Take the Standard Deduction & the Home1/21/2020 Now that the standard deduction is increased to $12,200 for single taxpayers and $24,400 for married ones, many homeowners are better off with the standard deduction than itemizing their deductions to write off their mortgage interest and property taxes. There was some speculation that without the tax advantages, homeownership is not the investment it once was.
By looking at the other benefits, you can see that homeownership is still one of the best investments people can make. A $275,000 home financed with a 4.5%, 30-year FHA loan would have an approximate total payment of $2,075. The difference in the value of the home and the amount owed on the mortgage is called equity. Two things cause equity to increase: the home appreciating in value and the principal loan balance being reduced with each payment made on an amortizing loan. In this example, if the home were appreciating at 2% annually, the value would increase by $5,500 the first year which would be $458.33 per month. At the same time, with each payment made, an increasing amount would reduce the unpaid balance which would average $363.00 a month in the first year. The homeowner's equity would increase over $800 a month. Instead of paying rent, the homeowner is building equity in their home. It becomes a forced savings and lowers their net cost of housing. In seven years, the homeowner in this example would have $80,901 in equity instead of seven years of rent receipts. This example doesn't consider tax advantages at all. If the homeowner would benefit from itemizing their deductions, it would lower their cost of housing even more. The IRS recommends each year to compare the standard and itemized deductions to see which would benefit you more. Items such as substantial charitable donations, mortgage interest, property taxes and large out-of-pocket medical expenses could increase the likelihood of itemizing deductions. You can see the benefits using your own numbers without tax advantages by using the Rent vs. Own. Looking to buy your first home? Already own a home? Call Jenni today to see what advantages homeownership can bring you.
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Reverse Mortgage1/13/2020 Reverse mortgage loans are like traditional mortgages that permits homeowners to borrow money using their home as collateral while retaining title to the property. Reverse mortgage loans don't require monthly payments.
The loan is due and payable when the borrower no longer lives in the home or dies, whichever comes first. Since no payments are made, interest and fees earned are added to the loan balance each month causing an increasing unpaid balance. Homeowners are required to pay property taxes, insurance and maintain the home, as their principal residence, in good condition. Reverse mortgages provide older Americans including Baby Boomers access to their home's equity. Borrowers can use their equity to renovate their homes, eliminate personal debt, pay medical expenses or supplement their income with reverse mortgage funds. Homeowners are required to be 62 years and older and meet the following requirements:
Payouts are based on the age of the youngest spouse. The younger the age, the less money can be borrowed. Reverse mortgages offer two terms ... a fixed rate or variable rate. Fixed rate HECMs have one interest rate and one lump sum payment. Variable rate loans offer multiple payout options:
Traditional reverse mortgages, also called Home Equity Conversion Mortgage, HECM, are insured by FHA. There are no income limitations or requirements and the loan funds may be used for any purpose. The borrower must attend a counseling session about the HECM, its risk, benefits, and how much can be borrowed. The final loan amount is based on borrower's age and home value. FHA HECMs require upfront and annual mortgage insurance premiums but can be wrapped into the loan. Proprietary HECM loans are not federally insured. Lenders create their own terms, including allowing loan amounts higher than the FHA maximum. Proprietary HECMs don't require mortgage insurance (upfront or monthly), which may result in more funds available. Proprietary reverse mortgages typically have higher interest rates than FHA HECMs. Advantages
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More information is available about reverse mortgages from the Consumer Financial Protection Bureau or Federal Trade Commission or HUD.gov. Questions? Prefer to discuss further? Give Jenni a call at (808) 345-6192 Downsizing in 20201/6/2020 Approximately 52 million or 16% of Americans are age 65 and over. It is easy to understand that some of them are thinking of downsizing their home because they don't need the same space they did in the past.
It can be liberating to divest yourself of "things" that have been accumulated over the years but are no longer needed. Moving to a less expensive home, could provide savings for unanticipated expenditures or cash that could be invested for additional income. Savings can be realized in the lower premiums for insurance and lower property taxes, as well as, the lower utility costs associated with a smaller home. Typically, owners downsize to a home to 2/3 to 50% of their current home's size. In some situations, it is not only economically beneficial, but their interests may have changed so that a different style of home, area or city might fit their lifestyle better. The sale of a home with a lot of profit will not necessarily trigger a tax liability. Homeowners are eligible for an exclusion of $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers who have owned and used their home two out of the last five years and haven't taken the exclusion in the previous 24 months. Homeowners should consult their tax professionals to see how this may apply to their individual situation. For more information, you can download the Homeowners Tax Guide. Call me at (808) 345-6192 to find out what your home is worth and what it would take to make the move to another home. Anticipating the Cost of a Home12/23/2019 The largest expenditure a buyer has when purchasing a home is the down payment which can range from zero for veterans or 3.5%, 5%, 10% and 20%. With mortgages come closing costs which can be another 2-4% and must be paid at settlement in cash. Most mortgages require an escrow account to pay the property taxes and insurance when they are due. Generally, the lender will require one to three months of taxes and one month of insurance so they can be paid before the actual due date. First-time buyers should be aware that they'll need this amount of funds available to purchase a home. Unlike tenants who are not responsible for repairs, homeowners are, and it is necessary to be able to pay for them when they're needed. Newer homes will need less repairs and older homes probably, more. At some point, components like the furnace, air-conditioner and appliances will need to be replaced which could crush a homeowner's budget if they are not expecting them. Homeowners should expect between one and four percent of the value of the home in annual repairs. The age and condition of the home and whether some of the items have been replaced will help assess the anticipated expenditures. A $175,000 home with 2% estimated repair expenditures would be $3,500 a year or about $300 per month. Some years, it may not run that much and other years, it might be more. By anticipating the maintenance expenses, a homeowner is more likely to handle things when they arise.
