This time of year, many people eagerly check their mailboxes looking for their tax return check from the IRS. But, what do most people plan to do with the money? GO Banking Rates recently surveyed Americans and asked the question - “What do you plan on doing with your tax refund?” The results of the survey were interesting. Here is what they plan to do with their money:
“With a sizable tax refund, the average American would have a decent down payment depending on which region or market you live in.”
They went on to add:
“[A]pproximately 5 percent of all respondents indicated they would make a major purchase which does not seem like a lot. However, there is a bigger group 41 percent who see saving the tax return is best and that group could be potential homebuyers if they are not already.”
In other words, putting that money toward purchasing a home is a form of savings.
When one considers that first-time home buyers in 2016 had an average down payment of 6%, a decent tax return could go a long way toward the necessary funds needed for a down payment on a house. Or perhaps, the down payment needed by a son or daughter to make their homeownership dream a reality. How are you going to spend your return?
Real Estate mogul, Sean Conlon, host of The Deed: Chicago on CNBC, was recently asked the question, should you buy? Or should you rent a house? Conlon responded:
âI am a true believer that you save every penny and you buy your first houseâ¦ and that is still the fastest path to wealth in this country.â
Who is Sean Conlon, and why should you listen to his advice?
Within a few years of working in the real estate industry, Conlon had established himself as one of the leading agents in the United States and has founded 3 billion-dollar brokerages dealing in residential, commercial and investment sales. Since immigrating to America from the United Kingdon in 1990, he believes very strongly in the American Dream and the role that homeownership plays in achieving it. Conlon is quoted on his website as saying:
âI treat people the way I would like to be treated if I went in to buy a house and I work harder than anybody I know. I think if you do that in America, you will always succeed.â
Homeownership is an investment you can leverage against in the future, that not only provides shelter and safety but also helps you build your familyâs wealth. If you are debating whether or not to purchase a home this year, meet with a local real estate professional who can assist you, today!
Saving for a down payment is often the biggest hurdle for a first-time homebuyer. Depending on where you live, median income, median rents, and home prices all vary. So, we set to find out how long would it take you to save for a down payment in each state? Using data from the United States Census Bureau and Zillow, we determined how long it would take, nationwide, for a first-time buyer to save enough money for a down payment on their dream home. There is a long-standing 'rule' that a household should not pay more than 28% of their income on their monthly housing expense. By determining the percentage of income spent renting a 2-bedroom apartment in each state, and the amount needed for a 10% down payment, we were able to establish how long (in years) it would take for an average resident to save enough money to buy a home of their own. According to the data, residents in Iowa can save for a down payment the quickest in just under 2 years (1.99).
Below is a map created using the data for each state:
âWhat if you only needed to save 3%?
What if you were able to take advantage of one of Feddie Mac's or Fannie Mae's 3% down programs? Suddenly, saving for a down payment no longer takes 5 or 10 years, but becomes attainable in a year or two in many states as shown in the map below.
Whether you have just begun to save for a down payment, or have been saving for years, you may be closer to your dream home than you think! Meet with a local real estate professional who can help you evaluate your ability to buy today.
Many Americans got some depressing news a few weeks ago; either their tax return was not as large as they had hoped or, in some cases, they were told they owed additional money to either the Federal or State government or both. One way to save on taxes is to own your own home. According to the Tax Policy Center's Briefing Book - "A citizen's guide to the fascinating (though often complex) elements of the federal Tax System" - there are several tax advantages to home-ownership. Here are four items, and a quote on each, from the Briefing Book:
1. Mortgage Interest Deduction
"Homeowners who itemize deductions may reduce their taxable income by deducting any interest paid on a home mortgage. The deduction is limited to interest paid on up to $1 million of debt incurred to purchase or substantially rehabilitate a home. Homeowners also may deduct interest paid on up to $100,000 of home equity debt, regardless of how they use the borrowed funds. Taxpayers who do not own their home have no comparable ability to deduct interest paid on debt incurred to purchase goods and services."
2. Property Tax Deduction
"Homeowners who itemize deductions may also reduce their taxable income by deducting property taxes they pay on their homes."
