Home Buying • January 26, 2022

How Much House Can I Afford?

by Shay Brunson

How much house you can afford is directly related to the size and type of mortgage you can qualify for. Understanding how much you can comfortably spend on a new mortgage while still meeting your existing obligations is crucial during the homebuying process.

How Much House Can I Afford?

Purchasing a home is a decision that will impact your financial situation for the next 15 to 30 years. It’s important to be realistic about your monthly income and expected expenses to avoid winding up with a mortgage loan you can’t pay in the long run.

How much house you can afford will mainly depend on the following:

Your loan amount and mortgage term
Your gross monthly and annual income
Your total monthly debt or monthly expenses, including credit card debt, student loan payments, car payment, child support, and other expenses
State property taxes, which are paid annually or biannually and vary by state
Current mortgage rates and closing costs, both vary by location
Homeowner’s association (HOA) and condo fees

The first step to a new home is putting in the work and finding out how much you can afford.

Mortgage Experts are available to get you started on your home-buying journey with solid advice and priceless information.

What Is the 28/36 Rule?

Lenders may determine your ability to afford a new home by using the 28/36 rule. Breaking it down, the rule establishes that:

Housing expenses should be no more than 28% of your total pre-tax income. This includes your monthly principal and mortgage interest rate, annual property taxes, and private mortgage insurance payments (PMI).

Total debt should not exceed 36% of your total pre-tax income. This includes the housing expenses mentioned above — credit cards, car loans, personal loans, and student loans — so long as these monthly debt payments are expected to continue for 10 months or more.

In concrete numbers, the 28/36 rule means that a borrower who makes $5,000 a month should not spend more than $1,400 on housing costs every month. If you’re a renter, that’s the most you should spend on your lease to maintain good financial health.

However, for a homeowner, $1,400 should cover your monthly mortgage payment, as well as homeowners insurance premiums and property taxes.

How Do You Calculate Your Home Affordability?

Credit score

Your credit score is a three-digit summary of your creditworthiness. A very high credit score usually corresponds to a lower interest rate, whereas having a low score will result in much higher rates.

The credit score is one of the most important factors that lenders consider when applying for a mortgage. Lenders use it to determine how likely they’ll be repaid on time if they give a person a loan.

Homebuyers have access to a free credit report once per year from each of the three major credit bureaus. You may also access your credit report for free under certain conditions, like being the victim of identity theft.

Debt-to-income ratio

Debt-to-Income Ratio, or DTI, compares how much you owe to how much you earn, specifically your monthly debt compared to your monthly pre-tax household income. It’s an important metric that lenders use to determine how much you can borrow — or if you can borrow at all.

A high DTI indicates that your debt is high relative to your income and vice versa. The higher your DTI, the harder it will be to get a mortgage. In fact, many lenders won’t even consider applicants with a DTI higher than 43 percent. Lenders prefer borrowers with a DTI of 36 percent or less and will offer them better interest rates on their mortgage.

Down payment

Unless buyers are applying for a VA loan or a 0% down payment mortgage program, they will have to provide a down payment on their home. Conventional loans have a minimum down payment of 3 percent for certain buyers and 5 percent for most buyers. For FHA loans, the minimum is 3.5 percent.

Ideally, buyers should be able to provide a 20% down payment on their homes. A payment this large will:

Lower your loan-to-value ratio
Lower your monthly payments
Make it more likely to earn a lower interest rate
Buy you enough home equity to bypass private mortgage insurance

If you don’t have enough money for a down payment this large, there is the option of refinancing later on. This can get you a better rate if the market conditions are favorable.

House Affordability Options

There are several options to consider if you are struggling to afford the home you have your eyes on. Some methods must be undertaken over time, whereas others will immediately impact your mortgage application.

Lower DTI

DTI is one of the most important factors that lenders consider when looking at borrowers. Lowering your DTI by paying off as much existing debt as possible will put you in a better position to manage your monthly costs and any emergency expenses that may spring up. This is a good option if your DTI is too high to get pre-qualified for a reasonable interest rate (or to qualify at all).

