Buying a New Home? Don't Do THIS

You’ve seen lists telling buyers what to do to find the right home but knowing what not to do can be just as important.  After finding the right home, negotiating a contract, making a loan application and inspections, buyers, understandably, start making plans to move and put their personal touches on the home.

In today’s tenuous lending environment, little things can derail the process which isn’t over until the papers are signed at settlement and funds distributed to the seller. Verifications are made by a lender at the beginning of the loan process to determine if the buyer qualifies for the mortgage. 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.

Simply stated:

1. Don’t make any new major purchases that could affect your debt-to-income ratio 
2. Don’t apply, co-sign or add any new credit 
3. Don’t quit your job or change jobs 
4. Don’t change banks 
5. Don’t open new credit accounts 
6. Don’t close or consolidate credit card accounts without advice from your lender 
7. Don’t buy things for your new home until after you close 
8. Don’t 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 about one of the biggest decisions you’ll make and that you feel you need to be getting ready for the move.

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

Housing Market

Some homeowners, who were not able to sell during the recession, chose to rent their homes instead.  In some cases, they didn't need to sell their home at the depressed prices and opted to rent it until the market recovered.

It's a valid strategy but there are time restrictions that could have serious tax implications for some homeowners.

The section 121 exclusion for gain in a principal residence requires that the home is owned and used as a main home for at least two years during the five year period ending on the date of the sale.  This allows a homeowner to rent their home for up to three years and still have some part of the exclusion available.

The sale of a home with a $200,000 gain that qualifies as a principal residence would result in no tax being paid by the owner.  Comparably, a rental property with the same gain could have a $30,000 or higher tax liability depending on the length of ownership and tax brackets of the investor.

The housing market has dramatically improved in the last year.  If you have a gain in a home that has been your principal residence and it has been rented less than three years, you might want to consider selling it while you qualify for the exclusion.

If you are considering a sale on your principal residence that has been rented, consult with your tax professional for advice on your specific situation.  For additional information, see IRS Publication 523.

Real Estate vs. Diamonds

How much is a one carat diamond worth? Anyone who has shopped for one knows that the price could have a significantly wide range of value. It's been said that purchasers  should consider the color, cut, clarity and carat size to compare stones but when it gets down to decision time, buyers still want to know “how much is it worth?”

Real estate valuation can be equally as confusing to the public. There are three commonly used tools that today’s home buyers rely on to make decisions but they vary significantly in the methods used to make the determination as well as the possible final consideration.

Appraisals are an opinion or estimate of value based on specific guidelines made by individuals who are licensed and possibly certified. Buyers and sellers may be reluctant to engage an appraiser because there is a fee of several hundred dollars that must be paid in advance even if no sale is ever consummated.

A Broker’s Price Opinion (BPO) as defined by the National Association of REALTORS® is an “estimate of the probable selling price of a property.” The Dodd-Frank Act describes a BPO as “an estimate…that details the probably selling price of a particular piece of real estate property and provides a varying level of detail about the property’s condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model.”

A Comparative Market Analysis (CMA) is a commonly used tool of salespeople to provide information to buyers and sellers to facilitate a sale. In most cases, it would be difficult to distinguish a CMA from a BPO because the steps considered are essentially the same and practitioners commonly use the terms interchangeably.

Another method called Automated Value Model (AVM) use software to search available data on the Internet to arrive at an approximation of value. Zestimates found on the Zillow site use this method. AVM’s may not consider all the market activity such as MLS sales and active listings. They can’t make adjustments based on human experience and market knowledge.

For what it’s worth, a buyer or seller might want to acquire as much current and factual information as possible from a trusted real estate professional familiar with the market before making a decision on the largest single asset most people acquire.

Homeowners At A Young Age

Fannie Mae, in a recently released study, states that consumer attitudes continue to be favorable about homeownership, particularly with the younger generations, ages 18 to 34. Slightly over half of them think that owning makes more sense than renting when comparing the financial and lifestyle benefits.

90% of aspiring owners expect to purchase a home someday and slightly over half think they’ll do it within five years. The primary challenges are having sufficient savings and the difficulty of getting a mortgage today. Younger renters see renting as a temporary stepping stone toward homeownership.

Homeowners are far more likely than renters to be “very positive” about their housing experience. Some of the benefits identified are:

• Having control over what you do with your living space 
• Having a sense of privacy and security 
• Having a good place for your family or to raise your children 
• Having the best investment plan 
• Living in a nicer home 
• Building up wealth 
• Saving for retirement 
• Living in a place where you and your family feel safe 
• Feeling engaged in your community

To satisfy a buyer’s doubts about qualifying for a mortgage, make an appointment with a trusted mortgage professional. If you’d like a recommendation at no cost or obligation, please contact me at kexcell@triplettcompanies.com.  Check out this Rent vs. Own to see the real cost of owning a home.

For more information about the Fannie Mae survey in presentation form, Click Here.

What is an Independent Insurance Agency?

What is an Independent Insurance Agency?

An Independent Insurance Agency is not limited to writing insurance policies with one insurance company, but can shop multiple insurance companies and find the best price and coverage for their customers.

What is a Captive Agency?

A Captive Agency is limited to one insurance company.

What is the difference between an Independent Insurance Agency and a Captive Agency?

The difference between an Independent Agency and a Captive Agency is an Independent Agency can provide quotes from several different insurance companies; however, a Captive Agency can only provide one quote from one company.

For example, Tom and Sarah have insurance with a Captive Agency (State Farm, Allstate, American Family, etc), and they just received their renewal bill. Their policy premium increased over $100 from last year. They call their agency and asked for a quote from another company. The Captive Agency cannot help them because they can only sell that one brand of insurance (State Farm, Allstate, American Family, etc.).

 Now let’s use the same scenario, but this time Tom and Sarah are insured through an Independent Insurance Agency. Tom and Sarah receive their renewal premium and it has increased over $100 from last year. They call their agency, and the agency quotes the policy with several companies to find the best price and company for Tom and Sarah.

The advantage of doing business with an Independent Agency is that they do the insurance shopping for you.