My husband and I have been retired for more than 10 years. We’ve lived in our 4000 sq. ft., 6-bedroom home for almost 31 years. We feel fortunate that we haven’t had a mortgage payment for 20 years. However, we continue to receive lots of unsolicited advice about whether to keep the equity in our home, to downsize and invest the difference, or even to take out a home equity loan at the now historically low interest rates and invest in the Stock Market or real estate, where our gains might exceed our expenses.

The increase in value of our home over the past 30 years and the plunge in the Market since the advent of the Corona Virus make us feel happy, at least for now, that more than half of our retirement assets are in our home. However, our desire to stay put and be debt-free may not be the best strategy for everyone, or even for us going forward. We are living comfortably on Social Security, pensions and the required minimum distributions from our 401Ks. When age or other circumstances make a safer and more easily maintainable home seem like a good idea, the best choice might be to move to a smaller home. Or we may need sell the house and use the profits to pay for needed healthcare services or life in an assisted living facility. It feels good to have several options.

Mortgage-Free One of the Keys to a Comfortable Retirement

Owning a home is typically thought of as one of the keys to a comfortable retirement and financial stability in the future. But what about in these unsettling times? Is owning a home still a necessary part of a good retirement plan? A majority of pre-retirees expect to carry mortgage debt into retirement. If you’re among them, it’s a good idea to understand what the pros and cons are, and to consider your options.

If you would like to keep your home when you retire, are close to paying off your mortgage and won’t have to liquidate other investments to do it, it may be a good choice to stay put. You’ll get a drop in monthly expenses with the end of mortgage payments. If you can afford to pay taxes, insurance and all the upkeep that goes with owning a home, living mortgage-free can be less stressful. However, you might be missing out on the opportunity to put the equity in your home to use at a low interest rate.

A recent study from the Urban Institute looked at the home equity patterns of older Americans and found that homes still rank among their most valuable assets. “Not only does a house meet the basic needs of shelter, but it’s an asset that typically can be used to build wealth as homeowners pay down their mortgages,” the authors say. However, the report also warns that taking on more mortgage debt and financing it for longer periods is a trend that might make future generations less able to rely on home equity as a source of retirement income.

The Pros of Having a Mortgage in Retirement

Having a little debt may not be as risky as we have been led to believe. If you have the resources to rethink your mortgage-free retirement strategy, you have the potential for significant gains.

Investments: Using home equity to invest in rental property or other real estate assets can make a lot of sense for some retired home owners. Low rates mean they won’t be spending too much of their nest egg toward an extra mortgage payment, and they could benefit from a steady stream of rental income or the likely growth in value of other property. However, one has to be up to the responsibilities and uncertainties of being a landlord.

“I am a fan of living without debt,” said Ted Halpern, a Washington-area financial planner. “However, we’re looking at interest rates that are unbelievably low. I can understand why someone would want to borrow at those rates and invest that money elsewhere.”

Tax Benefits: State and local real estate taxes and the interest on your loan are deductible, if you meet other conditions. You need to be aware of how the 2018 tax law has affected those deductions. Now, state and local taxes (including property taxes) are limited to no more than a total deduction or combined limit of $10,000 on a federal return. The interest on new mortgages of up to $750,000 can be deducted, depending on your tax bracket. Interest on home equity loans is deductible only if the loan is used for the purpose of improving the residence, effective through the end of 2025.

The standard deduction for federal taxes has more than doubled. The new tax law means that fewer people will benefit from itemizing deductions. Home owners and buyers need to weigh the other pros of homeownership, like building wealth through equity and appreciation in value over time.

Cash in Your Pocket: One of the biggest arguments for not scrimping and saving to pay off your mortgage is you can have more cash available for things you want to do (travel, dine out, entertainment) and for things you might have to do (make repairs to your home or cover major health expenses). If you’re considering selling your home to pay off your mortgage before retirement and then renting, think about the potential threat of inflation. Each year, you will need to renew your lease, which will likely increase.

Cons of Having a Mortgage in Retirement

Having too much mortgage debt in retirement may be risky, especially if you are living on a fixed income of Social Security and perhaps a pension. You might not have the wiggle room for a big increase in expenses.

Lower Tax Deductions: The tax benefits from holding a mortgage may drop significantly when you retire. You may be paying much less interest on your loan, resulting in a much smaller interest deduction. It’s likely your income will be less than it was when you were working. Your tax bracket will be lower, so mortgage interest and real estate tax deductions may have less or no value.

Unexpected Major Expenses: Outright home ownership can be an important resource to cover unexpected expenses. You can take out a home equity loan or even a reverse mortgage. Remember there are costs involved in securing those, and they’re likely to come with higher interest rates than a primary home loan. It’s smart to consider how liquid your other assets are.

Investment Portfolio Risk: The chance that your investment portfolio will take a big hit during your retirement makes being mortgage-debt-free an important increase in financial stability. There can be a significant relationship between retirees’ comfort with their debt levels and financial satisfaction. Focus on your comfort with debt and the risk level of your other investments

Decide Now

One thing my husband and I have learned, and what experts advise, is that the more we can do with our possessions and our home while we can still make those decisions ourselves, the easier and more profitable it will be for our children. With the help of an attorney, we’ve made it easy for our children to sell our home. However, we are already being asked why we choose to stay in a home that is obviously larger than we need. We think we have lots of very good reasons, and so far our children aren’t pushing us one way or the other, but our situation could easily change.