Higher credit score

As with any other big purchase, the better your credit score, the lower your interest rate. One way to improve your score is to make your credit card payments on time every month. Another is to reduce your debt — which will also lower your DTI ratio.

Federal loans

The type of mortgage you’re requesting will help determine a lender’s flexibility in evaluating your loan application. FHA loans, VA loans, and USDA loans all have certain benefits that may help you afford the home you want.

FHA loans

FHA loans are insured by the Federal Housing Administration and have more relaxed qualifying standards. They feature maximum qualifying ratios of 31/43 for most applicants with a credit score higher than 500 — 31% for housing costs and 43% for total debt. This makes them ideal for first-time home buyers.

You may be allowed to have ratios as high as 40/50 with this type of loan if your credit score is over 580 and you meet other requirements.

VA loans

Borrowers with a military connection may qualify for a VA loan. VA loans are more lenient than conventional and FHA loans. They are backed by the Department of Veterans Affairs and typically don’t require a down payment.

While the maximum DTI ratio is set at 41% in the general guidelines, the VA insures loans for people with higher ratios provided they meet other compensating factors.

USDA loans

USDA loans are backed by the U.S. Department of Agriculture and offer many benefits over conventional loans. They enjoy lower interest rates, are more lenient with credit scores, and offer 100% financing, meaning you do not need to provide a down payment.

The catch is that USDA loans are designed to help finance homes only in eligible rural areas. The desired property must fall within specific geographical areas, generally outside the limits of major metropolitan centers.

If you are eligible, USDA loans have many benefits, and you may build, rehabilitate, improve or relocate a dwelling as your primary residence to your new location.

Higher down payment

Most applicants will need to put at least 20% down on their mortgage if they want to avoid paying for private mortgage insurance. While there are options if you don’t have that much money upfront, increasing your down payment could reduce your interest rate, monthly payment, and DTI ratio considerably.

Home Affordability and the COVID-19 Pandemic

The coronavirus pandemic and the resulting economic downturn have shaken up the real estate market. In August, the median home price in the U.S. rose to $290,225 — an annualized 15.9 percent from the prior month. Mortgage rates remain near historic lows as of September, but there is no way to know whether they will fall even lower or start to move back up.

The fact remains that interest rates are lower right now than they have ever been. If you are in a good financial position to purchase a home at the moment— meaning you have enough cash for a down payment, a good or great credit score, stable employment, and a low debt-to-income ratio — it may make sense for you to take that step now rather than later.

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Home Buying • December 17, 2021

Why the Holidays Are a Good Time To Buy a House

by Shay Brunson

The end of the year is upon us, and many people are busy shopping for gifts, attending parties, and living out annual holiday traditions — but all you want to do is buy a new house. While the holiday season isn’t a peak time to purchase real estate, that doesn’t mean doing so is a bad idea.

Or, perhaps, you need to sell your home. Listing now might seem like a hassle, but it could pay off.

Jason Gelios, a realtor in Southeast Michigan, said buyers and sellers can both benefit from the unique opportunities offered this time of year. For sellers, he said one main advantage is their home will be seen by the most serious buyers.

“Typically, people who are looking to purchase a home during the holiday season have a strong reason to move,” said Gelios, who is also the author of the book “Think Like a REALTOR.” “You get fewer window shoppers and more serious buyers who need to make a move fast.”

If you’re looking to buy a home this holiday season, he said you need to go into the process informed.

“Homebuyers should still apply the same general rules of getting their offer accepted, which include knowing what the market is doing, knowing if they are up against other offers, and how motivated the seller is,” he said. “If a home buyer is shopping in a sellers’ market, they will need to have an aggressive and favorable offer — even during the holiday season.”

While you need to make the buying process as seriously as ever, Gelios said one fun perk of shopping for a new home during this time of year is the holiday décor.

“One of the best and most fun times to purchase a home is during the holiday season because savvy sellers will have their homes decorated to impress,” he said.

If you end up buying a home decked with boughs of holly, you can use the current owners’ decorations as inspiration for your own next year.

