It’s understandable; you’re excited; you’ve found the right home, negotiated a contract, made a loan application and inspections.  Closing is not that far away, and you are making plans to move and put personal touches on your new home.

Even if you have an initial approval on your mortgage, little things can derail the process which isn’t over until the papers are signed at settlement and funds distributed to the seller.  The verifications are usually done again just prior to the closing to determine if there have been any material changes to the borrower’s credit or income that might disqualify them.

Most lending and real estate professionals recommend NOT to:

• Make any new major purchases that could affect your debt-to-income ratio
• Buy things for your new home until after you close
• Apply, co-sign or add any new credit
• Close or consolidate credit card accounts without advice from your lender
• Quit your job or change jobs
• Change banks
• Talk to the seller without your agent

Your real estate professional and lender are working together to get you into your new home.  It’s understandable to be excited and feel you need to be getting ready for the move.

​Planning is fine but don’t do anything that would affect your credit or income while you’re waiting to sign the final papers at settlement.

In any given market, inventories fluctuate based on supply and demand considering area and price range. The National Association of REALTORS considers a balanced market to be a six-month supply of homes.

If it takes longer than six months to sell, it is thought to be a buyer's market and less than six months, a seller's market. Most buyers and sellers probably feel a balanced inventory is more like three months' supply of homes.

The inventory of existing homes has been reduced to approximately 1.5 million houses which is 10.3% lower than a year ago. According to the Federal Reserve Bank of St. Louis there are 5.7 months' supply of new homes currently on the market in the U.S.

Inventory has a direct impact on price. When demand is constant, but inventory is reduced, price tends to increase because the same number of people are trying to buy a smaller than normal number of homes.

​As easy as it is to recognize the signs of spring, one should be able to spot the direction prices will be moving. When prices and mortgage rates are increasing, buyers are affected by not being able to afford the same price or size of homes.

​Buyers who have been concerned about what might happen to the tax laws affecting home ownership should feel more comfortable about moving forward with their decision to purchase. The 2017 Tax Cut and Jobs Act passed by Congress and signed by the President continues to treat real estate as a favored investment.

Whether it is for a home to live in as your principal residence or to use as rental property, the tax laws are in place but other dynamics to be concerned with are not; mortgage rates are expected to rise as well as prices.


​Reasons to buy now:
​

1. The mortgage interest deduction is intact for most taxpayers.
2. The capital gain exclusion for principal residences up to $500,000 remains in place.
3. Taxpayers can elect annually to take newly increased standard deduction or itemize deductions whichever will benefit them the most.
4. The house payment with taxes and insurance is most likely cheaper than the rent.
5. Rents will continue to rise making the difference even greater in the future.
6. Lock-in the principal & interest payment with a fixed-rate mortgage.
7. 30-year mortgage terms are available to most borrowers.
8. Prices will likely increase due to lower inventories and several years of low housing starts.
9. Section 1031 exchanges, capital gains and depreciation remain the same for rental properties.

​For a summary of specific real estate provisions in the 2017 Tax Cut and Jobs Act, click here.

​The new tax law doubles the standard deduction and it is estimated that over 90% of taxpayers will elect to use it. However, even without considering tax benefits, homeownership has convincing advantages.

Besides the personal and social reasons for owning a home, one of the most compelling is that it is cheaper. Principal reduction and appreciation are powerful dynamics that reduce the effective cost of housing.

​Amortized loans apply a specific amount of each payment to the principal amount owed to retire the loan over the term. Some people consider it a forced savings account; when the payment is made, the unpaid balance is reduced.

​The price of homes going up over time is appreciation. While there are lots of variables and it is not guaranteed, it is easy to research the history of an area and make predictions based on supply and demand.

​Interest rates are still low and can be locked-in for 30 years. Without considering the tax benefits at all, the appreciation and the amortization dramatically affect the “real” cost of owning a home.
Consider a $250,000 that appreciates at 2% a year for the next seven years instead of paying $2,000 a month in rent. In the example, the payment is less than the rent being paid even including the property tax and insurance.

When you factor in the monthly principal reduction and appreciation and consider additional owner expenses like maintenance and possible homeowners association, the net cost of housing is considerably lower than the rent. In this example, reduced cost in the first year alone is more than the down payment required on a FHA loan.

