Despite rising home prices, American housing is actually quite affordable – and now is really a good time to make that purchase.
Housing affordability is measured by comparing household income relative to the income needed to purchase a home.
According to the latest Real House Price Index from First American Title, today’s home buyers have “historically high levels of house-purchasing power.”
According to Mark Fleming, First American’s chief economist, “talk of an affordability crisis is over-stated.” In fact, consumer house-buying power – how much home someone can buy based on average income, interest rate and home price – is actually up over the year.
Ms. Yale in her article notes that home-buying power rose by nearly a full percent from November 2016 to November 2017.
And though real home prices increased 5 percent over the year, they’re still 37.7 percent below their 2006 peak. They’re also more than 16 percent below 2000’s numbers.
Because mortgage rates are lower than historical averages, home-buying power is up, according to First American’s Fleming.
“In fact, consumer house-buying power is 2.3 times higher than it was in 2000, almost two decades ago,” he said. “It’s also only 2.9 percent below the peak in July 2016. Because the long-run trend in mortgage interest rates has been downward, from a peak of 18 percent in 1981, the housing market has benefited from consistently increasing house-buying power”
He continues, “Home buyers today have historically high levels of house-purchasing power, and that’s one important reason why, even as unadjusted house price growth exceeds household income growth, the talk of an affordability crisis is over-stated for now.”
The Solution
One of the great underlying opportunities today is that buying a home is considerably cheaper than renting. Renters interested in reducing expenses and collecting tax benefits should absolutely talk to a mortgage lender prior to signing that next rental contract.
Contact me for more information, as it would be my pleasure to help!
Everyday players can trust that they will see a good number of pitches over multiple at bats during a ballgame. They have standard routines and approach the game for the longer haul.
Pinch hitters, on the other hand, are often called on infrequently and need to be ready to go at a moment’s notice.
Getting ready for a pinch at-bat is a complicated thing that can involve stretching, swinging, studying and reading a variety of cues about game situation – all in order to generate peak performance within a tiny window.
The job is not an easy one. Pinch-hitters must ready themselves physically and mentally for an at-bat that could come at any moment — or never. Not all hitters are capable of this – nor are many fully willing to embrace the role.
It takes a different mindset and approach all together. Pinch hitters are generally more aggressive at the plate, as they don’t have the time to see pitches and get behind in the count.
Many anticipate a particular pitch early in the at-bat…and when they get it, they swing with authority.
The key is to not get cheated as a pinch hitter!
However, before a pinch-hitter can worry about when to swing, he must get his body ready for the task. This means getting loose and limber, sometimes more than once during the course of the game. The player might stretch, run, ride a stationary bike, and take a good number of practice swings.
Some take time before and even during games to utilize the batting cages situated near the dugouts in many ballparks. They take cuts off a tee or tosses from a coach or teammate. They spend time during this session visualizing the upcoming at-bat – “seeing” their success with the pitches that they expect.
The big takeaway here is that these MLB hitters know and embrace their roles – and take an aggressive mind set to each pinch-hit at-bat.
Owning a home has become synonymous with building wealth.
For most Americans, it’s one of, if not the largest investment they will make over the course of their life. Many financial experts agree that it’s the single best way to grow your “nest egg” over time.
But building home equity is only part of the story. There are a number of tax benefits to home ownership and home purchasing.
Of course, please do contact your tax advisor or CPA to talk about the specifics of how the tax laws apply to you and your circumstances. Make sure you are eligible for these individual deductions!
Mortgage Interest
Home-owners are allowed to deduct the interest of your monthly mortgage payment. Best of all, it’s available for the entire term of the loan! There are new limits on the amount that can be deducted, but the average home owner will not even get near that number.
Home Office Deduction
If you work out of your house, your home office can provide additional tax deductions annually. Homeowners who have an office in their home are actually allowed to deduct the amount of monthly mortgage paid based on the square footage of that office. They can even expense a portion of the utility bills, including heat, electricity, and internet service.
Property Taxes
Part of being a homeowner means that you are subject to property taxes. Those are paid to the county, city and state – and are tax deductible. Again, new laws limit the amount that can be deducted, so contact your advisor for the specifics.
Moving Costs
If you are required to relocate for work, there are specific deductions available for expenses connected with moving your family, your things, and even your cars.
Discount Points
If you utilized “points” to lower the interest rate of your loan, you can actually deduct the cost of those fees the year you purchase the property. This happens quite often – say a borrower uses 1 point to lower their interest rate from 5% to 4.75%. This would lower their monthly payment over the life of the loan AND help you in the tax year you make that purchase.
Mortgage Interest Credit
If your income meets certain thresholds, you might be eligible for the mortgage interest tax credit. It’s there to make paying for your new home a bit easier – but you do have to have a mortgage credit certificate. Those can be provided by the state or local government agency.
There are other potential deductions for environmental and health related home improvements out there too, so make sure you contact your CPA or tax advisor to find out more!
The Mortgage Pre-Qualification Letter – Questions to Ask
Every real estate agent, at one time or another, has run into the situation where the buyer/borrower was issued some sort of pre-approval letter that didn’t hold water under further scrutiny.
How can an agent really test the validity of a borrower’s pre-approval?
What Are the Findings?
This really should be the number one question asked by agents, as this is where the rubber meets the road – and where the majority of lenders have not completed the task.
