Category Archives: Finance and Taxes

Buying a Condo Just Got Easier

Buyer Information, Finance and Taxes, Seller Information

ExteriorfrontThe U.S. Department of Housing and Urban Development recently revised its condominium loan policies to allow consumers greater access to mortgage loans that are federally guaranteed through the Federal Housing Administration (FHA). After Oct. 15, 2019, as many as 60,000 additional condo units (nationwide) will meet FHA-certification, making them eligible for buyers to purchase with an FHA loan.

The new guidelines will extend project certifications from two years to three, allow for single-unit mortgage approvals, allow a higher owner-occupant vs. renter occupancy ratio, and increase the number of units eligible to be purchased with FHA loans in a single project.

The FHA certifies eligibility for both condo projects and individual units, but according to the National Association of REALTORS, only 17,792 FHA condo loans were originated in the past year, out of approximately 8.7 million condo units nationwide.

The new relaxed guidelines are a significant improvement as condos are often more suitable and affordable to many singles, couples and small families who wish to take advantage of easier qualification, low-down-payment FHA loans – particularly first-time buyers.

Any impediment to buying a property can impact its desirability and market value.  With approximately 84% of homebuyers purchasing a condo for the first time, the relaxed rules will promote more “affordable and sustainable homeownership, especially for credit-worthy first-time buyers.” The result should also make condos more marketable and easier to resell since the pool of available buyers and loans will be larger.

 

How to Save on Homeowners Insurance

About the house..., Finance and Taxes
The Insurance Policy
The Insurance Policy

If something happens to your home, from robbery to wind damage to fire, you want to make sure you can make repairs. This is where homeowners insurance comes in. Homeowners insurance allows you to pay monthly premiums so you’ll be covered in the case of a damaging and expensive event. So how can you save on homeowners insurance while still getting full coverage? Here are a few ways.

Make Your Home Safer

How to save on homeowners insurance partly depends on where you live and what type of home you live in. Though you can’t control the hazards in your area, you can make small changes to make your home safer. Here are a few examples:

  • Update electrical: If your home is older, you may have unsafe electrical wiring. Updating this, especially if you are already making other updates, can lower your homeowners insurance premiums.
  • Update plumbing: water damage due to faulty plumbing is a common cause of homeowners insurance claims. If you’re already making updates, overhaul your plumbing to make it safer, and let your insurance agent know.
  • Install home security system: Robbery is another common cause of home insurance claims. Installing a home security system can lower your chances of robbery, and thus lower your premiums.
  • Install new roof: older roofs are more likely to become damaged due to wind and hail, the most common cause of claims. This means installing a new roof can lower your premiums.

    Eliminate Risks

    Some risks, such as living in a flood zone or an area with inclement weather, you cannot control, and your home insurance will reflect this. How to save on homeowners insurance also includes risks you can control. If you’re considering home updates or changes, think twice about the following, since they can raise your premiums.

    • Pool: Adding a pool increases the risk that someone will get hurt on your property, which will also increase your homeowners insurance.
    • Fireplace: Adding an open flame in your home will increase insurance rates for obvious reasons. Though a fireplace can be cozy, consider making other updates first.
    • Dog: Many homeowners consider dogs good protection against burglars, but insurance carriers may also consider them a risk to visitors. Owning a dog can increase your insurance rates, especially if the dog is considered an aggressive breed.
    • Trampoline: A trampoline can be fun, but it can also be dangerous, which increases your liability risk.
    • Smoking: smoking puts your home at greater risk of fire, which can increase your premiums. Put this on a long list of reasons to kick the habit.

    Increase Deductible

    How to save on homeowners insurance is not always a question of risk; there’s also the financial factor. As with most insurance types, increasing your deductible means lowering your premium. To an insurance company, this can mean lowering the chances of small claims, since you have to pay your deductible before your insurance pays. Consider raising your deductible from $500 to $1,000, and you may be able to save substantially in the long run. If you do, just make sure you have enough cash on hand to pay the deductible. 

    Bundle Insurance

    Insurance carriers want your business, and they’ll provide discounts if you buy more insurance from them. If you have auto, life, and home insurance all in different places, ask about discounts you can get from bundling.

    Shop Around

    It can be a hassle to get home insurance, and it’s tempting to settle with the first rate that you get. However, shopping around can lower your premiums substantially. Talk to agents working with different companies, or talk to an independent agent. Ask about rates and discounts, as well as the claims process. Keep in mind that the lowest premium is not the only factor—you also want to be covered if you have to make a claim.

    Improve Your Credit Score

    You’ve already seen that your credit score impacts your mortgage, but it impacts your home insurance as well. Homeowners with credit scores above 630 are seen as more reliable, and will get better rates.

    Balance Your Coverage

    It’s important to get the right amount of coverage, but you also don’t want to pay for coverage you’ll never use. Even in a worst case scenario—your home is completely destroyed, perhaps in a fire or tornado—keep in mind that you’ll still have your property and foundation, so rebuilding might not cost as much as you think. Also, consider the other property in your home you’re insuring, such as jewelry or electronics, and see if this makes sense with your deductible and premium.

    Ask for Discounts

    Many homeowners insurance discounts exist that you might not be aware of. For example, homeowners that are home during the day, such as those that work at home or who are retired, are considered less likely to be robbed, so they may pay less in premiums. Neighborhoods with Homeowners Associations are often safer than other neighborhoods, so paying HOA fees may win you a discount. Different insurance carriers offer different discounts, so ask about which you may be eligible for.