Another major benefit you might enjoy is the ability to score your dream house at a discount.

Denise Supplee, a licensed real estate agent, and property manager with Long and Foster, based in Doylestown, Pennsylvania, said the holiday season can be advantageous for homebuyers.

“Typically, a home that is listed during the holidays is one where the sellers are more desperate,” said Supplee. “And even if they are not, generally, the volume of buyer clients drops.”

While it’s been hard to score a deal this year in many areas, she said the holiday season might be the exception.

“Even a hot market like the one we have seen this past year may offer better deals and be a bit more buyer-sided,” she said. “This means there may be more room for negotiation, fewer bidding wars, and the ability to add more contingencies, such as home inspections.”

In fact, Supplee said the holiday season buyers’ market might already be starting. “I have already seen homes now sitting on the market for about 15 days plus, were only a month ago, they were flying off the market so fast, often being bid on by several buyers,” she said.

While many homes on the market during the holidays will still be occupied, Mayer Dallal, managing director with mortgage lender MBANC, said many are not.

“If someone is selling during the holidays, it usually indicates they’ve already left their former home behind, and they’re spending the holidays elsewhere, so they have emotionally disassociated themselves from the home,” he said.

When this happens, he said it could work to your advantage.

“That means they may be more open to negotiation because they have moved on,” he said. “They may also be more motivated to sell during that time, since many prospective buyers will be putting their buying plans aside, traveling or putting off major business transactions until the new year.”

Additionally, Mayer said you might also be able to save money on taxes.

“You may get a tax break because the interest you would pay is all tax-deductible,” he said. “You’ll get every tax advantage for that tax year if you close the deal by December 31st.”

Chase Michels, a licensed real estate broker with The Michels Group, a Compass real estate team based in Downers Grove, Illinois, said yet another advantage of buying a home this time of year is your agent will have more time to focus on you.

“Your agent is not as busy during winter months, [so] you can trust that you’re getting the most out of them,” he said.

Plus, if you’re like many people, he said you’ll probably have an easier time getting out of the office to see homes since things at work often slow down at the end of the year. Beyond that, he said another added bonus is simply having the ability to check the home out during the colder months of the year.

“You get to see firsthand how a home handles the elements,” he said. “Is the home properly insulated? Does the heat work as expected?”

If you were previously on the fence about starting — or continuing — your house-hunting mission during the holidays, you can feel very confident moving forward. Hopefully, your diligence will allow you to score the keys to your dream home.

Home Selling • November 18, 2021

How much is my house worth?

by Shay Brunson

While the past year or more has been a roller-coaster ride on many fronts, there was a silver lining for homeowners: Home prices have risen considerably. You might be wondering if you should take advantage of the climb in values and sell your home or tap its newfound equity. As you consider your options, a good starting point is to ask yourself: exactly how much is my house worth?

How much is my house worth?

When getting a home value estimate, consider the three main types of valuation:

Fair market value: Fair market value encompasses what your home looks like to prospective buyers compared to other homes in the area. Consider the sale price of a home that’s similar to yours (the same number of bedrooms and bathrooms, square footage, or outdoor space, say). If you work with a real estate agent to help you sell your home, this is where your agent will start: by looking at comps to gauge what buyers have been willing to pay for a property comparable to yours.

Appraised value: While the appraised value of your home factors in comps, it differs from fair market value. To calculate the appraised value, a licensed appraiser considers the location, size, and condition of your home, and any renovations you’ve completed. The appraised value is what mortgage lenders look at when a borrower buys a home or refinances their mortgage.

Assessed value: The assessed value is then assigned dollar value of your home used by local county tax assessors to determine property taxes. “Tax assessors calculate an assessed value based on various factors, which may include the appraised value and the fair market value, as well as any home improvements, whether you generate income from the property, and any tax exemptions,” explains Jade Duffy, a Realtor with TXR Homes based in Carlsbad, California. Usually, the assessed value is lower than fair market value and doesn’t actually represent how much a property could sell for, Duffy says.

My home’s value went up. What should I do?

