you need to sell your original home for to cover the costs of your new one.

Besides market trends and equity calculations, you also need to consider your circumstances. If you’re moving to be closer to a job or your family, other calculations may be less important. If your family is growing and you need more space, you may not have time to wait. However, if you have time to consider all your options, making these calculations can save you money in the long run.

Homeowners Take a Hit for the New Tax Plan

The House on November 16th passed a tax reform package that the National Association of REALTORS® calls a tax hike on many middle-class homeowners and says would lower property values for all homeowners. “It’s disappointing to see this legislation move forward, but the real work to shape this debate is just getting started,” NAR President Elizabeth Mendenhall said in a statement.

The bill, called the Tax Cuts and Jobs act, was passed by a vote of 227 to 205 along party lines. It was approved entirely by Republicans—although several members of the party joined Democrats in opposition. The bill, which would increase the federal deficit by $1.5 trillion over 10 years, cuts the top corporate tax rate from 35 percent to 20 percent and, in a move that affects only the wealthiest households, nearly doubles the threshold for the estate tax and then phases it out entirely.

To pay for these and other measures, the bill would institute these changes:

•  Eliminates or curtails most itemized deductions, except those for mortgage interest and charitable contributions. The MID would be limited to mortgages of up to $500,000—half of the current limit—and the property tax deduction would be capped at $10,000.

•  Restricts the exclusion on gains from the sale of a principal residence by requiring households to live in the house for five of the last eight years, instead of two of the last five years. The bill also reduces the benefit for higher-income households. The exemption today applies to proceeds of up to $250,000 for individuals and $500,000 for married couples filing jointly.

•  Nearly doubles the standard deduction to $12,000 for individuals and $24,000 for married couples, but that increase is largely offset by elimination of the personal and dependency exemptions—a change that could hit larger families, as well as those with older children, particularly hard.

The House passage is the first of a multistep process before tax reform legislation can be enacted into law. In the Senate, the tax-writing Finance Committee is already working on its version of tax reform, and the full Senate may vote on the bill the week after Thanksgiving. That bill follows the same structure as the House bill but makes significant changes. Among other things, it makes no direct changes to the mortgage interest deduction, but it eliminates the deduction for all state and local taxes, including property tax. However, as with the House bill, the Senate version would limit the use of both tax incentives for owning a home to only about 5 percent of tax filers. Estimates show that this could lead to a drop in home values of more than 10 percent nationwide, with an even greater drop in high-cost areas.

“Make no mistake, middle-class homeowners will see their home values fall if this proposal moves forward, while large corporations walk away with the bulk of the tax cuts,” Mendenhall said. “American homeowners shouldn’t have to pay for corporate tax cuts with their home equity. It’s a matter of basic fairness; 1.3 million REALTORS® have known since the beginning what America’s 75 million homeowners are just beginning to learn: that homeowners will be the ones paying the tab. REALTORS® will do our part to spread the word as we work with the Senate to address this impending assault on homeownership.”

—Robert Freedman, REALTOR® Magazine

Housing Forecast for 2018

There’s nothing like a new year to pump enthusiasm into your life, so what do the experts say about the housing forecast?

Unemployment remains low:  Despite tens of thousands of people losing their homes as well as businesses and hospitality services crippled due to the storms, the unemployment rate remains at a low 4.2 percent, according to the U.S. Bureau of Labor Statistics. Buyers have the income to shop for homes.

New home construction lags demand:  Due to costly governmental oversights, lack of skilled construction workers, and increased enforcement of undocumented workers, homebuilders are unable to meet demand for new homes, according to the U.S. Census. There’s currently five month’s worth of supplies at today’s rate of sales.

Millennials favor homeownership:  Pew Research found that millennials are the largest living generation and are disproportionately renters compared with previous generations. As the generation matures (the oldest are at 34 years of age), seventy-two percent wish to become homeowners.

Demand is outpacing supply:  According to Freddie Mac research, the hurricane season that hit the southern and eastern coastal areas, is exacerbating a market already short on homes, particularly in the affordable price ranges. Home prices are predicted to rise 4.9 percent.

Mortgage rates drop under four percent:  Nationally, the average interest rates on conventional purchase-money mortgages decreased in the fall to less than four percent, reported the Federal Housing Finance Agency.

Market conditions suggest winter and spring home buying will remain brisk. You might be encouraged to buy before the summer rush!

 

Why Homebuyers Pass Up Good Homes

Selling your home takes hard work and commitment to get it ready to impress buyers. While you can’t control the market, you can control your home’s appeal. Don’t let the following reasons make buyers pass on purchasing your home.