Based on the assumptions stated, the down payment of $8,750 could grow to $73,546 in equity in seven years. Can you name another investment with this kind of potential that also provides you a place to live, enjoy, raise your family and share with your friends?

​Use this Rent vs. Own to make projections using your own numbers and price range. We’re available to answer any questions you have and to find out what it will take to own your own home.

Planning to go to the Masters next April 2-9th and don’t have a place to stay. Each year, there are homeowners who rent their home for a big premium during the Masters because hotels are in short supply and demand for private homes is up.

Homeowners go on vacation and make tax-free income while temporary tenants rent their home. Homeowners can benefit from a little known provision in the tax code that does not require taxpayers to recognize the income derived from renting their home for less than 15 days per year. See Plan Ahead for Tax Time When Renting Out Residential or Vacation Property- special rules.

This situation can particularly benefit homeowners where there are large sporting events nearby like golf and tennis tournaments, championship games or other high attendance venues. The demand for a private residence can be more attractive than staying in a hotel which makes the price go up.

Obviously, there are challenges with personal belongings and damage but getting a premium rental rate and not having to recognize the income could be worth it. You’ll certainly want to discuss this with your tax professional prior to making this decision. You’d probably also want to get some help from an experienced real estate professional.

You’ve got $500,000 in liquid assets for your retirement and you’re still 15 years away. All your bills are paid; you have a small mortgage on your home; cars are paid for and great credit. Don’t break your arm patting yourself on the back yet.

People think more about what they’re going to do when they retire than whether they’ll have the funds to do them. Ask anyone who has retired, it takes more money than you thought it did. Let’s look at a hypothetical situation.

​To retire with $125,000 income in today’s dollars with a life expectancy of 25 years after retirement, you’ll need to have a net worth of $1.5 million at retirement including what Social Security may provide. Your $500,000 will grow to $1,045,420 in 15 years which will leave you about a half million short. You’ll need to save $24,149 each year for the next 15 years to reach your goal.

​Is this surprising? Did you imagine that this example would be that far from its goal? It might seem staggering to save $24,000 each year but there is another way…investing in rentals.

Real estate over the long term has proven to be a solid, predictable investment.  Cash flows, appreciation, equity buildup and tax advantages are the components that contribute to the rate of return. Increasing rents, available financing and solid appreciation make rentals particularly attractive in today’s environment.

​Call me at (208) 667-1551 to find out more about how rental homes can help you reach your retirement goals.

The Mortgage Debt Forgiveness Act, originally passed in 2007, was extended three times to protect homeowners from paying income tax on debt that was relieved due to foreclosure, short sales or deed in lieu of foreclosure.  

The law expired on December 31, 2016 and unless it is extended again, homeowners with debt relief in 2017 may be subject to tax.

A homeowner might feel a sense of relief without the obligation of a delinquent mortgage but just because the payments are no longer due doesn’t mean that there isn’t another obligation that replaces it. If a lender cancels or forgives debt, a taxpayer must include the cancelled amount in their income for tax purposes depending on the circumstances. The tax significance could be serious.

This previously allowed relief only applied to a taxpayers’ acquisition indebtedness of their principal residence which did not include second homes and investment property. The maximum amount was limited to $2 million of mortgage debt forgiveness or $1 million if filing separately.

Due to the serious consequences involved in short sales and foreclosures, it is advised that homeowners faced with this possibility should seek expert advice from their legal and tax professionals.

There could be some legitimate reasons for not buying a home but indecision is not one of them. Indecision is rooted in not having enough information to move forward to own a home or continue renting.

If you keep renting, at the end of the year, you have had a place to live and a pile of receipts that helped the landlord pay for his house. Deciding to buy a home will give you a place to live that is yours and all the things that come with that.

When you consider principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying. The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation as the home goes up in value. The equity is part of your net worth and an investment in your family’s future.

The income tax savings can be an additional financial consideration if the combined interest and property taxes are greater than the allowable standard deduction.

Trends are showing that both tenants and homeowners are staying in their homes longer. It’s been said that whether you rent or own, you’re paying for the home. Do you really want to buy the home for your landlord? Check out your numbers on a Rent vs. Own and then, call us to help make it happen.