Category Archives: Finance and Taxes

Common low-interest mortgage questions

Finance and Taxes

Mortgage rates remain below 3% for the 30-year-fixed-rate mortgage as we close out the month of August 2020. First time buyers are enthusiastically looking to home ownership as an alternative to renting and current homeowners are taking advantage of money saving refinancing options.  So, what does this mean to you, the homebuyer or homeowner?  If you have good credit, steady employment, and a sizable down-payment, you’re in great shape to get or refinance a mortgage loan.

Q: Will my mortgage’s interest rate be higher than the one advertised?

A: When you see an ad for a low interest rate, notice the disclaimer saying this is the best possible rate. This rate goes to loan applicants who are relatively debt free, have a credit score of at least 750, and a down payment of 20% or more.  When your credit history and cash reserve is not that spectacular, you’re considered more of a risk so your interest rate will be higher.

Q: Must a first-time buyer have a 20% down payment?

A: The best interest rates go to buyers having a down payment of 20%, but there are plenty of ways to put down less and still get a mortgage.  A Federal Housing Administration (FHA) loan lets borrowers put down as little as 3.5% with a decent credit score and steady employment for at least two years. Active or retired military (or a surviving spouse of a veteran) can apply for a VA (Veteran Affairs) loan that allows 0% down.

For non-veterans, the State of Michigan as well as most banks and credit unions offer loan programs that enable borrowers with low income to receive a down payment subsidy.

Q: Is a 30-year fixed-rate loan the best option?

A: The 30-year loan with a fixed interest rate is the best mortgage for most home buyers. Adjustable-rate mortgages are often discouraged, but the lower interest ARM makes sense if you plan to move before the rates adjust to the full rate. An ARM may also make sense if you can’t afford a home with a higher rate fixed-rate mortgage.

A 15-year loan greatly reduces your interest payout, if you can afford a monthly payment that is approximately 30% higher than that of a 30 year mortgage. The upside to a 15 year mortgage is that its lower interest rate (2.46%) and shorter term will yield a savings of approximately 75% in interest over the life of the loan.

Q: What is private mortgage insurance?

A: If you can’t afford to make a 20% down payment, you’ll have to pay private mortgage insurance. PMI is a protection for lenders if the borrower is unable to pay the mortgage. Since your lender loses money, PMI helps to offset that loss. You can expect to pay about 0.3% to 1.15% of your home loan in PMI.  This can be a sizable sum, but it makes sense if you want to buy a home now rather than wait until you can amass a bigger down payment.

 

Mortgage Rates Continue Record Lows

Finance and Taxes, Market Update

The average rate on the popular 30-year fixed fell to another record low at 2.87% on July 24th.  That is about a full percentage point lower than where it was one year ago causing mortgage applications to be up 13 percent over last year.

This historically low mortgage rate bonus provides home buyers with increased purchasing power, and for current homeowners looking to refinance, it might be time to start shopping rates yet again.

 

Low Mortgage Rates…Low Inventory

Finance and Taxes, Market Update

The coronavirus pandemic has reduced homebuying and selling activity.  While many people are choosing to delay a home purchase or sale and stay in place until the coronavirus pandemic has subsided,  others are still buying and selling.

It remains a “seller’s market”, but many buyers are thinking long term as historically low interest rates have made this an opportune time to buy.  Those who are actively looking tend to be serious buyers.

Low Housing Inventory
Home listing activity has dropped significantly with many sellers having decided to delay putting their homes on the market, both to continue social distancing and eliminate the need to move in the middle of a pandemic.

As of May 18th, there were 1,322 residential home for sale in the entire greater Lansing market area. This is an increase of 260 homes in the past 14 days. Still, low inventory favors sellers and drives up offers due to competitive buyers. A balanced market, not favoring either buyer or seller, would be at least 2800 units.

Mortgage Rates
Rates have been hanging around 3.26% for a 30 year conventional mortgage.  This translates to $4.42 per thousand dollars of monthly mortgage loan. These rates are the lowest in recent memory.

What the Fed’s Interest Rate Cut Means for Mortgage Rates

Finance and Taxes, Uncategorized

The Federal Reserve recently lowered its interest rate to a range of 1% to 1.25% due to the risks the COVID-19 coronavirus outbreak poses to the economy – but this does not apply to mortgage rates.

The Federal Reserve frequently adjusts the short-term interest rate it charges to banks and other financial institutions.  Mortgage rates are based the long-term bond market, which include Municipal bonds, Corporate bonds, and U.S. Treasury bills,  not the interest rate offered to financial institutions.

Mortgage rates have recently dropped to 3.26% (30 year fixed mortgage) as a result of investors pulling out of volatile markets and embracing the safety of bond markets.
Lower mortgage rates have already caused increased refinance activity and demand among home buyers continues to remain high, in spite of the short supply of homes for sale.