  1. Price:  If you price your home too high, the right buyers won’t see it, and the ones who do see it will quickly realize other homes in the same range offer more value.
  2. Clutter:  If your tables are full to the edges with photos, figurines, mail and coffee cups, buyers will be more focused on trying not to break something than considering your home for purchase. Too much stuff makes it confusing for buyers to see the rooms clearly, so they’ll move on to a clearer choice.
  3. Deferred maintenance:  Buyers really want a home that’s been well-maintained, so it’s your job as the homeowner to keep your home in good condition. You don’t want buyers wondering what needs fixing and at what cost.
  4. Outdated décor:  The reason people are looking at your home instead of buying brand new is because of cost and location. They want your neighborhood but not a dated-looking home. Take popcorn ceilings and flocked wallpaper down. Replace carpet with an upgrade or perhaps hardwoods.
  5. Smells:   There’s not a buyer in the world who will buy a home that smells like pets, dirt or water damage. If you get an offer at all, it will be low and contingent on a positive inspection.

Home Prices Continue to Rise

The average sales price of Lansing area homes has increased $8282 during the past twelve months (September 2016 to September 2017). Low inventory continues to favor sellers while affordable mortgage rates giving buyers a unique purchasing advantage.

Mortgage rates remain at below 4%
Since early July, rates for a 30 year fixed rate mortgage have remained at between 3.80 and 3.90%.

Average Lansing Area home prices increase steadily
The average sales price of homes in the Greater Lansing area has risen 5.5% from $150,344 at the end of September 2016 to $158,626 in September 2017. Check out our Third Quarter Sales Statistics Link (below) for an update sales activity by community.

Third Quarter 2017 Sales Statistics

Low inventory resulted in homes selling quickly during past six months
As of the October 25, the number of available homes for sale is in the Greater Lansing market was only 1916 units. During the months of April through September, the inventory of available homes fluctuated from between 1,725 units to a high of 2,022 units. This low volume has been a standard for the past three years. A balanced market, favoring neither buyer or seller, would be at between 3000 to 3400 units.

The inventory Absorption Rate, the average time it takes to sell a home, has dropped from 3.8 months to 2.9 months. Absorption rate varies by community and price range.

Homeowners May Face Tax Hike Under New Federal Plan

Homeownership would no longer be a priority in the tax code if a reform plan released Wednesday by the Trump administration and congressional Republicans becomes law. The “Tax Reform Unified Framework,” known as the “Big 6” tax reform plan, is being touted as a way to cut taxes for the middle class.  But it could hurt residential real estate by eliminating most itemized deductions in return for an increase in the standard deduction.

Although on its face, the change would seem to help many taxpayers by nearly doubling the standard deduction to $12,000 for single taxpayers and $24,000 for married couples, most middle-income homeowners who currently itemize would likely pay higher taxes, according to National Association of REALTORS® estimates. That’s because the repeal of most itemized deductions, including the deduction for state and local taxes, would exceed what people would gain under the higher standard deduction – even if the deductions for mortgage interest and charitable contributions are left in place, which the outline calls for. In addition, the personal and dependency exemptions that taxpayers take today would be folded into the higher standard deduction, eradicating their benefit.

NAR President William E. Brown said in a statement that REALTORS® favor tax reform without hurting homeownership and the transfer of real property, which are the backbone of the economy.  “We have always said that tax reform—a worthy endeavor—should first do no harm to homeowners. The tax framework released by the Big 6 missed that goal. It recommends a backdoor elimination of the mortgage interest deduction for all but the top 5 percent, who would still itemize their deductions. When combined with the elimination of the state and local tax deduction, these efforts represent a tax increase on millions of middle-class homeowners.”

Among credits that are singled out for preserving—rather than repealing—is the low-income housing tax credit, which gives businesses an incentive to invest equity in housing developments that are affordable to low-income renters. The plan laid out no details on the fate of 1031 like-kind exchanges. However, the document specifies that many, if not most, business deductions will be curtailed or repealed.

The outline is the starting point for drafting legislation that lawmakers will eventually vote on.  Sen. Orrin Hatch (R-Utah), chair of the Senate Finance Committee, said at a hearing last week that he wants the process to be as bipartisan as possible.  At that hearing, Iona Harrison, a real estate practitioner in Upper Marlboro, Md., testified that real estate must be protected because it’s essential to communities and economic growth. “We want to be sure the economic engine of homeownership and the transfer of real property in this country remain unfettered,” she said at the hearing.

—Robert Freedman, REALTOR® Magazine

 

 

Three Ways Buyers Choose Homes

Buyers generally have three criteria for selecting the home they ultimately purchase.
These include  PRICE, CONDITION, and LOCATION.  Play these up to get your home sold quickly and for the best terms.

Make the price attractive:  Don’t price your home where you think it should be but instead, price it close to or slightly below market value. This strategy gives buyers the opportunity to compete for your home, and it could possibly sell above list price.

Make the condition move-in ready:  Keep in mind that many buyers are stretching their financial limits to afford your home. Buyer’s pet peeves are usually easy items to fix.  You don’t want your house to be disregarded because you failed to paint, mow, replace the carpet, fix leaky faucets, etc.  Your goal is to make buyers feel like they don’t have to do anything but move in.

Make the most of your location:  You can’t do much about your home’s location but you can make your home more attractive with lovely landscaping, fences to block out ugly views and sounds, and an outdoor entertaining area.  If your home is on a busy street, point out the easy access to amenities, like walking to the grocery store.