3. Imputed Rent
"Buying a home is an investment, part of the returns from which is the opportunity to live in the home rent-free. Unlike returns from other investments, the return on homeownership--what economists call "imputed rent"---is excluded from taxable income. In contrast, landlords must count as income the rent they receive, and renters may not deduct the rent they pay. A homeowner is effectively both landlord and renter, but the tax code treats homeowners the same as renters while ignoring their simultaneous role as their own landlords."
4. Profits from Home Sales
"Taxpayers who sell assets must generally pay capital gains tax on any profits made on the sale. But homeowners may exclude from taxable income up to $250,000 ($500,000 for joint filers) of capital gains on the sale of their home if they satisfy certain criteria: they must have maintained the home as their principal residence in two out of the preceding five years, and they generally may not have claimed the capital gains exclusion for the sale of another home during the previous two years."
âWe are not suggestion that you purchase a house just to save on your taxes. However, if you have been on the fence as to whether 2017 is the year you should become a homeowner, this information might help with that decision. Disclaimer: Always check with your accountant to find out what tax advantages apply to you in your area.
Forbes.com recently released the results of their new American Dream Index, in which they measure "the prosperity of the middle class, and....examine which states best support the American Dream." The monthly index measures several different economic factors, including goods-producing employment, personal and commercial bankruptcies, building permits, startup activity, unemployment insurance claims, labor force participation, and layoffs. The national index score was rounded out to 100 in January and saw a modest jump to 100.5 in February. Alaska represented the lowest score on the index at 80.7, due mostly to the recent collapse in oil prices. Nevada came in with the highest score at 108.8, boosted by big gains in goods-producing jobs and new construction activity. The full results can be seen in the map below.
Forbes Senior Editor Kurt Badenhausen explained why many states saw a boost in the index last month:
"Businesses are hiring in part in anticipation of tax cuts and less regulation... many areas of the country have experienced strong upticks in employment and construction, as well as declines in uneployment claims since the start of the year."
âThe American Dream, for many, includes being able to own a home of his or her own. With the economy improving in many areas of the country, that dream can finally become a reality.
âA recent report released by Down Payment Resource shows that 65% of first-time homebuyers purchased their homes with a down payment of 6% or less in the month of January. The trend continued through all buyers with a mortgage, as 62% made a down payment of less than 20%, which is consistent with findings from December. An article by DS News points to the new wave of millennial homebuyers:
âIt seems that the long-awaited influx of millennial home buyers is beginning. Ellie Mae reported that mortgages to millennial borrowers for new home purchases continued their ascent in January, accounting for 84 percent of closed loans.â
Among millennials who purchased homes in January, FHA loans remained popular, making up 35% of all loans closed. Ellie Maeâs Executive Vice President of Corporate Strategy Joe Tyrrell gave some insight into why:
âIt is not surprising to see Millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score requirements than conventional loans. Across the board, we're continuing to see strong interest in homeownership from this younger generation.â
âIf you are one of the many millennials who is debating a home purchase this year, contact a local professional who can help you understand your options and set you on the path to preapproval.
There are many benefits to homeownership. One of the top benefits is being able to protect yourself from rising rents by locking in your housing cost for the life of your mortgage.
Donât Become Trapped
Jonathan Smoke, Chief Economist at realtor.com, reported on what he calls a âRental Affordability Crisis.â He warns that,
âLow rental vacancies and a lack of new rental construction are pushing up rents, and we expect that theyâll outpace home price appreciation in the year ahead.â
In the Joint Center for Housing Studies at Harvard University's 2016 State of the Nationâs Housing Report, they revealed that âThe number of cost-burdened households rose to 21.3 million. Even more troubling, the number with severe burdens (paying more than 50% of income for housing) jumped to a record 11.4 million.â These households struggle to save for a rainy day and pay other bills, such as food and healthcare.