Be aware that a home equity line of credit has nothing to do with mortgage rates. These are adjustable-rate loans based on the prime rate.  However, you may see a drop in these interest rates, since the prime rate does closely follow the Federal Reserve rate.

What Homeowners Need to Know About Filing Taxes in 2020

Finance and Taxes

Tax brackets, credits, and deductions change slightly each year, and sometimes they change dramatically with new laws. Though there haven’t been any major changes in 2019 that will affect your 2019 tax return, there are some recent changes to things like mortgage interest deductions and personal deductions you should keep in mind. Here’s what homeowners need to know about filing taxes in 2020.

taxes

This newsletter post is not legal or financial advice.
Always consult with a tax expert before filing your taxes.  
The Basics for Tax Filing in 2020

Last year, all taxpayers saw a number of changes to their tax returns from President Trump’s Tax Cuts and Jobs Act (TCJA). These changes are still in effect, but filing your taxes this year in 2020 will be very similar to last year. To recap, here are some of the biggest changes from the TCJA:

  • The personal exemption was eliminated and standard deduction increased: $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples.
  • Deductible state, local, and property taxes are now limited to $10,000
  • Mortgage interest debt ceiling reduced from $1.1 million to $750,000
When are Taxes Due in 2020? 

One of the most important things you need to know about filing taxes in 2020 is when your tax return is due. Your 2019 tax return is due on Wednesday, April 15, 2020, unless you file for an extension. It’s a good idea to get necessary documents together well before then, so you have time to track down anything that’s missing.

What Documents Do Homeowners Need to File Taxes in 2020? 

If you are employed, you’ll need your W-2s to complete your taxes, as well as other documents for other types of income or investments. To claim tax credits and deductions specifically for homeowners, you’ll need a few different documents.

  • Form 1098 for the home mortgage interest deduction
  • Records of property taxes paid if you itemize your return
  • Home equity loan interest paid
  • Records of home improvements and home improvements materials
Tax Credits and Deductions for Homeowners in 2020

All of these tax credits and deductions for homeowners in 2020 are only available on an itemized return. Since the standard deduction increased after the Tax Cuts and Jobs Act, it might not be worth it to itemize. You’ll want to add up all the deductions you could get from itemizing, including deductions for healthcare expenses, educational expenses, and other expenses, and see if you’ll get more from this than your standard deduction.

Deducting Mortgage Interest on Your 2019 Return

The mortgage interest deduction is one of the most important things homeowners should know about filing taxes in 2020. If you own a home, the interest that you pay on your mortgage is deductible. Your lender will provide Form 1098 showing how much you paid on mortgage interest. This deduction is for mortgage interest only, so you can’t deduct things like mortgage insurance, homeowners insurance, title insurance, or other costs. Also, you can only deduct interest on $750,000 of debt or less. If your home is more than this, only a portion of the mortgage interest you paid is deductible. You can use this deduction for a primary or second home, with some stipulations.

You’ll need to itemize your return to benefit from this deduction, so if your mortgage interest is less than your standard deduction ($12,200 for single people and $24,400 for married couples) then it might not be worth it to take this deduction. You’ll want to add up the other itemized deductions you could take advantage of to find the biggest benefits.

Deducting Home Equity Loan Interest on Your 2019 Return 

Before the TCJA, you could have deducted interest from your home equity loan regardless of what you used the loan for. Now, you can only deduct this interest if you used the loan to improve your home value. For example, if you purchased a fixer-upper intending to remodel and renovate it, and you took out a home equity loan to do it, you could deduct the interest you pay. This interest is deductible in the same way as your mortgage interest (see above), as long as it is used to repair or remodel your home. The deductible interest is subject to the same ceiling as the previous deduction, and you must combine the total debt. This means the total debt you can deduct interest from cannot be greater than $750,000.

Deducting Property Taxes and Local Income Tax 

Before the TCJA, a homeowner could deduct all of the property taxes they paid throughout the year. It was also possible to pay property taxes early if you had a good year, or expected a tougher time later on. The TCJA put a $10,000 cap on deductible property taxes as well as state and local income taxes. This means, if you add up your property taxes and your state and local income taxes, you can only deduct $10,000 of this.

These important deductions for homeowners in 2020 can help you keep more of your hard-earned money. These deductions can also make it easier to own a home, and make your budget more manageable. Talk to your tax preparer about tax deductions you can use as a homeowner, and any documents you’ll need to claim them.

Article courtesy of Berhshire HomeServices Tomie Raines Realtors

How to Challenge Your Property Taxes

Finance and Taxes

property taxStatistics vary by area, but experts estimate that between 30 and 60 percent of taxable property in the United States is over-assessed, and this leads to higher property tax bills. Yet typically fewer than 5 percent of taxpayers challenge their assessments, even though the majority who do so win at least a partial victory when properly prepared.