If these three criteria aren’t in alignment, you definitely don’t want to overprice.  Buyers expect to pay more for a great location near schools, transportation, shopping and restaurants but if you overprice, they will scrutinize the location and the condition more closely.

 

9 DIY Home Projects That Increase Sales Value

When purchasing a home, you’ll probably have a list of must-do projects in mind. It’s difficult to find a home that fits your style and taste perfectly. When making updates to your home, however it’s important to keep the home’s long term equity in mind. You don’t want to spend your life savings on projects that don’t have an impact on your home’s resale value, and place it at a price tag too high for the neighborhood. One of the easiest ways to keep the costs of projects down are by taking matters into your own hands.

1. Paint Walls
The first and most straightforward DIY home project is painting. There are a variety of tools available for DIY painting including edging tools, and one-coat paint that includes primer that make painting your own home easier than ever before. By putting in some sweat equity, you can completely transform your home at a low cost. To build equity, make sure the paint colors you choose are neutral to appeal to the largest number of homebuyers.

2. Install or Paint White Trim
The trim is another area of your home that can be completely transformed with a coat of paint. Although this can be a tedious DIY home project, it’s one that can modernize and brighten your home making it easier to sell. By painting the existing trim in your home white, you can complement the bright neutral paint colors you’ve painted throughout the spaces in your home. If your home doesn’t have trim, adding trim can also build equity. Adding trim and other decorative trim work, such as wainscoting, can make your home appear higher end on a budget.

3. Resurface Countertops
A complete kitchen remodel isn’t always in a homeowner’s budget. Even if it is an affordable option for you, it might not always make sense in terms of building equity. The worst thing you can do to your home is make it worth far more than the comparable homes in your surrounding neighborhood. One of the DIY home projects that can completely transform your kitchen however, aside from paint on the walls and cabinets, is resurfacing countertops. There are a ton of different ways that you can resurface your countertops by yourself. You could follow a plan for how to build butcher block countertops, or update your existing laminate countertops with new laminate, countertop paint or heavy duty contact paper coverings that are on the market today.

4. Modernize Fireplace
Your fireplace is the focal point of your living room and is a major selling point for home buyers. Old styles, like red toned brick and oak mantles are found in many homes but doesn’t necessarily appeal to today’s homebuyers.  Another one of the most rewarding DIY home projects you can complete is modernizing your fireplace. Start by using paint to whitewash or refinish brick. You can even completely change the style if it makes sense with your home decor by using stucco and other materials. Once resurfaced, modernize the mantle by creating an updated wood stained piece that can fit directly over the existing mantel or simply using paint. This DIY home project, along with the corresponding paint on the walls can completely transform the look of your living room without the large price tag.

5. Refinish or Replace Floors
Floors complete a home by making cohesive spaces. Updating floors can have a huge impact on building equity. Especially if you save money by making it one of the DIY home projects that you work on. One option for transforming your floors, especially if they’re wood, is to resurface them. You can rent a floor sander and take off the existing finish completely to prep them for a new stain throughout your home. If you have carpet or tile in your home, you can also make them look brand new using a carpet shampooer or grout cleaner. If your floors are beyond repair, replacing your floors is fairly easy with the products that currently exist. By opting for a laminate wood, for example, you can find products that physically snap together making it a doable DIY home project.

6. Build a Deck
Building equity isn’t only reserved for the inside of your home, sprucing up your outdoor space can make a huge impact as well. There are plenty of deck plans that you can find or purchase to build your own deck or porch. Although this obviously requires a set of power tools and knowledge about how they work. This is a DIY home project that will take some time, but will be well worth the return, especially by saving money on labor costs.

7. Upgrade your Exterior Doors
Exterior doors can not only tie together the look of your home, but also help immensely with your home’s efficiency. Updating the major exterior doors is a DIY home project that you can do on your own by taking proper measurements and purchasing a new door that fits in the same space. Opting for a modern door with a bright paint color can enhance your curb appeal making your home more desirable for homebuyers.

8. Update Light Fixtures
Another one of the simplest DIY home updates you can do is to update all of the light fixtures in your home. Opting for modern chandeliers for dining rooms, pendant lights in the kitchen and new updated hallway light fixtures can brighten and modernize your home in a cohesive way. Most light fixtures can easily be swapped out by following the instructions provided in the new light fixture and connecting the existing wires. New light fixtures are the focal point of each room, and can be the perfect finishing touch for a homebuyer.

9. Waterproof Basement
Finally, updating your basement is another DIY home project you can take on. One of the biggest fears of homebuyers is purchasing a home that has a wet basement. If you have an unfinished basement, you can make it more appealing by using waterproofing materials, like heavy duty waterproofing paint to finish off surfaces that may be susceptible to moisture. For example, covering concrete floors with waterproofing paint can make the space feel cleaner and can be a major selling feature for homebuyers.

Overall, these 9 DIY home projects take a range of time and sweat equity, but are well worth it in the end. They’ll ensure that your home looks great and is more efficient without breaking your budget. This will ultimately help you save money, giving you even more return on your investment. Sometimes, taking matters into your own hands through DIY projects can have a large return in the long term.