Itâs Cheaper to Buy Than Rent
In Smokeâs article, he went on to say,
âHousing is central to the health and well-being of our country and our local communities. In addition, this (rental affordability) crisis threatens the future value of owned housing, as the burdensome level of rents will trap more aspiring owners into a vicious financial cycle in which they cannot save and build a solid credit record to eventually buy a home.â âWhile more than 85% of markets have burdensome rents today, itâs perplexing that in more than 75% of the counties across the country, it is actually cheaper to buy than rent a home. So why arenât those unhappy renters choosing to buy?â
Know Your Options
Perhaps you have already saved enough to buy your first home. HousingWire reported that analysts at Nomura believe:
"Itâs not that Millennials and other potential homebuyers arenât qualified in terms of their credit scores or in how much they have saved for their down payment. Itâs that they think theyâre not qualified or they think that they donât have a big enough down payment.â (emphasis added)
Many first-time homebuyers who believe that they need a large down payment may be holding themselves back from their dream home. As we have reported before, in many areas of the country, a first-time home buyer can save for a 3% down payment in less than two years. You may have already saved enough!
Donât get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible for a mortgage.
âWhen a homeowner decides to sell their house, they obviously want the best possible price for it with the least amount of hassles along the way. However, for the vast majority of sellers, the most important result is actually getting their homes sold. In order to accomplish all three goals, a seller should realize the importance of using a real estate professional. We realize that technology has changed the purchaserâs behavior during the home buying process. According to the National Association of Realtorsâ 2016 Profile of Home Buyers & Sellers, the percentage of buyers who used the internet in their home search increased to 94%. However, the report also revealed that 96% of buyers who used the internet when searching for homes purchased their homes through either a real estate agent/broker or from a builder or builderâs agent. Only 2% purchased their homes directly from a seller whom the buyer didnât know. Buyers search for a home online but then depend on an agent to find the home they will buy (50%), to negotiate the terms of the sale (47%) & price (36%), or to help understand the process (61%). The plethora of information now available has resulted in an increase in the percentage of buyers that reach out to real estate professionals to âconnect the dots.â This is obvious, as the percentage of overall buyers who have used agents to buy their homes has steadily increased from 69% in 2001.
âIf you are thinking of selling your home, donât underestimate the role a real estate professional can play in the process.
Traditionally, spring is the busiest season for real estate. Buyers come out in force and homeowners list their houses for sale hoping to capitalize on buyer activity. This year will be no different! Buyers have already been out in force looking for their dream homes and more are on their way, but the challenge is that the inventory of homes for sale has not kept up with demand, which has lead to A LOT of competition for the homes that are available. A recent Bloomberg article touched on the current market conditions:
âItâs the 2017 U.S. spring home-selling season, and listings are scarcer than theyâve ever been. Bidding wars common in perennially hot markets like the San Francisco Bay area, Denver and Boston are now also prevalent in the once slow-and-steady heartland, sending prices higher and sparking desperation among buyers across the country.â
Sam Khater, Deputy Chief Economist at CoreLogic went on to explain why buyers are flocking to the market in big numbers:
âIn todayâs market, many buyers think the trough in [interest] rates is over. If you donât get in now, itâs just going to be worse later. Rates will be higher, prices will be higher, and maybe inventory selection will be lower.â
In some markets, âthirty-five percent of properties are selling within the first week or two of hitting the market.â
âHomes are selling at a rapid clip in places like:
In todayâs competitive atmosphere, you need a professional on your side who knows your exact market conditions and can help you take the steps you need to be able to secure your new home!
A survey by Ipsos found that the American public is still somewhat confused about what is required to qualify for a home mortgage loan in todayâs housing market. There are two major misconceptions that we want to address today.
1. Down Payment
The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 40% of consumers think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less. Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.
2. FICOÂ® Scores
The survey also revealed that 62% of respondents believe they need excellent credit to buy a home, with 43% thinking a âgood credit scoreâ is over 780. In actuality, the average FICOÂ® scores of approved conventional and FHA mortgages are much lower. The average conventional loan closed in February had a credit score of 752, while FHA mortgages closed with a score of 686. The average across all loans closed in February was 720. The chart below shows the distribution of FICOÂ® Scores for all loans approved in February.
âIf you are a prospective buyer who is âreadyâ and âwillingâ to act now, but are not sure if you are âableâ to, sit down with a professional who can help you understand your true options.