When age or other circumstances make a safer and more easily maintainable home seem like a good idea, our best choice might be to move to a smaller home that is easier to care for. We might need to sell the big house and use the profits from the sale to supplement retirement income and pay for needed services or assisted living.

The best home-ownership approach for you could depend on how you feel about debt, your age, how much money you’ve put aside for retirement, where it’s invested, your retirement-living goals, and how disciplined you are about saving and spending.

Sources:

• https://www.akzomedia.com/portfolio-item/owning-home-can-help-retirement/
• https://magazine.realtor/news-and-commentary/commentary/article/2016/11/is-having-a-mortgage-in-retirement-so-bad
• https://www.aarp.org/content/dam/aarp/money/budgeting_savings/2014-11/carrying-mortgage-debt-into-retirement-aarp.pdf
• https://www.nytimes.com/2019/10/17/business/retirement-mortgage-debt.html
• http://www.thefiscaltimes.com/2016/04/15/Why-Carrying-Mortgage-Retirement-Can-Really-Pay-0
• https://dakotahomecare.wordpress.com/2020/05/05/downsizing-the-family-home/

Are you wondering whether or not now is a good time to refinance your home mortgage? The short answer is to contact a home mortgage professional for an answer tailored to your special circumstances. For example, the loan officers at Citywide Home Loans use software that, with some basic information from you, can calculate in just 15-20 minutes a cost analysis on the current interest rate and fees and how long you will have to stay in your home to make a refinance worthwhile financially. They can look up your current loan, the amortization schedule and payoff time, compare it with a new loan and tell you how much you can lower your monthly payment. Make sure that whoever you go to will conduct an analysis free of charge and with no obligation to refinance with them.

However, if you’d like to know more about your options before you call, this article might contain just the information you’re looking for.

Mortgage interest rates have plummeted to historic lows, the #1 reason that is making homeowners think about refinancing. You might be hoping that a refinance can help you:

• lower your monthly payments,
• shorten the term of your loan and pay it off faster, with less money going toward interest,
• pull out cash for another purchase or a financial emergency,
• consolidate debt, or
• convert from an adjustable-rate mortgage (ARM)to a fixed-rate mortgage, or vice versa.

How can I time refinancing so I get the lowest interest rate possible?

In the wake of the Coronavirus, rates are still fluctuating, but they are likely to even out and stay low through the rest of the year, once lenders catch up with the backlog from the initial wave of refi requests. Another consideration is, “Will lenders have the resources to let mortgage rates go any lower?” Banks could artificially hold rates up to “slow the flow” of refinances, in order to ensure the money is there to fund the demand. You don’t have to rush to refinance or get a mortgage, because at the time this article was written, banks were likely to be inundated with applications. A little later this year could be the opportune time to apply for or refinance a loan.

The best approach could be to determine a target rate that justifies your cost of refinancing, and then work with a professional who understands the factors that impact mortgage rates daily, and who will monitor that target rate for you and advise you when to lock it in. Generally, if refinancing will save you money, help you build equity and pay off your mortgage faster, it’s a good decision. And with rates this low, even people who have relatively new mortgages may be able to benefit from refinancing.

What are the benefits of refinancing to shorten the loan’s term?

When interest rates are low, you might be able to refinance your existing loan for another loan with a significantly shorter term, but without much change in the monthly payment. That could save a lot of money in interest payments. Do the math, or let a professional help you, and see what works.

Should I refinance to take equity out of my home?

Homeowners often access the equity in their homes to help pay for a large purchase or to cover major expenses, such as the costs of home remodeling or a child’s education. They justify the refinancing because remodeling may add value to the home or because the interest rate on the mortgage loan is less than the rate on money borrowed from another source.

Another reason to access equity can be a serious financial emergency, such as losing your job. At face value, replacing high-interest credit card debt with a low-interest mortgage may seem like a good idea. But you should carefully research all your options for raising funds before you take this step. If you do a cash-out refinance, you may be charged a higher interest rate on the new mortgage than for a rate-and-term refinance. A savvy homeowner is always looking for ways to reduce debt, build equity, save money, and eliminate their mortgage payment. Taking cash out of your equity when you refinance does not help to achieve any of those goals. This is another good time to consult with a professional.

When is it financially sound to convert from an ARM to a fixed-rate mortgage, or vice versa?

ARMs (Adjustable Rate Mortgages) often offer lower rates than fixed-rate mortgages. However, periodic rate adjustments can result in increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to a fixed-rate mortgage results in a lower interest rate and can eliminate concern over future interest rate hikes.

Converting from a fixed-rate loan to an ARM can be a sound financial strategy, if interest rates are falling and you don’t plan to stay in your home for more than a few years. Currently, rates may be at or near their lowest rates and the chances of them going up are greater than getting lower. When mortgage interest rates have a better chance of rising, this is not a wise strategy.