Another way to handle the risk of unexpected repair expenses would be to purchase a home warranty. For $500 -700 a year, repairs and sometimes, replacements will be handled by the protection plan. Call me at (808) 345-6192 for a list of trusted protection plans available in our area. Mortgage interest paid on your principal residence is deductible today as it was in 1913 when 16th amendment allowed personal income tax. The 2017 Tax Cut and Jobs Act reduced the maximum amount of acquisition debt from $1,000,000 to $750,000.
Acquisition debt is the amount of debt used to buy, build or improve a principal residence, up to the maximum amount. A common misunderstanding among taxpayers is that you are entitled to that much debt even if you refinance a home during your ownership years. Acquisition debt is a dynamic number that changes over time. It decreases with normal amortization as the principal amount of debt is reduced. The only way to increase acquisition debt after a home is purchased is to borrow additional funds that are used for capital improvements. Assume a person buys a home with a new mortgage and after the home has enjoyed significant appreciation, refinances the home for much more than is currently owed. Let's also say that the refinance amount is less than $750,000 which might lead the borrower to an erroneous conclusion that all the interest will be deductible. The current acquisition debt is transferred to the new mortgage. Only the portion of the funds used to pay for new capital improvements can be combined to equal the increased acquisition debt. The interest on that part of the mortgage is deductible as qualified mortgage interest. The remainder of the refinanced mortgage is attributed to personal debt and the interest paid on that is not deductible. Lenders are not generally concerned with making a homeowner a fully tax-deductible loan. Lenders are interested in making a loan which will make a profit and be repaid according to the terms. The annual statements that most lenders issue to borrowers indicate how much interest was paid in a calendar year as they are required to do by federal law. Part of the confusion may be because homeowners believe they can deduct interest on debt up to $750,000 and this annual statement shows the interest paid for the year. It is up to each homeowner to keep track of their acquisition debt and only deduct the qualified mortgage interest. Your tax professional can be very helpful in determining this amount. It is important to notify them that you have refinanced a home during the tax year for which the taxes are being reported. For more information, see IRS Publication 936 and Homeowners Tax Guide. Home equity debt has not been allowed since the beginning of 2018. 7 Reasons to Buy a Home11/18/2019 Some people don't need a reason to buy a home, they just want it. That can be enough justification by itself. Other people need some solid logic before they're ready to make the commitment. The following reasons might help you to make a decision.
A bonus reason to buy a home now are the low mortgage rates available. The lowest rate recorded by Freddie Mac is 3.35% in December 2012. Today's rates are 3.75% on a 30-year fixed rate mortgage and 3.21% on a 15-year fixed rate mortgage. So, they are certainly very close to all-time lows. The highest rate on a 30-year fixed rate mortgage was 18.45% in October 1981. When you put today's rates in perspective, they are an incredible bargain. Many industry experts expect that they will not remain as low as they are now. Locking in a low rate can keep your housing costs low. A $275,000 mortgage at 3.75% for 30 years has a principal and interest payment of $1,273.57. If the rate goes up by 1%, the payment would increase to $1,434.53 or $160.96 per month for the 30-year term. Check the Rent vs. Own to see how the numbers look in your situation. Before looking for a home, you need to know how much you can afford. While you may have a number in your head, the lender has the final say. Securing a pre-approval from a lender helps make the home buying process easier and helps to avoid delays.