Your home’s value can rise due to a range of factors. Right now, home prices have increased in many places due to a shortage of supply mixed with the lowest mortgage rates in history. If your home value has increased, you have a few options and considerations to make:

You might be able to save money by eliminating private mortgage insurance. If you’re paying for private mortgage insurance (PMI) and your home’s value has gone up to the point where you now have at least 20 percent equity, you can ask your lender to cancel your PMI premiums.

You might need to adjust your homeowners’ insurance policy. Your homeowners’ insurance cost and coverage are typically based on your home’s value. If it’s increased, you’ll want to make sure you’re fully protected. “It’s important to review your property’s value with your insurance agent yearly to make sure your residence has the proper insurance coverage,” explains Kimberly Smith, owner of Garnet Property Group in Bristol, Connecticut.

You might be in a better position to improve your home. With more equity in the property, you can take advantage of a home equity loan or cash-out refinance and invest in a renovation or remodeling project. “Determining a home’s valuation is useful if you’re considering tapping into your home’s equity in the form of a home equity loan, home equity line of credit or cash-out refinance so that you know how much equity you’ve accrued,” Smith says.

You might consider selling your home. You could stand to profit if your home’s value has gone up considerably, but before putting it on the market, carefully evaluate whether it really is the right time to move for you or your family, whether you’ll be able to find a new home quickly and how you’ll pay for it. “If it is a good time, making minor repairs and decluttering your property is always going to help increase the final sales price,” Duffy says.

What factors affect home value?

A number of factors can affect the value of your home, including:

The neighborhood
Its age
Its condition
Its size
Any home improvements or upgrades

There are other factors that impact property values overall, too. These include the local housing market, economy, interest rates, and tax rates, Reed says.

How can I add value to my home?

You don’t get a second chance to make a first impression, and this bit of wisdom can apply to your home and its value.

“Your property’s curb appeal does make a difference,” Duffy says. “Make your home welcoming and tidy — cut your grass, trim any shrubs and add some new plants or flowers.”

A fresh coat of paint either on the interior or exterior of the house will more than pay you back for the money spent, Duffy adds: “This is one of the most cost-effective ways to improve value.”

A minor bathroom or kitchen update (as opposed to large-scale renovations) can also help improve your home’s resale value. You can simply replace an outdated sink, old tiles, or dated light fixtures to give these spaces a refresh.

“It also pays to install a new garage door,” Duffy says. “Some reports estimate a new garage door can increase home values by 4 percent — great curb appeal does matter.”

Bottom line

No single home valuation method is guaranteed to be 100-percent accurate. That’s why using a combination of resources can help give you a more informed perspective of what your home is worth.

For example, you might get a free CMA and conduct your own research using an online home value estimator, as well as the FHFA calculator and county auditor’s website. Additionally or alternatively, you could pay for a professional appraisal. Averaging together all the final values you gather could give you a more accurate picture of your home’s value.

Ultimately, however, the most reliable home value estimates come from professionals who take the time to carefully assess your property based on a variety of factors.

“All of the evaluation tools are useful in giving an idea of the worth of your home, but an appraiser and/or an experienced agent will be the most accurate sources for determining value,” Krasnow says. “A trained professional will have an advantage, as a computer cannot determine the intrinsic value or consider the condition and improvements you’ve made to your home.”

Home Selling • October 14, 2021

U.S. Homeowners have $153K “tappable” Home Equity on average

by Shay Brunson

Home equity is at an all-time high

Thanks to rapidly rising home values, many Americans are now equity rich.

In fact, a recent report from data firm Black Knight found that the average U.S. homeowner has $153,000 in “tappable” home equity — an all-time high.

That pent-up wealth can be put to work making home renovations, paying off debts, buying new properties, investing, and more.

But how do you actually take equity out of your home? And when is it a good idea to do so?

What does it mean to have equity in your home?

Having equity means you have cash value built up in your home. Your equity will grow year by year as you pay off your mortgage and as your home (likely) increases in value.

Of course, equity isn’t liquid cash. The wealth built up via home equity is tied into your property’s value.