How long does it take to recoup the costs of refinancing?

The interest rate is not the only cost to weigh when you’re considering whether refinancing is worth it. Expect closing costs to total 2 to 5 percent of the principal amount of the loan. As with an original mortgage, refinancing requires an appraisal, title search, and application fees. Many lenders let you roll the closing costs into your principal balance and finance them as part of the loan. To determine an approximate break-even point, divide the total closing costs by the amount you will save each month.

When refinancing a mortgage, you’ll also have “pre-paids” or “escrows,” which are the money you are required put aside upfront to account for future property tax and homeowner’s insurance liabilities. Once your old loan is paid off, your existing lender will send you a refund of the balance in your old escrow account approximately 30 days after closing. You will also skip a mortgage payment in the month immediately following your settlement. It is advisable that you bring the money required to establish the escrow account on your new loan to settlement, if you can afford it.

When is private mortgage insurance (PMI) required? Can I avoid it?

Private mortgage insurance is generally required when less than a 20 percent down payment is made on a home purchase, or in the case of a refinance, when the homeowner has less than 20 percent equity in the home. On conventional loans, the monthly PMI drops off automatically when the loan balance equals 78 percent of the original value of the home at the time the mortgage was originated.

How long does it take to complete the mortgage refinance process?

The time it takes to refinance depends on your lender, as well as how long it takes to complete inspections, appraisals, credit checks and other requirements. Even though the internet has simplified the process, you should probably count on it taking at least 30 days.

The Bottom Line

Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan, or helps you build equity more quickly. When used carefully, it can also be a valuable tool for bringing debt under control. Before you refinance, take a careful look at your financial situation, consider all of the information above and seek advice from a mortgage loan professional.

Sources:

• https://citywidetemdev.wpengine.com/article/interest-rate-influencers-their-effect-on-mortgage-loans/
• https://www.investopedia.com/mortgage/refinance/when-and-when-not-to-refinance-mortgage/
• https://www.bankrate.com/mortgages/when-to-refinance/

https://www.washingtonpost.com/business/2019/09/18/what-know-before-refinancing-your-home-loan/

The lifestyles offered by Fresno, California are some of the biggest draws in California’s real estate investment market today. While California’s more populated and well-known cities, like Los Angeles and San Francisco, are both too expensive and overcrowded for the average family to seriously consider investing there, Fresno is smack-dab in the middle of the state—  granting the people who live there the broadest range of access to all the best that California has to offer. 

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What is a VA Loan?

The origins of the VA home loan program—a part of what is officially known as the Servicemen’s Readjustment Act, or “G.I.” Bill—was written into law to aid WWII veterans. After it was enacted into law, the Bill allocated funds that established hospitals, granted stipends to cover college tuition, and also made low-interest home mortgages more available to servicemen and servicewomen who wanted to buy, build, or refinance a home. A “VA Loan,” as they’re most commonly known, is available to nearly every service member and veteran, and if you qualify for one, the loans can save you tens of thousands of dollars. VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms.

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While you’re working from home home trying not to catch or spread the Corona Virus (Covid-19), you’ve probably watched the Stock Market plunge to new lows and the Federal Reserve cut its interest rate to near zero. If you’re wondering how or why these events are related and what they could be telling you about the direction of mortgage loan rates, you’re not alone. Even people who haven’t recently thought about buying a new home or refinancing an existing mortgage are wondering if they should seriously think about it and act NOW.

Hopefully, looking at each link in this chain of events and how each is influencing the others will help you to decide whether or not to rush into a possibly life-altering decision.

The Coronavirus (Covid-19)

It’s all you’re hearing about on the news, and even if you’re not worried about your own financial situation, chances are that there’s someone close to you who is. Let’s take a look at the big picture. There’s a huge trickle-down effect on the economy from all the efforts to keep the virus from spreading.

For example: You’re not traveling, so planes aren’t flying and cars don’t need as much gas. The usual tourist destinations are closing, because no one is allowed to go there. Hotel occupancy is rapidly dropping. Restaurants have been ordered to close their dining rooms. In-store shopping is considered a health hazard, etc. Social distancing is causing a slowdown in all kinds of consumer spending. These preventative measures and more are forcing businesses to close and causing people to lose, be laid off or get lower pay from their jobs.

The Stock Market Plunge

This is not just happening in America. It’s all over the world. As businesses close or fail, their stock value falls, and as it does, an excess of caution or panic causes people to sell. The Stock Market goes into a free-fall. More stocks are sold out of fear that investments won’t recover. Because the economies of the various countries of the world depend on and influence each other so much, a Domino Effect is created. Desperate people start looking to the Government to Do Something about their losses.

The Federal Reserve

On Sunday, March 15, the Federal Reserve cut its benchmark interest rate or federal funds rate, to almost zero percent. This is the interest rate paid by banks to borrow from each other to meet legally required cash reserves. It is the second emergency rate cut this year in response to the coronavirus and its negative effect on economic growth. If the federal funds rate is cut, banks can afford to lend more money and borrow required reserves from other banks at a cheaper rate. Increased lending by banks increases the amount of money in circulation. This is likely to lower interest rates for other forms of borrowing, such as home and car loans.

