For the last 25 years, most buyers have gotten a new mortgage or paid cash when purchasing a home. For a practical reason, owner-occupant buyers have another alternative: assuming a lower interest rate existing FHA or VA mortgage.
In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. Prior to that, good credit or even a job wasn’t required. The real reason there haven’t been significant numbers of assumptions in the past 25 years is that interest rates have been steadily going down. If a person had to qualify, they might as well do it on a new loan and get a lower interest rate.
Even though mortgage money is currently attractive and available, it is at a four-year high. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages originated in the recent past, it may be more advantageous to assume the existing mortgages. Conventional loans have due on sale clauses that prevent them from being assumed at the existing rate.
FHA loans that originated with lower than current interest rates have great advantages for buyers and sellers.
- Interest rate won’t change for qualified buyer
- Lower interest rate means lower payments
- Lower closing costs than originating a new mortgage
- Easier to qualify for an assumption than a new loan
- Lower interest rate loans amortize faster than higher ones
- Equity grows faster because loan is further along the amortization schedule
- Assumable mortgage could make the home more marketable
This financing alternative can save money for the buyer in closing costs and monthly payments. While the equity may be more than the down payment on a new mortgage, second mortgages are available to make up the difference. Call us at (801) 821-9292 to find out if this may be an option for you.
The one experience that homeowners can agree upon after completing a remodeling project is that it costs more and takes longer than expected. It doesn’t really matter that you researched, planned, and received multiple bids, it will, invariably, cost more and take longer than you originally anticipated.
Replacing floorcovering or painting is a project that a homeowner can easily get bids and contract with the workmen directly. A new level of complexity occurs when the project involves more specialized contractors, like plumbers, electricians, carpenters, counters, and others.
Now, a homeowner is faced with dealing with one general contractor who will run roughshod over the sub-contractors or make the decision to do it themselves. Typically, you’ll pay more for a general contractor, but the trade-off is that they have the contacts and experience to make things go smoothly.
Subs are notorious for wanting to finish their “part” of the project and move onto to the next job. Sometimes, they’re not interested in the “big picture” enough to consider doing things in a way that are best for the overall outcome.
When you start tearing out some things, you find out that there may be unexpected expenses involved. Another common occurrence is that during the project, you get a new thought about changing something else “since it is already torn up anyway.” This will add time and money to the job.
There can be the situation that the homeowner doesn’t even know the right questions to ask or what to consider when trying to coordinate the different workers. The most detailed timetable can be thrown off track if one set of workers don’t show up or finish on time. At best, it delays the project for a few days. At worst, it can delay it for a few weeks because the individual workers may have committed to other jobs that don’t allow them to reschedule.
Once the work is done in a professional manner, you’re probably going to live with it for years. If it is something you’ve wanted to do and it will allow you to enjoy your home more, it is worth doing. Just be patient and enter this adventure with the understanding that it will cost more and take longer than you expect.
“How long do we have to wait to qualify for another mortgage” is the question concerning people who’ve had a foreclosure, short sale or bankruptcy. The loan types for the new loan will differ in amounts of time to heal credit scores based on the event.
The following chart is meant to be a general guide for how long a person might have to wait. During this waiting period, it’s important that the person be current on all payments and maintains a history of good credit.
A recommended lender can give you specific information regarding your individual situation and can make suggestions that will improve your ability to qualify for a mortgage. This process should be started before looking at homes because of the time constraints listed here can vary based on current requirements and possible extenuating circumstances of your case.
We want to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between. Call us at (801) 821-9292 for lender recommendations.
With the first quarter of 2018 in the books, the 30-year fixed rate mortgage is nearing what Freddie Mac predicted it would be in the second quarter. If this pace continues, rates will exceed the five percent mark expected by the end of the year.
The Fed has had its first of an expected three raises for this year and two more are expected in 2019. While these rates are not directly related to mortgages, they certainly have an effect.
Delaying the decision to purchase or refinance could be an expensive missed opportunity. A $270,000 mortgage at 4.44% has a principal and interest payment of $1,358.44 per month. If the rate were to rise one-percent in the next twelve months, the payment would be $1,522.88.
The $164.44 increase would cost a homeowner an additional $13,812.97 in seven years and close to $60,000 over the full term of the loan.
The question facing people is “what would you spend $164.44 each month if you had acted sooner to get the lower rate?”
If you’re curious to know what your “missed opportunity” could be costing you, try this Cost of Waiting to Buy calculator . Use 0% increase on price change if you are refinancing a home you already own.
Taxpayers can decide each year whether to take the standard deduction or their itemized deductions when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions.
Beginning in 2018, the standard deduction, available to all taxpayers, regardless of whether they own a home, is $24,000 for married filing jointly and $12,000 for single taxpayers.