Are your property taxes too high?
Your 2020 tax assessment, arriving in February, will outline county, city and school taxes, as well as special assessments. Search online for your county and/or local taxing authority assessor’s office. This will provide the property information used to assess the tax value of your home. Check the accuracy of the assessor’s math and description of your property. Compare this to your bill and make sure your square footage, lot size, number of bedrooms and baths are listed correctly.

Mistakes Happen
Assessor records were once recorded on index cards. Errors have been made when this data was transferred to modern electronic records. A two-story may be recorded as ranch, the record may indicate a finished basement where there’s a crawl space, or the stated square footage may be incorrect.

Prepare Your Appeal
The assessor will give you an opportunity to file an appeal. This is usually in March. Your tax statement will provide directions for arranging a meeting with the assessor.

Your meeting won’t go well unless you’re prepared with a rational argument. Your Berkshire Hathaway HomeServices Tomie Raines Realtor is a professional who may be able to help by providing you with a comparable market analysis of similar neighborhood homes sold during 2019. Choose three to five properties with the same age, size, and condition of your home, noting any differences between the homes, such as additions or other improvements.

Always remember that the assessor’s judgement is based on the numbers and details.
Being prepared is your best argument.

 

Buying a Condo Just Got Easier

Buyer Information, Finance and Taxes, Seller Information

ExteriorfrontThe U.S. Department of Housing and Urban Development recently revised its condominium loan policies to allow consumers greater access to mortgage loans that are federally guaranteed through the Federal Housing Administration (FHA). After Oct. 15, 2019, as many as 60,000 additional condo units (nationwide) will meet FHA-certification, making them eligible for buyers to purchase with an FHA loan.

The new guidelines will extend project certifications from two years to three, allow for single-unit mortgage approvals, allow a higher owner-occupant vs. renter occupancy ratio, and increase the number of units eligible to be purchased with FHA loans in a single project.

The FHA certifies eligibility for both condo projects and individual units, but according to the National Association of REALTORS, only 17,792 FHA condo loans were originated in the past year, out of approximately 8.7 million condo units nationwide.

The new relaxed guidelines are a significant improvement as condos are often more suitable and affordable to many singles, couples and small families who wish to take advantage of easier qualification, low-down-payment FHA loans – particularly first-time buyers.

Any impediment to buying a property can impact its desirability and market value.  With approximately 84% of homebuyers purchasing a condo for the first time, the relaxed rules will promote more “affordable and sustainable homeownership, especially for credit-worthy first-time buyers.” The result should also make condos more marketable and easier to resell since the pool of available buyers and loans will be larger.

 

How to Save on Homeowners Insurance

About the house..., Finance and Taxes
The Insurance Policy
The Insurance Policy

If something happens to your home, from robbery to wind damage to fire, you want to make sure you can make repairs. This is where homeowners insurance comes in. Homeowners insurance allows you to pay monthly premiums so you’ll be covered in the case of a damaging and expensive event. So how can you save on homeowners insurance while still getting full coverage? Here are a few ways.

Make Your Home Safer

How to save on homeowners insurance partly depends on where you live and what type of home you live in. Though you can’t control the hazards in your area, you can make small changes to make your home safer. Here are a few examples:

  • Update electrical: If your home is older, you may have unsafe electrical wiring. Updating this, especially if you are already making other updates, can lower your homeowners insurance premiums.
  • Update plumbing: water damage due to faulty plumbing is a common cause of homeowners insurance claims. If you’re already making updates, overhaul your plumbing to make it safer, and let your insurance agent know.
  • Install home security system: Robbery is another common cause of home insurance claims. Installing a home security system can lower your chances of robbery, and thus lower your premiums.
  • Install new roof: older roofs are more likely to become damaged due to wind and hail, the most common cause of claims. This means installing a new roof can lower your premiums.

    Eliminate Risks

    Some risks, such as living in a flood zone or an area with inclement weather, you cannot control, and your home insurance will reflect this. How to save on homeowners insurance also includes risks you can control. If you’re considering home updates or changes, think twice about the following, since they can raise your premiums.

    • Pool: Adding a pool increases the risk that someone will get hurt on your property, which will also increase your homeowners insurance.
    • Fireplace: Adding an open flame in your home will increase insurance rates for obvious reasons. Though a fireplace can be cozy, consider making other updates first.
    • Dog: Many homeowners consider dogs good protection against burglars, but insurance carriers may also consider them a risk to visitors. Owning a dog can increase your insurance rates, especially if the dog is considered an aggressive breed.
    • Trampoline: A trampoline can be fun, but it can also be dangerous, which increases your liability risk.
    • Smoking: smoking puts your home at greater risk of fire, which can increase your premiums. Put this on a long list of reasons to kick the habit.