The Federal Reserve does not directly set consumer interest rates, but it indirectly encourages an increase or decrease in them. The goal is to maintain economic stability. When the Fed wants to boost the economy, it typically becomes less expensive to take out a mortgage. When the Fed wants to clamp down on the economy, it acts to drain money from the system, which means borrowers will likely pay a higher interest rate on mortgages. It takes some time before it is known whether a change in interest rates will positively impact households, the housing market, businesses and the financial sector.

Mortgage Loan Interest Rates

What does the Federal Reserve cutting its target interest rate to near zero percent mean for mortgages?

It’s designed to stimulate the economy by making it cheaper for people to borrow money for a mortgage, a car loan or other big purchases. Mortgage interest rates won’t go to zero percent. Even consumers with a high credit rating carry more risk than the U.S. Treasury, so the consumer rate is usually at least two percentage points higher than the Fed’s. “Mortgages respond to market forces and not to the Fed,” says Holden Lewis, mortgage and real estate expert at NerdWallet. “The Fed is actually following and not leading when it comes to mortgage rates.”

Even so, in response to the coronavirus, mortgage rates have already plummeted to historic lows, causing increasing demand from those who want this financial advantage. Another consideration is, “Will lenders have the resources to let mortgage rates go lower?” Banks could artificially hold rates up to “slow the flow” of refinances, in order to ensure the money is there to fund the demand. You don’t have to rush to refinance or get a mortgage, because banks are likely to be inundated with applications. Rates are still fluctuating, but they are likely to even out and stay low through the rest of the year, once lenders catch up with the backlog from the initial wave. That could be the opportune time to apply for or refinance a loan.

Keep an Eye on these Indicators

The Fed’s decisions on rate movements are often influenced by several economic factors, which consumers can easily track. Consumers can follow the employment report, which is published monthly by the Bureau of Labor Statistics, or BLS. The target inflation rate is another yardstick for rate changes. Employment, inflation and consumer price index are essential data the Fed considers when deciding what to do with rates. The banks and mortgage lenders follow. As things start to look better with the coronavirus, other influencers will carry more weight. Mortgage lenders set interest rates based on their expectations for future inflation and interest rates.

Changes in the federal funds rate affect a benchmark interest rate called the prime rate. According to the Federal Reserve Bank of San Francisco, the prime rate is the base rate from which many interest rates on consumer and commercial loans are set by banks. Consequently, a cut in the federal funds rate can trigger a decrease in mortgage rates, if lenders link their rates to the prime rate.

Questions?

Lower interest rates provide the opportunity to obtain a mortgage with a more favorable interest rate, which yields long-term financial benefits from the reduction in the cost of financing a home or refinancing a current mortgage. At Citywide Home Loans, after just a 15-minute phone call, we can usually tell you whether or not now is the best time for you to buy a home or refinance your current loan. For consumer support and inquiries please contact our Consumer Solutions Dept. at 1 (866) 508-5515 or by email to [email protected].

Sources:

• https://www.cnn.com/2020/03/16/success/mortgage-rate-fed-cut/index.html?fbclid=IwAR0sNPhy0rEAQCAmX0WrowE5-XMiLSpzg_-41vDYkrAs56v3AKeWtsfgSZk
• https://www.bankrate.com/mortgages/federal-reserve-and-mortgage-rates/
• https://www.marketwatch.com/story/heres-what-the-feds-surprise-interest-rate-cut-means-for-mortgage-rates-2020-03-03
• https://www.marketwatch.com/story/heres-what-the-feds-surprise-interest-rate-cut-means-for-mortgage-rates-2020-03-03
• https://www.investopedia.com/articles/personal-finance/050715/how-federal-reserve-affects-mortgage-rates.asp
• https://homeguides.sfgate.com/fed-cuts-interest-rates-mean-home-buyers-8912.html

Bigger Tax Refunds = Bigger Down Payments

A Tax Refund is an easy way to come up with at least part of the money for a down payment, closing costs or the cash reserves needed to buy that home of your dreams. Just be sure you have a minimal emergency fund to pay any unexpected bills. If you do, then your refund can be a great way to put you on a faster track to homeownership. You won’t be alone. Mortgage professionals say that during Tax Season, many first-time homebuyers turn to their tax refunds as a down payment option.

Most mortgage programs require that the money you use for your down payment be “sourced and seasoned.”  When using your tax refund, a copy of the treasury check and a bank receipt showing the deposit are all the proof you need to prove the funds are sourced and seasoned, making a tax refund a little easier to use than other resources.

2018 – 2019 Tax Laws

The Tax Cuts and Jobs Act took effect Jan. 1, 2018. The new tax law capped state and local tax deductions at $10,000, doubled estate tax exemptions, put new limits on the deductibility of home equity debt, and changed the tax brackets. With so many changes to the forms and numbers to keep track of, many Americans are still unclear about how much their refund will be. For a simple summary of the 2018 changes, see our article “How Does the 2018 Tax Law Affect New Homeowners?”

