With the interest rate in the news, I wanted to provide some perspective on what that might mean if you are considering buying a home. The Fed declined to raise the rate, but is projected to make a slight bump in December. While rates probably wont skyrocket soon, any increase does affect your buying power when it comes to house shopping. We would never advise you to buy a house based on fear or market pressure. The decision to buy should be made considering many factors, including your lifestyle, desires, and general readiness, in addition to financial considerations. To look at the financial picture, a rent versus buy calculator, like my favorite from the New York Times, can help you get a better sense of whether or not it makes sense for you.
If you are already considering buying a home, the projected bump in interest rates, and the estimated additional 5.4% increase in housing prices over the next year, may be reasons to consider looking in earnest now, versus waiting until next spring or summer. As an example, below is a snapshot at the average housing price for a first time home buyer in our area. If you are looking at homes priced higher, the difference will be even more pronounced.
Are you an seller or investor looking to sell a property, buy a new property, but want to avoid paying capital gains or recapture taxes?
Have you heard of 1031 exchange? This is a process where you are redistributing the equity of one property into another investment, to defer additional taxes.
Here are some simple facts on the 1031 process;
1. Sell property & identify new purchase within 90 days.
2. Find a like kind/replacement property you want to acquire. (Must be equal or greater value).
3. Reinvest all equity into the new property OR apply equity to a higher valued property.
This transaction is similar to a trade, where the equity is transferred to a new property, rather than received as proceeds, and taxed.
We have had clients sell a long term investment property, for a new construction investment, sell their investment, and apply the proceeds towards a portion of an investment or, apply the equity of one property to the purchase three new properties.
As part of the exchange process, the purchase property must be identified with in the specified time frame, and the owner may not receive cash or other benefits from the sale.
Using a Qualified Intermediary to complete this process is highly recommended, given the complicated nature and timing of the transactions.
If you have more questions about completing a 1031 Exchange, our team has completed these types of transactions on our personal properties, and for clients. Contact us today, for more info!
The City of Falls Church offers closing cost and down payment assistance of up to 20% of the purchase price of a house (less than $450,000) for first time homebuyers. The assistance is a second interest-free loan, with repayment due at the sale or refinance of the home, or if the buyer rents the home out (it is no longer the buyer’s primary residence). One caveat: the City wants an interest in any appreciation in the property for the use of the money. If they loan you 20% of the purchase price of the home and it appreciates, when you sell the home, they want 20% of the new sale price.
Requirements to qualify:
Ask us for more information about how this program stacks up to others on offer in the area, or a recommendation on getting started in your search or working with a lender.
If you have 1% cash and can otherwise qualify for a FHA loan, you may be able to get a second loan for the amount of your down payment from VHDA Plus Loans program. The income and sales price limit on this VHDA funded, FHA insured second mortgage are slightly more generous than some other first time homebuyer programs. You can qualify if your household of 2 makes less than $122k a year and you are looking to buy a place that is under $500k. There are other qualifications, including having good credits (above 620) and taking a buyer education course, but this program can help bridge the cash gap to get your into your new home. Let us recommend a great lender who can help get you pre-qualified.
Are you thinking about buying or selling this year?
Yesterday, the US Mortgage rates dropped to an all time low since May of 2013 with 30 year fixed rate at 3.73%! This decrease in rates is great news for buyers and sellers, as it helps increase buying power across the board. With a $500K sales price, and 10% down, this rate drop would save buyers over $180/month*, or $2160 a year compared to rates in 2014. Over 30 years, and that’s a saving of $777, 600!
Rates for 2014 started high, at 4.43% in January, dropped a bit in the spring, hovered around 4.15% for the summer and fall months and continued to decline below 4% into the end of the year. The average rate for 2014, was 4.17% on a 30 year fixed rate loan. Annual averages for 2013 came in at 3.98%, and 3.66% for 2012. Rates for a 15 year loan have also dropped and are averaging around 3% for 2015.
Many may be asking, “why did rates drop?” Simply put, concerns about Europe and Asia’s political and economy status are causing investors to focus on U.S Treasury bonds. The 10 year Treasury yields dropped below 2 ( for the first time in several months), lowering the mortgage rates as well. Its hard to say how long rates will stay this low, but if you are thinking about buying or selling in 2015, it may be a great time. Additionally, if you are looking to refinance your home, this is another great opportunity for a lower mortgage rate.