    Increase Deductible

    How to save on homeowners insurance is not always a question of risk; there’s also the financial factor. As with most insurance types, increasing your deductible means lowering your premium. To an insurance company, this can mean lowering the chances of small claims, since you have to pay your deductible before your insurance pays. Consider raising your deductible from $500 to $1,000, and you may be able to save substantially in the long run. If you do, just make sure you have enough cash on hand to pay the deductible. 

    Bundle Insurance

    Insurance carriers want your business, and they’ll provide discounts if you buy more insurance from them. If you have auto, life, and home insurance all in different places, ask about discounts you can get from bundling.

    Shop Around

    It can be a hassle to get home insurance, and it’s tempting to settle with the first rate that you get. However, shopping around can lower your premiums substantially. Talk to agents working with different companies, or talk to an independent agent. Ask about rates and discounts, as well as the claims process. Keep in mind that the lowest premium is not the only factor—you also want to be covered if you have to make a claim.

    Improve Your Credit Score

    You’ve already seen that your credit score impacts your mortgage, but it impacts your home insurance as well. Homeowners with credit scores above 630 are seen as more reliable, and will get better rates.

    Balance Your Coverage

    It’s important to get the right amount of coverage, but you also don’t want to pay for coverage you’ll never use. Even in a worst case scenario—your home is completely destroyed, perhaps in a fire or tornado—keep in mind that you’ll still have your property and foundation, so rebuilding might not cost as much as you think. Also, consider the other property in your home you’re insuring, such as jewelry or electronics, and see if this makes sense with your deductible and premium.

    Ask for Discounts

    Many homeowners insurance discounts exist that you might not be aware of. For example, homeowners that are home during the day, such as those that work at home or who are retired, are considered less likely to be robbed, so they may pay less in premiums. Neighborhoods with Homeowners Associations are often safer than other neighborhoods, so paying HOA fees may win you a discount. Different insurance carriers offer different discounts, so ask about which you may be eligible for.

    Now that you know how to save on homeowners insurance, maybe it’s time to shop around. Looking at other carriers won’t raise the rates that you currently have, and you might find a better deal elsewhere. If you haven’t considered your home insurance premiums in some time and you’ve made improvements to make your home safer, ask about discounts you may now be eligible for.

The Credit Scores You Need to Buy a Home

Buyer Information, Finance and Taxes

Mortgage lenders check your credit history before approving a home-buying loan. Your credit scores are crucial to getting the amount you want to borrow at a good interest rate.

Your income vs. your debt, your payment history, the length of time you’ve had credit, new credit you’ve opened, and the types of credit you owe (such as student loans or consumer debt) are all calculated in a valuation system known as credit or FICO scores.

FICO scores range from 300 to 850, but because mortgage loans are so large and have such a long payback period, most lenders require scores between 520 to 700 and above, depending on the type of loan. “Conforming” loans are guaranteed by the federal government, including FHA and VA loans. They require a minimum score of 500 to 520 and any scores lower than 580 will increase the minimum down- payment required to 10%. If you’re married or have a co-borrower, their scores must meet the same requirements.  All FHA loans require private mortgage insurance, which reduces the amount you can borrow.

“Conventional” loans are federally sponsored by Fannie Mae or Freddie Mac to be packaged into securities bundles and sold on the secondary market. Lenders can manage risk by requiring scores of 700 and above, using loan-level price adjustments, based on loan-to-value ratios and credit scores.

For any loan, the larger your down- payment, the lower your credit score can be. Credit scores also impact interest rates. The better the score, the better the rate.

Quick Ways to Build Equity

Buyer Information, Finance and Taxes

Equity is the percentage of market value that you own in your home. Your lender owns the rest, so your goal should be to pay the lender’s share (the principal) down and build your share (equity) up.

You don’t need to go to extreme lengths to pay down your mortgage. Just follow these few easy tips:

  1. Buy wisely. Buy as much home as you can without straining your resources, so you can occupy your home longer. Moving and closing costs eat away equity.
  2. Pay a little extra. Pay a little more every month toward reducing your principal. Use bonuses or cash back on your credit cards to apply to your mortgage. Making one extra payment a year could shorten your loan payoff by as much as four years, saving you thousands of dollars in interest.
  3. Pay off other debts. Don’t incur new debt. Spend less on automobiles, dinners out and other expenses. Pay off credit cards and student loans as quickly as you can, so you’ll have more money available to pay toward your mortgage.
  4. Make improvements. Keeping your home repaired and updated helps you preserve equity by making market value higher.
  5. Let time work for you. Think of your home as a savings account where the money you put in can be retrieved one day – with interest. Historically, homes have increased in value as much as three percent a year in normal markets, which is a great way to build instant equity.