There are also a few changes that took effect in 2019 and could affect your refund:

• Nonbusiness Energy Property Credit –An additional credit may be taken for 10% of the amount incurred in 2019 for qualified energy efficiency improvements and any residential energy property costs paid or incurred in 2019.
• Residential Energy Efficient Property Credit –You may be able to claim a credit of 30% of the costs of energy-saving improvements to more than one home you used as a residence in 2019.
• The standard deduction amounts increased slightly – The increased standard deduction will allow even more individuals to file without itemizing deductions on Schedule A.
• The penalty (individual mandate) for not having health insurance no longer applies for 2019 federal tax returns. However, some states do require health coverage—or charge a fee.
• The threshold for medical expenses on Schedule A has reverted back to 10% of your AGI.
• Alimony deduction eliminated —The payer will not be allowed a deduction for payments made, nor will the payee be required to claim the alimony as income on their respective tax returns.
• 401K and IRA Contribution limits have increased. 401K contributions limits have been increased to $19,000 and $6,000 for taxpayers over age 50 making catch-up contributions. IRA contribution limits have increased to $6,000 with a $1,000 catch-up amount for those over age 50.

Tips to Increase Your Refund this Year

Home ownership deductions: Current and future homeowners should check to see if they will qualify for these money-saving tax deductions, per the 2018 tax laws*:

• Mortgage Interest: The interest on a new mortgage of up to $750,000 can be deducted.
• Property Tax + State and Local Taxes: Starting last year, you can only take a total deduction or combined limit of $10,000 on property, state and local taxes on your federal return.
• Home Equity Loan Interest: Interest on home equity loans is deductible only if the loan was used for the purpose of improving the residence, effective through the end of 2025, including existing home equity loans.
• Home Sale Gain Exclusion: You are allowed to potentially exclude from federal income tax up to $500,000 of gain from a qualified home sale, if you are married filing jointly.
• Home Office Deduction: If you use a portion of your home exclusively as an office, you can write off a percentage of the expenses based on the square footage of the office compared to the total area of the house.

Earned income tax credit: You can reduce the amount owed on your tax bill if you qualify for common credits like Child and Dependent Care Credit, the American Opportunity Tax Credit, the Premium Tax Credit, and the Save’s tax Credit.

Review Possible Deductions: – Because the Tax Cuts and Jobs Act raised the standard deduction and placed new limits on some deductions, it’s less likely that itemizing makes sense. Financial planners often recommend “bunching” deductions to exceed the thresholds, if possible. “Bunching” means timing expenses so you can push deductible expenses into the same calendar year. For example, doubling charitable contributions, property taxes or medical bills into one year, plus other itemized deductions, may allow a person to be over the standard deduction and itemize every other year.

Review the remaining itemized deductions in the Schedule A instructions and look for the “above the line” deductions on Form 1040 – these deductions subtract from your adjusted gross income and you don’t have to itemize to take them. For other tips, see our article, Tax Tips: Things to Think About When Filing Your Taxes.”

One Way to Increase Your Refund Next Year

Double-check the withholding stub on your paycheck. Are you sure the correct amount of tax is being withheld from your paycheck? Use the IRS’ tax withholding estimator and adjust your withholding for 2020, if necessary. If you’re not having enough tax withheld, you will owe money at tax time. If too much tax is being withheld, you’ll get a refund. Some people would rather have that money in their pocket on payday to help meet every-day expenses.

Use the IRS’ tax withholding estimator, especially if you fit any of these scenarios:

•            Two-income families
•             People working two or more jobs or who work only part of the year
•             People with children who claim credits such as the Child Tax Credit
•             People with older dependents, including children age 17 or older
•             People who itemized deductions in 2018
•             People with high incomes and more complex tax returns

If you had major changes in your life in 2019 —e.g., you got married or divorced or started your own business — your taxes will be more complicated. As a result, you might need to hire a CPA or other tax professional to prepare and file your taxes. Just don’t wait until April to make that decision, because it could end up costing you more, and it could be hard to find someone who’s not too busy to help you. Also, don’t “shop” to find a preparer who promises to get you a bigger refund. The tax preparer who makes promises like that could be unscrupulous.

Shield yourself from tax scams and fraud

More and more frequently, people are getting phone calls, emails and text messages from entities claiming to be the IRS. The U.S. mail is the only way the IRS will correspond with you, so don’t respond or give these people any of your personal information. For other tax tips see our article “Things to Think About When Filing Your Taxes.

*Contact a tax professional about your specific circumstances to find out more details about the tax benefits of homeownership and how to get the biggest tax refund possible to use as a down payment.

Sources:

https://www.acecloudhosting.com/blog/tax-season-2020-tips-to-prepare/

https://www.masslive.com/news/2020/01/tax-season-2020-9-tips-to-get-the-best-refund-possible.html

https://www.bankrate.com/financing/mortgages/use-tax-refund-as-down-payment/

https://www.olt.com/main/home/whatsnew2019ty.asp

https://www.realtor.com/advice/finance/getting-tax-refund-consider-using-payment/

Most importantly, can you afford a second home? If you’re having difficulty maintaining and keeping up with the expenses of your primary residence, a second home will only further create strain. Can you afford a second mortgage? Can you afford insurance? If you plan on being at the property sporadically, can you afford its upkeep when you’re not present? While vacation homes can be lucrative investments, you will likely have to sink money into the property long before you start to see sizable returns.