If you’d like to learn more about rates, and how this can help you save on buying a home contact us for more details!
*Calculations based on $500K, 10% down, principle & interest only, rates: January 2014 at 4.3% and January 2015 at 3.73%. Actual rates are subject to individual credit, income and financial qualifications.
We often find that incoming clients are on the fence about buying or renting in the area. The DC area is a very transient one, and many people find themselves packing up to leave just as quickly as they arrived. The decision of whether to rent or buy is a difficult one; renting is essentially hassle free, but without the possibility of appreciation and no tax benefits. Consider this: DC and the surrounding area average a 34% higher rental rate than a comparable mortgage. So if you find yourself loving a home for rent at $2,000/month, that same home sold to you and financed through a typical mortgage would be only $1,300-1,500/month! Here is a great Rent vs. Buy Calculator to start determining what would work best for you!
The Washington, DC, region is one of the strongest housing markets in the country, and as such you can typically expect your break even horizon to be 4 to 5 years. Why is this important to you? Over the course of a standard 2 to 3 year lease, with a monthly budget of $2000, you will have spent anywhere from $55,000 to $85,000 in total rent and utilities. This money might be better used to build equity and then either sell for a profit or use as a rental investment property. We can help you think through the decision of renting vs. buying, and then to find the best home to reach your financial goals. Contact us for a no obligation consultation!
Many clients are frequently baffled about where to begin the financing process and what they should be looking for in a mortgage. With so many changes over the years, it’s hard to keep up! We decided to simply and effectively lay out the most common loans and their general guidelines over the coming weeks as part of a series “Let’s Talk Loans”.
Conforming Conventional Loans
What is it? “Conforming” loans are the most common loans in the marketplace, and meet the required standards of both Fannie Mae and Freddie Mac (that is, they “conform” to Fannie and Freddie rules), both of which purchase loans from lenders and then package them up to sell on the secondary market. This allows lenders to receive cash up front for you loan, so they can lend to someone else. Conforming loans can be fixed rate or adjustable rate, and can be 15 year or 30 year.
Why is that important? Investors buy these packaged loans from Fannie and Freddie. Fannie and Freddie charge a guarantee fee, which is approximately 0.5% more than your interest rate. Some banks, however, keep these loans in their own portfolio rather than sell them, depending on the market and their own investment objectives.
What are the guidelines? Typically, you need at least a 5% down payment, and good credit. The conforming loan limit is generally 417,000; however, in more expensive markets of the country, including the DC Metro area, high-value conforming loans up to $625,500 can be found. But be prepared to have a 10%-20% down payment for these larger loans. And without 20% down, you can expect to pay private mortgage insurance, as well.
Next Up: Let’s Talk Loans: FHA
To find out more, or to speak with a home loan expert, contact us!
I work with a lot of first time buyers in the DC area, which is a very expensive market and thus many clients have their parents help out either with down payment assistance or co-signing the loan. The most important thing is to get a trusted lender involved very early in the process. Lenders sometimes have different sets of guidelines by bank and also by loan product. It’s important to choose an appropriate product (e.g., 30 year fixed FHA, or 30 year fixed conventional) early in the process. Sometimes gifts can be ‘seasoned’ in the recipient’s account and used as a down payment, but if it arrives too late in the process it may cause problems with the loan approval.
There’s a big misunderstanding about gift taxes. For gifts below a certain amount, no filing is due to the IRS, and for above a certain amount a filing is due BUT taxes may or may NOT be due! It depends on the amount of the gift, how many recipients there are, and whether the giver has reached his or her lifetime exclusion. Parents often mistakenly assume they will be taxed on every gift above the reporting threshold, and thus want to structure it as a loan but that is one of the worst things they can do. If it’s structured as a loan then the lender will count it as debt and it will affect the recipient’s debt-to-income ratio and could very well result in a rejection by the lender. The key is to speak with your tax preparer early to determine whether the gift is taxable, and then speak to a trusted lender.