Feb 11, 2019 | Financial Reports
Last week’s economic news included Federal Reserve Chair Jerome Powell and weekly readings on mortgage rates and new jobless claims.
Fed Faced with Public Mistrust of Institutions
Federal Reserve Chair Jerome Powel said in a speech to a group of teachers that the Federal Reserve is paddling against a current of public mistrust of the institution. Mr. Powell assured his audience that the Fed was “working in a non-political way” to support the economy.
Mr. Powell said that the Fed was working to earn public trust and said that the Central Bank must be accessible to ordinary Americans and lawmakers. In support of his remarks, Chairman Powell cited three meetings he had with lawmakers and a possible meeting at the White House.
Publicity of a recent dinner with President Trump caused speculation that the Fed may be influenced by the administration. Analysts connected last Monday’s White House dinner with the Fed’s sudden reversal of its plan to raise the target range of the federal funds interest rate. Chairman Powell said that he wanted the nation’s prosperity to be widely shared; he cited “education and mobility” as key components of achieving his goal.
Mortgage Rates, New Jobless Claims
Freddie Mac reported lower mortgage rates with a decrease of five basis points across the board for the three types of mortgages it tracks. Rates for 30-year fixed rate mortgages averaged 4.41 percent, rates for 15-year fixed rate mortgages averaged 3.84 percent.
Rates for 5/1 adjustable rate mortgages averaged 3.91 percent. Last week’s mortgage rates were approximately the same as for a year ago, but analysts said that less buyer competition and more available homes this year would encourage would-be homebuyers into the market.
First-time jobless claims were lower than the prior week at 234,000 new claims filed but were higher than the expected reading of 225,000 new claims filed, which was based on the prior week’s reading of 253,000 new claims filed. The reading for the four-week rolling average of new jobless claims gained 4,500 claims for a reading of 224,750 new claims filed over the most recent four weeks. Analysts said that although the four-week average was higher, it remained near historic lows.
What‘s Ahead
This week’s scheduled economic news includes readings on inflation, retail sales and consumer sentiment. Weekly readings on mortgage rates and new jobless claims are also scheduled.
Feb 8, 2019 | Real Estate
Savvy home buyers often get great deals on new home constructions by asking for deals and discounts and doing some up-front research.
Home builders often dislike offering steep discounts in sales prices because they want everyone in the community to feel like they bought their property at a fair price. Maintaining sales prices also helps with future home appraisal values. It helps all of the buyers in a neighborhood to keep sales prices consistent and growing.
Fortunately, you can still get great discounts that can reduce the cost of your new home.
Ask the builder if they can do the following:
Settle Closing Costs
Closing costs vary depending on your state. On average, the costs can be as high as $10,000. In Colorado, for example, a standard closing is about 3 percent of the selling price.
It’s important to note that closing costs vary widely and can be structured in many ways. Make sure to consult a trusted mortgage finance professional to get the best information on your situation. But if the builder pays the bill, that money remains in your pocket. Isn’t that a great discount?
Buy Down Your Interest Rate
Although interest rates are low, if a builder is willing to buy down your rate further as part of the closing, it would reduce the amount you pay monthly in interest on your mortgage payment. That makes it manageable in the long run. Once again, your mortgage professional can give you the best details on this idea.
Offer Free Upgrades
Most homes have standard built in appliances. To get high-end appliances, home buyers normally have to pay for upgrades. Ask your builder if you can get the upgraded home appliances or other upgrades without paying extra. It’s a great strategy to move into an improved new home.
Additional Discounts
To sweeten the deal, home builders can throw in additional discounts such as automated garage doors, landscaping, finished basements and window coverings. These discounts are worth asking about.
Although these strategies are great, there are some situations that make it more difficult to get sales concessions. Therefore, as you negotiate, keep the following in mind:
- If business is going great, deals become more unlikely as builders have little motivation to give discounts.
- You may not end up with the perfect home you want since you may be buying a home that’s near completion or already built.
- The best home locations may be taken because properties in prime lots are usually the first to sell.
Knowledgeable buyers are most capable to cut great deals. Therefore, research new construction homes in your preferred neighborhood, visit some homes and compare what deals you can get. Above all, don’t hesitate to ask questions of your trusted real estate and mortgage professionals.
Feb 7, 2019 | Real Estate
The Tax Cuts and Jobs Act of 2017 instituted some of the most dramatic changes to the financial landscape in the United States in over 30 years. These adjustments to the IRS code have an effect on everyone who earns and spends money in this country.
What changes can real estate investors expect to see from the new legal standards?
Higher Standard Deduction, Less Itemized Deductions
Before the reforms, single tax filers were allowed a standard deduction of $6,350. Married couples filing jointly were given $12,700. The standard deduction is the amount of income you can earn before any income taxes are applied. If a married couple made $50,000 in one year, they would only pay taxes on $37,300. With the new laws, single filers receive a $12,000 deduction and married couples get $24,000.
However, with the increased standard deduction comes significant decreases in itemized deductions. Many smaller real estate investors depend on tax credits for homebuyers to make their purchases more profitable. Those have been removed from the list of approved deductions.
Real estate investors need to adjust their strategy to take full advantage of new tax trends. Rather than focusing on flipping homes for profit, investors may consider holding on to properties and leasing them as rental units.
Mortgage Tax Deduction Changes
Homeowners who live in their primary property are still allowed to deduct a portion of the interest paid on their monthly mortgage. However, those who have taken out home equity lines of credit are no longer able to claim a deduction for those interest payments.