Let’s talk taxes. Come Tax Day, you’ll need to do additional work when it comes to your second property. In many regards, the taxes on primary and secondary homes are similar, but there are some distinct differences. Particularly when it comes to renting out your second property. If you choose to rent out your second home (which is a very popular choice among secondary home owners) you will be on the hook for a considerable amount of additional paperwork. Be mindful that all rental receipts must be reported to the IRS as income. You are however allotted 15 days to rent out the home without penalty. Any amount of time surpassing 15 days, and you will need to report the property and its income to the IRS. Unlike your primary residence, all profits from the sale of a second home will be taxed as capital gain. In certain circumstances, you may be eligible for write offs. Although, it’s best not to bank on getting significant tax exemptions.

What are the benefits and drawbacks of renting out a property? It is assumed that when you buy a secondary property, you will typically spend less time at that location than your primary residence. Many people who own multiples homes choose to live in one place during the warmer months, and a secondary property during the colder months. If your secondary home is sitting dormant for a significant amount of time during the year, it may be worthwhile to rent it out. Or perhaps you are looking to buy a property for the sole purpose of renting it out. Either way, you can potentially generate a sizable profit from the home when you’re not actively using it.

Beware of the unforeseen responsibilities associated with renting out a home. A vacation property will require upkeep, particularly if you want to make it habitable for renters when you’re not there. Certain climates, like the beach for instance, require a lot of upkeep from the natural wear and tear associated with location. If you want to have a successful rental property, you’ll need to invest a certain amount of money to keep the home functional. Where is your second home located in proximity to your primary residence? Is your secondary home in a popular tourist location? This can make a significant difference if you depend on the income from renters to keep your secondary home functioning. Certain areas won’t be as lucrative simply because they don’t draw in a large amount of tourism. Any issues that arise with the home, will be your responsibility to fix, as is the case with your primary residence.

If you choose not to rent out a secondary property, be prepared to funnel money into upkeep, regardless. Some people may believe that if a home is not being actively used, it won’t need consistent attending to. Like any other building, there will be necessary upkeep required regardless of how often the home is used. You will still likely need to have people check on the home periodically, particularly if you have landscaping and/or exterior needs to attend to. This is especially important to keep in mind if you live in an area where there is a strict Home Owners Association (HOA). Many HOA’s have rules and regulations, regarding exterior appearance, that will result in consequences if ignored. You will likely need to contract out workers to help keep the house within regulations.

Do your research before buying a property.  Just because you love visiting that California coastal town, doesn’t mean you should buy a vacation property there. A vacation property comes with far more responsibility than people often realize. You will need to learn about local laws and ordinances that may vary drastically from where your primary residence is located. Certain cities have unique rules when it comes to renting out properties, particularly if they receive heavy tourist traffic. Utilities and cost of living can be significantly different depending on where you buy. A dreamlike vacation home can shortly turn into a nightmare if you fail to do the research beforehand.

Speaking of research, get to know the culture of the area before you buy. Living in an area and vacationing in that area are vastly different experiences. We can easily get caught up in the beauty of a location without realizing that everywhere worth living has drawbacks. You may come to realize that while the location is beautiful, you’re not a fan of the culture. Maybe the politics don’t align with what you prefer. If you’re planning on spending a considerable amount of time at your second property, don’t impulse buy. Rather, allow yourself the opportunity to visit multiple times before jumping into anything contractually binding. A second home is a large undertaking, and should be treated as such.

When getting serious, speak with a local real estate agent. A reputable real estate agent will be able to take you through the process of buying a home in that specific area. They will have the knowledge necessary to give you the local perspective, and guide you to make the most practical decision.

Consider alternatives to full ownership. Buying a secondary home is a big undertaking, and not everyone is prepared to take the plunge. There are other alternatives at your disposal if you’re looking for a bit less responsibility. You can always go the route of shared ownership, and split the costs among various shareholders. This will help alleviate some of the financial burden, so that one individual isn’t the only fall person for any damages. Timeshares are also a popular alternative, and can be less expensive depending on what company you choose to buy through. Timeshares also eliminate the primary responsibility of maintaining a property.

A vacation home is a lot of responsibility, but for many, a worthwhile investment. Overall, it’s up to you to decide whether a secondary home is worth it. Much like buying a primary residence, there are many variables to consider. In certain ways, buying a secondary home requires even more research and flexibility.

https://www.wsj.com/articles/what-to-consider-before-you-buy-a-vacation-home-1497233400

https://www.hgtv.com/design/real-estate/5-questions-to-ask-before-you-buy-a-vacation-home

https://www.hgtv.com/design/real-estate/top-10-things-to-know-about-buying-a-second-home

Before we get into the numbers, what exactly is a down payment? A down payment is a lump sum of money a home buyer puts towards the overall cost of their home. Down payments are provided upfront, and are not recurring. Essentially, a down payment is a portion of the total sales price of your home. A down payment offers an extra level of security, and often indicates to both homeowners and mortgage lenders, that a buyer is serious about making a purchase. Generally, the larger the down payment percentage, the more ideal the buyer becomes.