That means you can’t just spend your home equity. To put the money to work, you first have to convert home equity into liquid cash. This is typically done via a cash-out refinance loan or a second mortgage.

But first, here’s how you can determine whether you have equity available to cash out.

How to calculate your home equity

Calculating home equity is simple. Just take the current value of your home minus your mortgage balance today.

FIND OUT THE CURRENT VALUE OF YOUR HOME

What is ‘tappable’ home equity?

Tappable home equity is the amount of money you can actually withdraw from your home’s value via a cash-out refinance or second mortgage. Your tappable home equity is typically equal to your total amount of equity minus 20% of your home’s value.

The reason your tappable equity is lower than your total home equity is that mortgage lenders want you to leave 20% of your home’s value untouched. That way, if you were to default on the loan, the lender would be protected financially.

There are exceptions to this rule, mostly for VA loans which may allow up to 100% loan-to-value (LTV). And a few lenders let you retain less than 20 percent.

But for the most part, borrowers should expect to need significantly more than 20% equity to be able to cash out.

Remember that Black Knight estimates homeowners currently have $153,000 in tappable equity on average — even after accounting for that 20% buffer.

Home Selling • September 13, 2021

Are Home Updates Actually Worth It Right Now?

by Shay Brunson

Are Home Updates Actually Worth It Right Now?

Should you update your home before putting it on the market? Three in four homeowners say they’d rather replace their appliances than accept a low offer on their home.

Cinch Home Services surveyed over 1,000 homeowners and renters to figure out how important updates are in the homebuying process. And they discovered that a majority of homeowners think upgrading their appliances will increase their value by almost $14,000.

Due to this ideology, over half of homeowners plan to upgrade their appliances before putting their homes on the market. Almost 60% will repair or replace their air conditioner, almost 46% will prioritize their dishwasher and about 40% will take a close look at their water heater.

Examine Return On Investment

Unfortunately, upgrading your appliances won’t necessarily allow for a huge return on investment. While upgrades can make your home more desirable, you may not completely recoup the cost of what you spend.

Take major kitchen remodels, for example. According to 2021 research, the average cost to remodel a kitchen was around $75,000. This included upgrades like a built-in microwave, dishwasher, custom lighting, etc. But even with these changes, that only added $43,000 to the resale value and the cost recouped was about 57%.

On the other hand, a simple garage replacement costs on average about $4,000 and adds about $3,000 to the resale value, bringing the cost recouped at $94%.

Here are a few other updates with the highest return on investment:

Stone Veneer

Average cost: $10,386
Average resale value: $9,571
Cost recouped: 92.1%

Minor Kitchen Remodel

Average cost: $26,214
Average resale value: $18,927
Cost recouped: 72.2%

Sliding Replacement

Average cost: $19,626
Average resale value: $13,618
Cost recouped: 69. 4%

Renovations Can Be Beneficial

Certain home improvements are considered “capital improvements.” For example, if you replace your flooring, upgrade kitchen appliances, etc. that fall under “capital improvements.” While not every upgrade will increase your home’s value, when you sell your house, you can write off your capital improvements.

If you refinance your home after you’ve made upgrades, your home will most likely appraise higher than when you bought it. This means you can potentially increase your home’s equity and lower your loan-to-value ratio.

Bottom Line

Renovations might make you feel better about putting your home on the market one day. While we’re currently living in a seller’s market, people looking to sell their homes may not need to put in the effort right now. But having an upgraded home wouldn’t hurt.

Home Buying • August 18, 2021

Most Would-Be Home Buyers Are Wrong About the Down Payment They’ll Need

by Shay Brunson

Most Would-Be Home Buyers Are Wrong About the Down Payment They’ll Need

Don’t make this mistake when it comes to planning your home purchase.

Buying a home can be a complicated process. Unfortunately, many people have some misconceptions about what is required when it comes to homeownership.

Specifically, new data from the NAR revealed most people are confused about what kind of down payment would be required to purchase a home.