Let’s look at an example of a couple purchasing a $300,000 home with 3.5% down at 5% interest. The first year’s interest would be $14,630 and property taxes are estimated at 1.5% of sales price would be $4,500.
The interest and property taxes would provide a combined total of $19,130 which is less than the $24,000 standard deduction. Unless this hypothetical couple has other itemized deductions like charitable contributions that would make the total exceed $24,000, they would benefit more from taking the standard deduction.
If the mortgage rate were at 8%, the combined total of taxes and interest would be almost $28,000 which would make itemizing the deductions more beneficial.
Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most. For more information, see www.IRS.gov and consult a tax advisor.
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.
One of the silver linings to filing your income tax return is finding out that you are going to receive a refund. If you happen to be one of these fortunate taxpayers, your next decision is what to do with it. With the average tax refund around $3,000, it could be the difference that makes a home a reality sooner rather than later.
Many would-be buyers think it takes 10% or more down payment to purchase a home, but actually, it can be much less. There are VA and USDA mortgages that have no down payment for qualified buyers. FHA has a 3.5% down payment program and FNMA has 3% down payment mortgages for qualified creditors.
Closing costs for originating new mortgages can easily range from two to three percent of the purchase price but most lenders will allow the seller to pay part or all of them based on the agreement in the sales contract.
While the average tax refund might not cover the down payment on the median price home, it certainly helps. Your refund could make it as simple as 1-2-3 to get into a home.
- Get the hard, cold facts for the homes and mortgages in your area and price range.
- Get pre-approved with a trusted mortgage professional.
- Start looking at homes.
Call me at (801) 821-9292 or firstname.lastname@example.org to get started.
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:
- The mortgage interest deduction is intact for most taxpayers.
- The capital gain exclusion for principal residences up to $500,000 remains in place.
- Taxpayers can elect annually to take the newly increased standard deduction or itemize deductions whichever will benefit them the most.
- The house payment with taxes and insurance is most likely cheaper than the rent.
- Rents will continue to rise making the difference even greater in the future.
- Lock-in the principal & interest payment with a fixed-rate mortgage.
- 30-year mortgage terms are available to most borrowers.
- Prices will likely increase due to lower inventories and several years of low housing starts.
- 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.
In 1968, mortgage rates were 8.5%. The next year, rates went down to 7%. Homeowners could buy a 15-20% larger home for the same payments if they could find someone to assume their mortgage.
FHA and VA mortgages were very popular in certain price ranges and they allowed anyone to assume the mortgage regardless of the credit. If you could find a person to take over your note, you were free to qualify for another mortgage.
In October 1981, mortgage rates reached 18.63%. A $250,000 mortgage had a monthly principal and interest payment of $3,896.46. As astronomical as that rate sounds, people were still buying homes and were good investments.
Four years later, they were still over 12%. The monthly payment was $2,571.53. Believe it or not, people were excited to be paying only 2/3 what they had to pay a few years earlier.
Fast forward to late 1991 when the rates went below 9% and that same payment was to $2,015.16. At the turn of the 21st century, rates were 8.15% and that made the payment $1,860.62. Not much change in rates during that decade.
If we look around the housing bubble, late 2008, the rates were 6.04% and the payment was $1,505.31. By 2009, mortgage rates had fallen below 5%. The lowest mortgage rate was 3.31% on November 2012 with a payment of $1,096.27.
Rates fluctuated for the next few years until now, and most of the experts are expecting them to be above 5% by the end of 2018. Rates have increased each week for the last six weeks to 4.38% with payments of $1,240.12.
The average mortgage rate for the past 47 years is a little over 8%. The real estate and mortgage markets are cyclical. Rates have been historically low for a long period but will probably continue to rise. Most buyers don’t pay cash and mortgages enable them to purchase now. Based on history, even 8% would be an excellent rate. Until it reaches that point again, everything lower is a bargain.
Some buyers think that finding the right home is the critical part of the buying process and that is how they determine which agent to use. While it is important, there may be a broader skill set to consider when selecting your real estate professional.
The most recent NAR Profile of Home Buyers and Sellers indicate that 52% of buyers do want help in finding the right home to purchase. There was a time when the public did not have access to all the homes on the market, but the Internet has changed that.
Helping to negotiate the price and terms of sale were identified by almost 25% of the buyers. No one wants to pay more than is necessary and the terms of the sale can be as important as the price.
The next largest area of assistance that buyers value has to do with financing and the paperwork. Even if a buyer has been through the process before, it very likely could have been several years and things have probably changed.
Since the cost of housing is dependent on the price paid for the home and the financing, a real estate professional skilled in these specialized areas can be very valuable in finding the “right” home. An agent’s experience and connections to allied professionals and service providers is equally important.
Ask the agent representing you to specifically list the tools and talent they have available to address these areas.