The industry standard for down payments is 20%. When purchasing a home, being able to provide 20% for a down payment will position you optimally. Not only does this indicate to mortgage lenders that the buyer is serious, but it demonstrates the buyer’s ability to save money strategically. In most cases, this will be your best course of action, and will be universally preferred by mortgage lenders to those who cannot provide 20%.

Money for a down payment can come from several sources. Typically, your down payment will come from your own savings, and/or money you’ve accumulated over time. Any money that you have legally procured, regardless of origin, is fair game for a down payment. This means, money you’ve received from family, employers, grants, and nonprofits can be sequestered and put towards a down payment.

Lenders will typically require 20% for a few reasons. Any time a lender takes on a new client, they are assuming a level of risk. Even if the client looks good on paper, and the risk factor is relatively minimal, lenders still need to exercise a degree of caution. However, providing 20% down does not solely benefit the lender. Putting more money down will ensure, you as the buyer, have access to better funding, and higher loan rates, on average.

While 20% down is ideal, there are other financing options available if you need them. Realistically, providing less than 20% does create roadblocks, however, there are loans available that can help bridge the gap in certain circumstances. If you are unable to make an upfront payment of 20%, you will be required to pay for private mortgage insurance (PMI). While PMI can help alleviate pressure upfront, you will still be on the hook to make payments long term. A PMI is not advisable for those looking for a quick fix, or an opportunity to bypass certain payments. You will still be required to pay reparations over time.

Is it possible to receive 100% financing? The short answer is yes, but 100% financing is only available for very specific subset of individuals. Generally, the only time one will be eligible for such financing is through government funding. This type of funding is provided through the United States Department of Agriculture (USDA) or through the VA (veterans affairs). If you are a veteran of the United States military, you will not be required to provide a down payment. While the government does not directly provide loans for veterans, private lenders will be required to honor this agreement. Before you go and make that offer on your dream home, remember there are requirements you must meet to ensure eligibility for such financing:

• 90 days or more in wartime
• 181 days in peacetime
• 24 months or the full period for which you were ordered, if now separated from service.
• 6 years, if in the national guard or reserves.

It is important to note that those who have been dishonorably discharged, will not be eligible under any circumstance for 100% funding. If you have any further questions, or are still unsure if you meet the basic requirements, speak with your lender.

If you don’t qualify for 100% financing, your best course of action is to map your finances and create a game plan. Because 100% financing is only available for a small percentage of homebuyers, most buyers will benefit from doing a thorough inventory of their finances. If you are able to put down 20% comfortably, you are likely in an ideal position to proceed in the homebuying process.

Generally, being debt free is optimal, however, having debt will not automatically disqualify you from getting decent lending. Buying a home and making mortgage payments is typically considered more lucrative than paying rent. However, this does not account for the surprise costs that come with owning a home. If you are currently financially insecure, you may want to consider postponing a home purchase. You will typically find the process of getting approval, and subsequently a decent loan, easier, if you have minimal to no debt, and a sizable chunk of savings procured. Above all else, make the choice that best benefits you financially.

Speak with your lender about further opportunities for financing. A reputable lender will often be able to provide you with opportunities for financing breaks. You may be surprised by what you qualify for. Don’t be afraid to ask questions, after all, you are your best advocate.

https://mymortgageinsider.com/va-home-loans/

https://www.bankrate.com/finance/mortgages/down-payment-1.aspx

https://www.lendingtree.com/personal/can-you-use-a-personal-loan-for-your-home-down-payment/

Costs to Consider Before Purchasing a Home

Buying a home? In addition to the new 2018 tax laws, these other financial considerations could affect your total cost. 
Buying a home in early 2018 could be the best financial decision you make all year. Low interest rates and slowly climbing home prices could make it the perfect time for you to jump into the real estate market. However, in addition to considering the base price, the down payment and the interest rate you will need to make your loan affordable, there are several other things you will be wise to consider before you take the plunge.

The DTI: The Debt-to-Income ratio—your monthly expenses compared to your income—will assist in determining the approval of your loan. You and your family also should consider your ability to keep your current lifestyle when you become home owners. The DTI gives you better idea of what you can spend on a house payment without having to cut lots of corners for the next 10 years. You can find several online calculators and forms that will calculate your DTI based on the figures you input.

Buy property you can afford now, not later. Even if you’re almost certain you’ll be earning more in a year or two, there also might be circumstances that increase the other expenses in your life. Children, schools, a new car, medical bills and home upkeep can be substantial costs. Be sure there will be room in your budget to live life the way you’ve planned.

Don’t underestimate the costs of purchase. In addition to the price of the home, there are many other costs involved,. Ask friends who have gone through the home-buying process. It’s unlikely they will say that it cost less than they planned for. It’s safer to understand and over-estimate those additional costs.