The NAR study found that consumers typically believe they’ll need a median down payment of 20% of the home’s value in order to be able to purchase a property. And as many as 35% of people believe they’d have to come up with 16% to 20% of their home’s value to use as a down payment.

If you’ve been thinking that now may be a good time to buy a home, don’t get caught up in the mistaken belief that you need a large down payment to own a home. Here’s what you need to know.

What down payment do you really need to buy a home?

First things first: Putting 20% down on a home is definitely the best move if you can make it happen. A 20% down payment:

Gives you the broadest choice of mortgage lenders

Helps you to get a better mortgage rate because lenders view loans with larger down payments as less risky

Allows you to avoid paying private mortgage insurance, which is insurance you pay as part of your monthly costs, even though it only protects the lender (not you) from losses in case of foreclosure

Helps ensure you don’t wind up with a mortgage that exceeds your home’s value, which could create huge problems if you want to refinance or sell your property

But while a 20% down payment is ideal, it is generally not required.

The reality is, many conventional lenders will allow you to buy a home with way less money down — sometimes as low as 3% (although 10% is more common). And some government-backed loans will even let you buy a home with zero down payment.

Should you put down less than 20%?

Although putting 20% down is the best move if you can swing it, for some people that would be difficult or even impossible — especially in a high-cost-of-living area. If it would take you 20 years to save up a 20% down payment, it makes little sense to continue renting for most of your adult life just because the down payment requirements are difficult for you to fulfill.

If you are 100% confident you can afford mortgage payments, can get approved for a loan at a good rate, and are otherwise financially ready to buy a home but don’t have 20% to put down, then don’t let a misapprehension about your down payment requirements prevent you from moving forward. Start looking for the right home for you so you can begin reaping all of the advantages that can come with owning your own place.

A historic opportunity to potentially save thousands on your mortgage

Chances are, interest rates won’t stay put at multi-decade lows for much longer. That’s why taking action today is crucial, whether you’re wanting to refinance and cut your mortgage payment or you’re ready to pull the trigger on a new home purchase.

Tips and Advice • July 14, 2021

Why Working With an Agent Is So Important

by Shay Brunson

HGTV and home renovation shows may be entertaining, but they’re not always accurate. In particular, most of them skip over the important ways real estate agents can help homeowners.

In the real world, agents play a huge role in home purchases, sales, and even flips.

Are you planning to make a real estate move this year? Here are just a few of the ways an agent can help make the experience a success.

Experience and Local Knowledge

Agents know how to draw up your contracts, handle the paperwork and save you valuable time (which is vital in today’s busy market). We also have on-the-ground knowledge of the local market, which can help you better evaluate properties, make offers and negotiate prices.

Negotiation Skills and Key Partners

Experienced agents also know how to negotiate successfully and can leverage inspection results, sales reports, and other data to get you the best bang for your buck — whether you’re buying or selling.

Working with an agent also provides access to deep professional networks, which comes in handy when it’s time to find an inspector, contractor, financial adviser, mortgage lender, real estate attorney, and other partners on your journey.

The Bottom Line

Finally, agents know all about home values — as well as what features, amenities and styles can increase your property value down the line.

There’s no need to navigate a stressful, complex, and high-stakes process alone when you could have a knowledgeable and compassionate agent working on your behalf.

Do you want help with your next home sale, purchase, or fix-and-flip? Get in touch today.

Home Buying • June 10, 2021

What to Know About Today’s Busy Market

by Shay Brunson

You’re probably well aware that the real estate market is more competitive than ever (due to low inventory, among other things).

Still, it’s not a bad time to buy a house. Mortgage rates are low, home values are on the rise and, in many cases, buying is still more affordable than renting.

Are you considering purchasing a house in today’s fast-paced market? Here are five tips that can help.

Get preapproved. Applying for a mortgage preapproval is critical in a competitive market. Not only can it give you a good price range to shop in, but it can also help sellers feel more confident in your offers (and maybe even choose yours over others).

Be flexible. If you can be flexible on your closing date or willing to waive a contingency or two, it will often work in your favor. Sellers are looking for the easiest, most lucrative sale in most cases. We can discuss what makes sense for you when the time comes.