This is a big change for some real estate investors. It’s a common strategy to use home equity lines of credit to finance other projects. Without the extra deduction, these loans are still a great option for quick cash. However, investors will take more time to realize profits with this strategy.
Decrease In State And Local Tax Deductions
Investors use state and local tax deductions to increase their return on investment. Under the new rules, property owners are limited to a $10,000 maximum deduction. Real estate investors who operate in high-income areas will see a significant increase in their yearly tax bill. The $10,000 limit is unlikely to offset the high price of property taxes in places like California and New Jersey.
Newer investors who don’t hold a lot of properties can consider buying in markets with lower state and local tax rates. Those who are currently invested could sell some of their lower-producing properties to lighten the burden on their tax bills.
The new tax laws are a challenge for real estate investors. But with some planning and the right information, your business can still produce a generous profit.
If you are interested in investing in a new property, be sure to partner with a trusted real estate agent.
Feb 6, 2019 | Mortgage
It’s no secret that mortgage lending institutions look favorably on steady paychecks and positive debt-to-income ratios. That can leave many self-employed prospective home buyers feeling anxious about getting approved for a mortgage. But just like the 9-to-5ers who get regular paychecks, self-employed people earning a good living can get approved with a little due diligence.
The primary concern of mortgage lenders is not necessarily where your revenue comes from, it’s confidence that you can meet the monthly obligations. A lender probably wouldn’t see a significant difference between someone who was paid every two weeks and another paid monthly. Why should a self-employed earner be any different? While there are differences, that doesn’t necessarily have to be a bad thing.
Self-Employed Mortgage Applicants Face ‘Different’ Scrutiny
When reviewing a self-employed person’s mortgage application, the lender can expand their consideration to items related to your business. Factors such as stability, longevity, location, and viability are issues that can come into play.
This type of review mirrors that of steady paycheck earners in terms of length of employment, history of layoffs and other potential revenue setbacks. There really isn’t a higher standard than for self-employed mortgage applicants. You enjoy a different professional life, and the process reflects those differences. That being said, there are a number of things you can do to put your best foot forward toward mortgage approval.
Strengthen Your Self-Employed Mortgage Application
First and foremost, every mortgage applicant must be able to demonstrate an ability to meet the monthly payments on paper. There is no way around the debt-to-income ratio. And although many self-employed people exercise some lifestyle flexibility in terms of tax deductions, your numbers have to prove you can take on a mortgage. That being said, there are important items you may want to consider when applying for a home loan.
- Revenue Stability: Volatile swings in revenue are not generally persuasive. Lenders tend to like steady and positive growth reflected in your business and personal earnings.
- Tax Returns Matter: This can be particularly problematic for people who find creatively legal ways to make revenue tax exempt. Home offices and company cars can lower your taxable income, but they also reduce your ability to pay the mortgage, at least on paper. Plan ahead by strategically filing strong earned-revenue tax returns.
- Consistency Matters: There are a few ways to demonstrate consistency. It can be level monthly earnings or multiple years of tax returns in the same business. Your income may only be considered if it fluctuates in a way that frightens lenders.
- Good Credit: Some cash-oriented people tend to discount the value of credit scores. The adage that “cash is king” may apply to the down payment, but a poor credit history can hurt your chances with lenders. Think “credit is king” when applying for a home loan.
Being self-employed does not mean you are at a strategic disadvantage when applying for a mortgage. But keep in mind that the home loan review can be slightly different.
As always, your best next step would be to consult with your trusted allies in real estate transactions – your trusted home mortgage professional and your trusted real estate agent. These partnerships can make a world of difference in the success of your home buying experience.
Feb 5, 2019 | Mortgage
When used as a part of an effective real estate investment strategy, hard money loans are an excellent tool to quickly increase holdings without risking existing properties. However, these loans aren’t for everyone.
What investors get the most value from hard money loans?
Investors With Less-Than-Stellar Credit
Investors with credit challenges can qualify more easily for hard money loans. That’s because these loans aren’t based on the borrower. While you will have to prove a measure of creditworthiness, hard money lenders are more interested in the property you plan to buy. If you default on your payments, the lending bank simply takes possession of your property. For that reason, high-value properties in good condition fetch the best terms with hard money lenders.
If you’re turned down for more conventional funding sources, you may still be able to move forward with a hard money loan for the right property.
Cash-Strapped Veteran Investors
When the market is hot, it’s not unusual for an investor to sink the majority of their liquid assets into new properties. However, this can leave them left out in the cold when new properties come up for sale.
Experienced flippers who are temporarily out of cash can use hard money loans to fund the purchase of additional properties. This allows them to continue expanding their holdings without compromising money earmarked for other projects. The short loan term is no problem for these investors since they know a property sale is always imminent.
Quick Investments: When You Can’t Wait
Sudden auctions can be a blessing to real estate investors. Sometimes, however, these deals pop up at the least opportune time. If you have your eye on a property that promises to go fast, a hard money loan can get you the cash you need in less time than conventional sources. That means you can take advantage of rock-bottom cash auctions quickly.
Since hard money loans don’t have the most favorable repayment terms, many investors choose to convert them into more conventional loan structures after the initial purchase. This strategy allows investors to participate in quick sales without sacrificing too much profit to interest payments.
Hard money loans are a unique source of funding for real estate investors. Use them wisely to realize the benefits and increase your investment income.
Your trusted home mortgage professional can help guide you through all of your financing options. Another important key partnership is with your trusted real estate agent. These skilled professionals are well-versed in many types of real estate transactions.
