Assumptions are an Alternative

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In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.

Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.

FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.

  1. Interest rate won’t change for the qualified buyer
  2. Lower interest rate means lower payments
  3. Lower closing costs than originating a new mortgage
  4. Easier to qualify for an assumption than a new loan
  5. Lower interest rate loans amortize faster than higher ones
  6. Equity grows faster because loan is further along the amortization schedule
  7. Assumable mortgage could make the home more marketable

An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.

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Family & Friends Mortgage

Anytime a lender and borrower can agree on rates and terms, it can be a good match but IRS has specific rules that govern the transaction especially when the parties are family or friends.26614035-250.jpg

The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien to allow the interest deduction.

Sometimes, a friends and family situation might have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS based on current Treasury securities. For July 2017, the rate is 2.57% for terms over nine years.

The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence. A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments.

Your tax professional can guide the transaction whether you’re a buyer or a seller and your real estate professional can help arrange to have the documents drawn and filed.

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Down Payment Problem – Are You Sure?

There is increasing difficulty for first-time home buyers to save for their down payment as indicated in the graph. Several factors that contribute to this trend include rising rents, rising home prices, student loan debt and flat wages.down payment graph.png

Some would-be buyers feel they cannot buy a home today but a large part of those decisions may be based on inaccurate assumptions.

Nine out of ten non-owners believe they need ten percent or more for a down payment. The typical down payment for first-time buyers is six percent. VA has 100% loan programs as well as USDA for certain qualifying areas and buyers. FHA is known for 3.5% down payments. And FNMA and Freddie Mac have down payments as low as 3% and 5%.

There are gift provisions available for buyers who have an “angel” who would like to help them with their down payment.

There are ways to borrow against a person’s qualified retirement program for a down payment. It isn’t necessarily limited to the buyer but could include a relative. Interestingly, a son or daughter can borrow against their retirement to benefit their parents.

In some respects, having good credit and sufficient income is more important than the down payment. Don’t rely on “common knowledge.” Get expert advice and counsel to see if there is a way to advance your dream of owning a home.

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Existing Home Sales Surge into Summer INFOGRAPHIC

Existing Home Sales Surge into Summer [INFOGRAPHIC] | Keeping Current Matters

Some Highlights:

  • Existing Home Sales reached their third highest mark this year in May.
  • Inventory of homes for sale has dropped 8.4% since last year, marking the 24th consecutive month of year-over-year declines.
  • NAR’s Chief Economist, Lawrence Yun had this to say: “Those able to close on a home last month are probably feeling both happy and relieved. Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace and the prevalence of multiple offers in some markets are pushing prices higher.”
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75% of Homeowners Think Now is a Good Time to Sell!

75% of Homeowners Think Now is a Good Time to Sell! | Keeping Current Matters

The National Association of Realtors (NAR) recently released the findings of their Q2 Homeownership Opportunities and Market Experience (HOME) Survey. The report covers core topics like, “if now is a good time to buy or sell a home, the perception of home price changes, perceived ability to qualify for a mortgage, and [an] outlook on the U.S. economy.”

The survey revealed that 75% of homeowners think now is a good time to sell, compared to 70% last quarter. This is a considerable increase from more than a year ago when 66% agreed.

Even though homeowners believe that now is a good time to sell, many have not taken the step to list their homes, as inventory shortages still exist across the country. Lawrence Yun, NAR’s Chief Economist, had this to say:

“There are just not enough homeowners deciding to sell because they’re either content where they are, holding off until they build more equity, or hesitant seeing as it will be difficult to find an affordable home to buy…

As a result, inventory conditions have worsened and are restricting sales from breaking out while contributing to price appreciation that remains far above income growth.”

Bottom Line

If you are wondering if now is a good time to sell your house, meet with a local real estate professional who can show you the conditions in your market.

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Buyer’s Market Helps Premium Home Sales Soar

Buyer's Market Helps Premium Home Sales Soar | Keeping Current Matters

We previously reported how a shortage of inventory in the starter and trade-up home markets is driving prices up and causing bidding wars, creating a true seller’s market. At the same time, in the premium home market, an over-abundance of inventory has started to see prices come down and put buyers in the driver’s seat, creating the beginning of a buyer’s market.

Last week, the National Association of Realtors released their Existing Home Sales Report which shed some additional light on the impact of inventory levels on sales in each price range.

The chart below shows the year-over-year difference in sales at each price range.

Buyer's Market Helps Premium Home Sales Soar | Keeping Current Matters

The under $100K range has shown declines in recent years due to the shortage of distressed homes available for sale (just 5% of sales this past month, compared to 35% in January 2012). Sales in the next two price ranges are no doubt being hindered by low inventory as buyers compete for the same home.

NAR’s Chief Economist, Lawrence Yun, explained:

“Those able to close on a home last month are probably feeling both happy and relieved. Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace and the prevalence of multiple offers in some markets are pushing prices higher.”

The biggest surprise? This is the first time in years where the $1M and up price range had the highest jump in sales when compared to last year and to all other price ranges (29.1%)! The two price ranges right underneath the $1M range were a close second and third. As the price went up, so did the sales!

With additional inventory available in the higher price ranges, and the economy improving, many luxury buyers are finding it easier to find their dream homes. Yun commented,

“The job market in most of the country is healthy and the recent downward trend in mortgage rates continues to keep buyer interest at a robust level.”

Bottom Line

If you are one of the many homeowners who is looking to sell your starter or trade up home and move up to a luxury home, now is the time!

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Pre-Approval Should Always Be Your First Step

Pre-Approval Should Always Be Your First Step | Keeping Current Matters

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.

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