Make a decent earnest money deposit. Earnest money deposits are “good faith” deposits that indicate how serious you are about a home purchase. If the seller accepts your offer and you don’t follow through with the deal, they keep that cash.

Be prepared to bid more than the asking price. Consider searching in a lower-than-maximum price range so that you have room to bid upward if necessary. In many cases, you’ll need to increase your bid to compete with other buyers, so maxing out your budget from the start probably isn’t the best strategy.

Be patient (but stay alert). In the current conditions, you may not find what you’re looking for immediately. On the other hand, things could start moving quickly at any time. To find success, remember that communication and flexibility are key.

It can be challenging to buy a house in today’s market — but that doesn’t mean it’s impossible. Reach out today if you need assistance.

Home Selling • May 21, 2021

Listing Your Home in 2021? Here’s What to Know

by Shay Brunson

It’s a good time to be a home seller — homes are selling fast and for a premium — but that doesn’t mean you can jump into the market ill-prepared. Knowing what to expect can position you to make the most of this seller’s market.

Roughly 1 in 6 (17%) homeowners plan on selling their home in the next 18 months, according to a new NerdWallet survey conducted online by The Harris Poll among 2,127 homeowners. Those listings will be a welcome sight to buyers currently competing for a limited number of homes commanding top dollar.

The March survey found that this current market is playing a role in many of these home sellers’ motivations. In fact, 45% of those planning to sell in the next 18 months say recent changes to the housing market, including higher asking prices and lower inventory, have spurred them to sell earlier than initially planned. If you’re among the homeowners preparing to be on the favored side of this strong seller’s market, here’s what you need to know.

1. You may be able to skip presale home improvements

In addition to cleaning your house for showings, preparing to sell your home often means doing minor (or major) repairs and upgrades. But home buyers are stalking real estate listings and jumping on those that even get close to checking all the boxes, so sellers could likely save some money by limiting or forgoing expensive projects altogether.

More than 4 in 5 (81%) homeowners planning to sell in the next 18 months say they plan to spend money on major repairs or renovations to make their home more appealing to potential buyers prior to selling, typically planning to spend $2,000. But 17% of those planning to sell in the next 18 months who will spend money on repairs and renovations prior to selling say they’ll spend $15,000 or more.

“You really can get away without doing renovations and minor repairs,” says Holden Lewis, NerdWallet mortgages expert. “Unless the house has a major problem like a leaky roof, you’re probably better off selling as-is. Make it a priority to declutter and depersonalize the home so it’s easy for buyers to imagine themselves living there. The buyers can fix it up and renovate it on their own dime and schedule.”

2. It will all move very quickly

If you list your home in this market, there’s little question of the outcome. Barring any significant defaults or dramatic overpricing, you’ll sell your home. It will happen quickly, and you could receive multiple offers over the listing price.

Nearly half (45%) of homeowners planning to sell in the next 18 months say recent changes to the housing market have spurred them to sell earlier than initially planned, according to the survey. Single-family homes are in high demand, so selling now means you’ll sell faster and for a higher price than you would under other conditions.

Existing homes are only on the market for an average of 20 days, according to the most recent data from the National Association of Realtors — that’s listed and under contract in less than three weeks. So be prepared to sell the moment you hang that “For Sale” sign. It’s ideal to have your next home already lined up, but that may be easier said than done.

3. You’ll face stiff competition shopping for a replacement home

The very things that make it a good time to sell make it a tough time to buy a house. Just 10% of those planning to sell in the next 18 months say one of their primary motivations for selling is that they no longer want to be a homeowner, according to the survey. For the rest of these sellers, entering the crowded pool of home buyers will present challenges.

Whether it’s the location — such as moving closer to family, outside of the city, or for a new job — or the home features, every item on your list of must-haves will make finding your next home a greater challenge.

Given the likely ease with which you’ll sell and the difficulty you might have found a replacement home, it may make sense to be under contract on a purchase when or soon after your home hits the market.