Many buyers confuse the terms pre-qualification and pre-approval. They mean two different things. In simple terms, a pre-qualification is an estimate of what you can afford. A pre-approval is a conditional approval based on the proof you provide. The pre-qualification is a preliminary step some borrowers take to get a feel for what price home they can afford. Based on your income, assets, and estimated credit score, lenders can estimate what you can afford. It's important to know, there's nothing binding about a pre-qualification. It's simply a starting point. When you are serious about buying a home, though, you want a pre-approval. Before you shop for a home, meet with a recommended lender to get a pre-approval letter. Sellers and/or Realtors value this letter because it shows you are likely to secure the necessary financing and serious about buying a home. Lenders meet with you in person to create the pre-approval. You'll provide the lender with all the following:
Lenders evaluate the documents and determine your conditional approval. The letter will state the mortgage amount you qualify for, the loan's terms, and any conditions the approval is contingent upon. Normally, final approval is contingent on a fully executed sales contract of the property to be purchased, a satisfactory appraisal and clear title on the property. Once a purchase contract is signed, the lender completes the underwriting on your loan. They will confirm that the property meets the necessary requirements. The lender will also re-confirm your income, assets, employment, and credit information before closing on the loan. Securing a pre-approval prior to beginning the home buying process will give you confidence and can help your negotiations with the seller. Your REALTOR® can provide you more information in an Buyers Guide and recommendations of trusted lenders. A Good Time to Buy a Home10/28/2019 You may have noticed that REALTORS® seem to always think now is a good time to buy and they can usually justify it with solid reasoning. While it can be true in general, a good time to buy has more to do with the individual than anything else. There are four things to consider. It is a good time to buy a home when you have good credit. Since the Great Recession and the housing crisis, lenders have been required to be sure that the borrowers have good credit. This actually benefits not only the lenders but the borrowers because no one wants to buy something that they cannot afford and run the risk of losing it to foreclosure. FHA has the most lenient FICO credit score of 580+. VA requires a little higher at 620 while Fannie Mae guidelines on conventional mortgages require a 700 score. It is a good time to buy a home when you have a good job that gives you the income to qualify for the mortgage and the likelihood that you'll continue to be employed in the future. Two years of steady employment in the same industry with no significant gaps is a measure that lenders consider. Lenders use qualifying ratios to make a determination. The total house payment, principal, interest, taxes and insurance, should not exceed 28% of the borrower's monthly gross income. Their total monthly debt including the house payment should not exceed 45% of monthly gross income. There is some flexibility in the ratios for the right circumstances. It is a good time to buy a home when you have the available funds for the down payment and closing costs plus a little cushion for the unexpected. The down payments can range from 0% for VA loans to 3.5% for FHA and 3% to 20% for conventional. In addition to the down payment, borrowers will have closing costs that can range from 2 to 3.5% depending on the loan type. It is possible for the seller to pay the buyer's closing costs but it needs to be negotiated in the sales contract. The lender's underwriter wants borrowers to have cash available for unexpected expenses related to the house and their normal living expenses. It is a good time to buy a home when you have stability ... In addition to employment, stability applies to not moving soon, marital status, children and unanticipated expenses. Market or economic conditions could also affect stability. So, the answer to the question "is it a good time to buy a home" depends on several things that are relative to the buyer. While it might be a great time to buy for one buyer, it may not be the best time for another buyer. Make a self-assessment to the best of your knowledge on these issues and then, schedule an appointment for a live interview with a trusted mortgage professional to get their opinion based on what underwriting will look at. Call me at (808) 345-6192 if you'd like a recommendation. After you determine it is a good time to buy a home, it is time to meet with your real estate professional. Ready to buy a home?
Time for a Toilet Upgrade10/21/2019 Whether it is a cosmetic or a mechanical reason for upgrading a toilet, you may not know all the choices that are involved to choose the right one for your home. The current toilet may have cracks or leaks in the bowl or tank. It could be the aggravation of constant clogging or inefficient flushing. Maybe there is damage in the porcelain bowl or built-up mineral deposits that are clogging the inlet holes or syphon tube.
If frequent repairs have you on a first name basis with the plumber, it may be time to consider replacing the toilet. There are a lot of things to consider and the following list may help you sort through the choices.
Once you've decided on what features are important, you can shop brands that fit your needs. If you're curious to what kind of a job it is to install it, there are lots of videos on YouTube that will show you in detail what to expect. Whether you do it yourself or hire a professional, you'll understand the process more Downsizing is an Alternative9/23/2019 It is estimated that over 15% of the population in the U.S. are over 65 years of age. With one of the most common fears of seniors being their money will run out early, it is understandable that downsizing may be strategy to meet their goals.
Once the kids are grown, have careers, relationships and get a place of their own, parents find they may not need their "big" home like they did before. In other situations, their lifestyle might have changed, and the house just doesn't "fit" anymore. The benefits of a smaller home can include the following:
Like any other big change in life, it is recommended that a person should take their time to consider the possible alternatives and outcomes. Are they going to stay in the same area? What type of property would suit their needs for the future? The tax-free exclusion allows a homeowner to take up to $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers. Part or all of this could be used to generate income for retirement. Other uses for the equity could include paying off other debt, taking the trip of a lifetime or making a special gift. There will be expenses involved in selling a home as well as the purchase of a new home. These will lower the amount of net proceeds you'll have to invest in the new home. Homeowners should consult their tax professionals to see how this applies to their situation. Please contact me at (808) 345-6192 or rhodestokona@gmail.com if you have any questions about what your home is worth or how long it might take to sell it. Other things that could be of value are our Homeowners Tax Guide or Sellers Guide. AuthorRead helpful articles and real estate resources shared on behalf Realtor® Broker, BIC Jennifer R. Rhodes of Premier Island Properties LLC Archives
June 2020
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