First, nearly all the residential loans being originated to Fannie Mae’s or Freddie Mac’s standards must pass automated underwriting through Desktop Underwriter (DU for short) or Loan Prospector (LP).
Each loan is carefully run through an automated underwriting system whether the borrower is looking for a conventional mortgage, FHA mortgage or even a jumbo mortgage. If their loan does not pass automated underwriting, it’s more than likely the potential borrower’s loan won’t move forward.
It’s absolutely critical in the information-gathering stage – that lenders run and then receive an automated underwriting approval to make sure their loan will get the green light.
Make sure you know the automated underwriting findings!
Is This a Pre-Approval or Pre-Qualification
The pre-approval process is not a 15-minute conversation. If you supply me with all the documents necessary for a full document (full doc in industry jargon) review, I need time to read them, do the analysis, load the data into systems, and run the analyticd…more than 15 minutes. Giving your lender time to process the information helps to secure a reliable pre-qualification.
If your borrower’s lender is offering you a super speedy pre-approval, you as the agent need to question the choice of your borrower’s loan officer. Obvious mortgage killers, un-seasoned bankruptcy, late payments, etc, are the exception. Mortgage killers take only a minute or two to disqualify the credit approval.
A true pre-qualification, on the other hand, is where the lender has done the appropriate analysis of the potential borrower’s income, assets, and credit and has received either Fannie Mae’s or Freddie Mac’s underwriting authorization (more on that to follow).
What Documentation Did You Obtain?
This list may vary from borrower to borrower (as some might be self employed or others might be utilizing commissionable income), but here is a standard issue checklist:
Copies of Driver’s Licenses/Social Security Cards – copies of driver’s licenses are typically required for all buyers that are going to be on the loan – and social security card verifies your US identity. These are important documents for buyer verification and fraud detection.
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Mortgage Statement/Coupons For All Real Estate Loans – if your buyer currently owns a home, whether they plan on selling it to buy a step-up home or plan on renting it out to live in another home, they will need to show their lender exactly how much they are paying monthly for their current home.
Most Recent Bank Statements – mortgage lenders need to see the most recent bank statements (all pages, and all accounts) from any buyers going on the loan. We will examine the debits and credits thoroughly.
Pay Stubs/ W-2 Forms for the Past Two Years (or 1099) – the past 30-60 days of pay stubs are required to prove and document their income, as well as W-2 statements for the last 2 years.
Retirement/Investment Account Statements – if a borrower has a retirement or investment account, they should provide one or two monthly statements to the lender. Even if they don’t plan on using these funds to buy your home, it may help prove that they are qualified. In some cases, the underwriter will need to see that the borrower has a certain amount of money in reserves.
Tax Returns (1040) – the past two years of borrower tax returns shows the mortgage lender your income, employer, address, verify your social security number and more.
Profit and Loss Statements – if the borrower is self-employed or owns their own business, he/she will need to show two years’ worth of profit and loss statements. The lender may request additional items such as business bank statements as well.
In Conclusion
Much time can be saved and grief avoided if true pre-qualifications were given the time and effort they truly require. Make sure the lenders you deal with follow this process thoroughly – and don’t hesitate to contact me, as it would be my privilege to help!
Of course, please do contact your tax advisor or CPA to talk about the specifics of how the tax laws apply to you and your circumstances.
As a homeowner or potential home buyer, here are some highlights of the changes:
Mortgage Interest
If you purchased a house prior to December 16, 2017, you will be allowed an itemized deduction for the mortgage interest you pay up to $1 million.
For purchases after December 16, 2017, that amount has been lowered to $750,000.
Refinancing of mortgages that were acquired prior to December 16, 2017, can retain the deduction limits, but not beyond the original mortgage’s term and amount.
Second Homes
An itemized deduction can be made for both a principal and second residence mortgage up to a combined total of $750,000 (or up to $1 million if grandfathered prior to December 16, 2017).
So, the interest you pay on your loan for a second home, only if the above loan limits are exceeded, will not be deductible in 2018.
If, however, you rent your vacation home, you can write off the costs associated with that activity, which would include a portion of mortgage interest and property taxes.
Home-equity Debt
Interest paid on home-equity loans will no longer be deductible beginning in 2018.
Exception: interest may be deductible on home equity loans (or second mortgages) if the proceeds are used to acquire or substantially improve the residence and can be documented.
Exclusion of Gain on Sale of a Principal Residence
There are no changes to current tax law. Taxpayers will continue to be able to exclude up to $500,000 ($250,000 for single filers) from capital gains taxation when they sell their home, as long as they have lived there for two of the previous five years.
Property taxes
Property, state and local income taxes face a combined $10,000 deduction limit.
What does this mean for today’s buyers?
If you are thinking of purchasing a home today, you may be wondering what these tax law changes mean for your future purchasing plans. There are always multiple factors to consider when you are looking to make that decision.
Purchasing a home is still a fantastic investment opportunity and gives you the best chance of building long-term wealth.
It would be my pleasure to help you determine if now is the time to purchase. Do contact me for more information!
This information does not provide customized investment advice or offer legal, tax, regulatory or accounting guidance. Please contact your CPA or tax advisor for details and more information.
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
The views expressed are my own and do not necessarily reflect those of Starlight Mortgage.
Ms. Yale in her article notes that home-buying power rose by nearly a full percent from November 2016 to November 2017.