Some of the fees and services you can expect to pay for include the following:

• Mortgage application fee: Lenders charge a fee for a mortgage application. The price varies, but can be several hundred dollars.
• Home inspection: An inspection finds any undisclosed problems with the house before purchase. This protects you, the buyer, and gives the owner time to correct problems tied to making a sale. You can expect to pay several hundred dollars for the inspection.
• Closing costs (title, appraisal and origination fees; interest due and escrow deposits): The paperwork for a home sale involves agencies at the private and government level. Your real estate agent should inform you each step of the way what you’ll be signing and paying for. You can ask for at a list of how much total closing costs will be before the big event. Closing usually runs about 2 to 3 percent of the cost of the house.
• Homeowner’s Insurance: Coverage provided by a 3rd party agency to protect your home will be part of your total monthly payment, required and disbursed by your lender from your escrow deposits.
• Mortgage Insurance: Coverage for the lender to protect against loan default may be a portion of your total monthly payment, also disbursed by your lender from your escrow deposits.
• Property Taxes: As a homeowner, you will make an annual tax payment to the county until your principle is below a certain percentage of the value of your home. This is a part of your total monthly payment and is disbursed through your escrow. Some tax may be owed upon closing.

Contact your real estate agent and loan officer to learn more details about the initial and ongoing costs of homeownership.

Buying your first home is an exciting milestone! First time homebuyers may find themselves rightfully overwhelmed and unsure where to begin. Here are some helpful tips to get the ball rolling on your first home purchase.

Are you in a good financial position to buy a home? When done correctly, owning and buying a home can potentially be more financially lucrative than renting. However, not everyone who wants to own a home is in an ideal position to own when they first begin looking. Review your finances and decipher if buying a home is in your best interest.

Get familiar with your credit score. Your credit will ultimately play a significant role in your loan process. A low credit score will be a red flag for reputable loan companies. A favorable credit score will not only help you in matters of homeownership, but various loans you will come across throughout your life. If you are looking to own any sort of property, work on securing a good credit score. This may mean holding off on buying a house. On the contrary, if your credit score looks ideal and you’re ready to apply for a mortgage, avoid the threats of a lowering score. Until your home loan closes, it is best to avoid any new credit card accounts or auto loans.

Get a REALTOR ®. Whether you’re a seasoned homebuyer or new to the process, going the realtor route will help ensure a seamless experience. REALTORS are well versed in the logistics of the buying process and may have quick access to homes that are about to hit the market or have just barely hit the market. If your friends or family members have recently moved, use them as a resource to get recommendations. Some REALTORS may be better suited for your needs than others, so ask around.

Let’s talk mortgages. There are several financial aspects about the homeownership process that newcomers may not fully understand. The homebuying process usually involves getting a mortgage. Mortgage payments include principal and interest, closing costs, taxes, homeowner’s insurance and possibly mortgage insurance. Some homebuyers aim to put down roughly 20% on a down payment. There are down payment options available for you to explore, including some with no down payment or low down payment. At Citywide, we will be happy to sit down with you and go over your options and get you pre-approved. You are always welcome to shop around and set up consultations with other loan officers and mortgage companies. Look for reputable companies that will help guide you efficiently through the process with a personal touch.

Do you qualify for any assistance programs? Assistance programs can make a notable difference in your payment requirements. One group who can significantly benefit from assistance programs are veterans. If you are a veteran, be sure to make note of your military status to your loan officer, or mortgage broker. In doing so, you can surpass the down payment process entirely. Additionally, there are often state or federal programs that first-time homebuyers may qualify for. Some specific counties may even have first-time homebuyer programs. Speak with your loan officer to find out your options.

A pre-approval letter may be in your best interest. With any sort of large investment, it never hurts to get things in writing. In certain circumstances it is possible to get a letter of pre-approval by your lender. A pre-approval letter is written by the lender, where they outline the terms and conditions of your loan, and exactly how much they are willing to invest. If you bring the letter to certain sellers, they may take your offer more seriously.

Once you have your ducks in a row financially, you can begin the search for a home. What are you looking for? Common considerations are as follows:

• Number of bedrooms and bathrooms
• Style of the home
• Size of the yard
• Do you want pets?
• Space for a family or plans to start a family in the future.
• Proximity to hospitals and good schools (even if you don’t have children, schools effect home value)
• Overall culture of the neighborhood (noise level, activity level, median age of residents)

Looking online can help you find areas that are typically in your price range, and offer the amenities you are looking for in a house. Just like the area you live in, you want to make sure your potential house checks most of your boxes. Being flexible never hurts, but it’s advisable to make a list of things you will not compromise on.

The second phase will involve more research. These tips are mostly preliminary for safeguarding that you are in a lucrative position to own a home. Remember to reach out to your real estate or mortgage professional if you have any questions or concerns. Buying a home for the first time can be a stressful and emotional process and communication with those helping you is key.

https://www.discover.com/home-loans/articles/10-steps-to-buying-a-home

https://www.realtor.com/advice/buy/10-step-guide-to-buying-a-house/

https://www.nerdwallet.com/article/tips-for-first-time-home-buyers

https://www.hgtv.com/design/real-estate/essential-tips-for-first-time-homebuyers