“The trickiest part of navigating today’s market is finding a home to replace the one you’re selling,” Lewis says. “You can make the buyer’s purchase contingent on your finding suitable housing. In other words, you can make your buyer wait. Normally, buyers are reluctant to accept that condition, but we’re in a seller’s market and sellers make the rules.”

Methodology

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from March 9-11, 2021, among 2,127 U.S. adults ages 18 and older who are homeowners, among whom 391 plan to sell their home in the next 18 months. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Anna Palagi at apalagi@nerdwallet.com.

Home Buying • April 12, 2021

2021 Tax Benefits of Owning a Home

by Shay Brunson

When it comes to buying a home, your primary goal might be having a place of your own to grow old and raise your family. But, there are plenty of other perks too, and a big one is the tax benefits that come with homeownership.

For many, that’s an attractive bonus, regardless of buying for yourself or as an investment property. However, you still need to keep an eye on tax rules and regulations because they can (and often do) change over time. For some benefits, that time is now.

As part of the Tax Cuts and Jobs Act (TCJA), which became law in late 2017, new regulations are now falling into place. Some will impact your tax benefits of owning a home.

Tax benefits for homeowners in 2021

Most homeowners know about the basic tax advantages of homeownership. But there are a few other benefits you might not realize you can take advantage of this year.

Residential energy credit: This credit expires at the end of 2021, but it’s a tax credit for homeowners who make energy-efficient improvements to their homes. The credit ranges from 22 to 30% of the cost of improvements.

Home office deduction: If you are self-employed and work from home, you can deduct both home office expenses and the space that’s exclusively used for your office, up to a square foot limit.

Private mortgage insurance (PMI) deduction: If you bought your home after 2006, you might be able to claim a PMI deduction if you qualify based on your adjusted gross income. It’s will expire after the 2020 tax year.

Rental expense deduction: If you have a rental or vacation home, or if you rent out a part of your residence, you may be able to claim rental expenses. Note, you’ll still owe tax on your rental income.

Tax changes homeowners need to know

There are still plenty of tax benefits for homeowners, but due to changes in the tax code, there are some differences you’ll want to know so you can best determine how to maximize your benefits.

Deducting mortgage interest

Ask any homeowner, and they’ll tell you one of the most significant tax advantages of homeownership is being able to deduct mortgage interest. While mortgage interest deduction is still available to homeowners, the amount has changed.

Now, if you bought your home after the TCJA was signed, December 17th, 2017, you can only deduce mortgage interest up to $750,000 for both single filers and married joint filers. If you bought before that date, you can still deduct mortgage interest up to $1 million for individual and married joint filers.

If you have a second home, such as an investment property or vacation home, you can deduct that mortgage interest amount, too. However, both mortgages combined must be less than the limits.

Deducting property tax

Another significant tax benefit of homeownership is deducting property taxes. In the past, if you itemize your expenses, you could deduct your property taxes. Starting in 2018, the TJCA put a cap of $10,000 in state and local property taxes combined was put in place. If you take the standard deduction, you won’t be able to deduct any property taxes.

If you live in a state with high property taxes, you’ll need to determine if itemizing or claiming the standard deduction, which did increase in 2021, is the best way to maximize your benefits.

Deducting home equity loans

Your home’s equity is the value of the part of the house that you currently own. Many people use that money to take out a home equity loan. These loans can be used for various needs, from improving your home’s curb appeal to paying off debts.

Previously, you could deduct up to $100,000 in interest on home equity loans, regardless of what you used the money for, even if it wasn’t specifically home-related. You can currently deduct the interest on the loan only if used for home upgrades, improvements, or repairs. The loan amount is now also included in the $750,000 or $1 million mortgage interest deduction limit, depending on when you purchased your home.

Now that you have a better understanding of the tax benefits for homeowners in 2021, you might decide you want to explore your options when it comes to homeownership.

If you’re thinking about buying a home, OVM is here to help, no matter the housing market conditions or changes. Get in touch today and speak with our team of loan experts. Or, if you’re ready to get started, give us a call or click here to begin your application.

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