    Now that you know how to save on homeowners insurance, maybe it’s time to shop around. Looking at other carriers won’t raise the rates that you currently have, and you might find a better deal elsewhere. If you haven’t considered your home insurance premiums in some time and you’ve made improvements to make your home safer, ask about discounts you may now be eligible for.

The Credit Scores You Need to Buy a Home

Buyer Information, Finance and Taxes

Mortgage lenders check your credit history before approving a home-buying loan. Your credit scores are crucial to getting the amount you want to borrow at a good interest rate.

Your income vs. your debt, your payment history, the length of time you’ve had credit, new credit you’ve opened, and the types of credit you owe (such as student loans or consumer debt) are all calculated in a valuation system known as credit or FICO scores.

FICO scores range from 300 to 850, but because mortgage loans are so large and have such a long payback period, most lenders require scores between 520 to 700 and above, depending on the type of loan. “Conforming” loans are guaranteed by the federal government, including FHA and VA loans. They require a minimum score of 500 to 520 and any scores lower than 580 will increase the minimum down- payment required to 10%. If you’re married or have a co-borrower, their scores must meet the same requirements.  All FHA loans require private mortgage insurance, which reduces the amount you can borrow.

“Conventional” loans are federally sponsored by Fannie Mae or Freddie Mac to be packaged into securities bundles and sold on the secondary market. Lenders can manage risk by requiring scores of 700 and above, using loan-level price adjustments, based on loan-to-value ratios and credit scores.

For any loan, the larger your down- payment, the lower your credit score can be. Credit scores also impact interest rates. The better the score, the better the rate.

Quick Ways to Build Equity

Buyer Information, Finance and Taxes

Equity is the percentage of market value that you own in your home. Your lender owns the rest, so your goal should be to pay the lender’s share (the principal) down and build your share (equity) up.

You don’t need to go to extreme lengths to pay down your mortgage. Just follow these few easy tips:

  1. Buy wisely. Buy as much home as you can without straining your resources, so you can occupy your home longer. Moving and closing costs eat away equity.
  2. Pay a little extra. Pay a little more every month toward reducing your principal. Use bonuses or cash back on your credit cards to apply to your mortgage. Making one extra payment a year could shorten your loan payoff by as much as four years, saving you thousands of dollars in interest.
  3. Pay off other debts. Don’t incur new debt. Spend less on automobiles, dinners out and other expenses. Pay off credit cards and student loans as quickly as you can, so you’ll have more money available to pay toward your mortgage.
  4. Make improvements. Keeping your home repaired and updated helps you preserve equity by making market value higher.
  5. Let time work for you. Think of your home as a savings account where the money you put in can be retrieved one day – with interest. Historically, homes have increased in value as much as three percent a year in normal markets, which is a great way to build instant equity.

Mortgage Fraud Becoming More Prevalent

Finance and Taxes

Mortgage fraud has increased over the past year with about one out of every 109 mortgage applications having been found to contain false or misleading information, according to real estate data firm CoreLogic.  Because home prices are rising and demand is strong, most mortgage fraud in this type of market is motivated by borrowers trying to qualify for a mortgage.  Undisclosed liabilities, credit repair, questionable down payment sources, and income falsification have been the most common misrepresentations.

CoreLogic identifies the following as the most common types of mortgage fraud:

  • Income fraud:  An applicant misrepresents the existence, continuance, source, or amount of their income.
  • Occupancy fraud:  An applicant deliberately misstates the intended use of a property as a primary or secondary residence or an investment.
  • Transaction fraud:  The applicant misrepresents the nature of the transaction, such as an undisclosed agreement between parties, falsified down payments, non-arm’s-length sale, or use of a straw buyer.
  • Property fraud:  An applicant intentionally misrepresents information about the property or its value.
  • Undisclosed real estate debt:  An applicant fails to disclose additional real estate debt or previous foreclosures.
  • Identity fraud:  An applicant alters their identity or credit history, or uses a false identity.

East Lansing Lowers Property Tax…Adopts Income Tax

Finance and Taxes

The City of East Lansing has introduced an income tax for its residents and those who work in the community.  At the same time the city has reduced residential property tax.

How Much is the East Lansing Income Tax?

Those living in East Lansing will pay an income tax of 1% and those working in East Lansing but living outside the city will pay 0.5%.

Retirement income, such as that from social security or 401k plans, is not subject to the tax. Also, those who already pay income tax to another city, such as Lansing, will not pay tax again. Instead, the income tax will be split between the two.

How Does This Affect Property Taxes?

To offset some of the tax burden on East Lansing residents, property taxes will be cut 5 mills, which, city officials say, amounts to about 10% less property taxes on average.

When and How Long is the City Tax Effective?

East Lansing income tax starts at the beginning of next year, on January 1, 2019. As a City Charter amendment, the tax cannot be changed by the city officials alone at any time; any changes to it will require another vote and approval by residents. However, the amendment is time limited to 12 years.

What Does the Tax Fund?

The City of East Lansing plans to use the tax fund for police and fire protection; infrastructure (maintenance and improvement of streets and sidewalks; water and sewer systems; and parks, recreation and City-owned facilities) and supplemental payments for unfunded pension liabilities for retired City employees.

Why is a City Tax Necessary?

City officials explain long-term financial changes have created financial planning challenges, particularly where city employee pension plans are concerned. Though the number of city employees has fallen roughly 30% since 2001, the number of pensioners has increased as more employees have retired. Lower market returns on pension investment plans, approximately $1.5 million less state allocated sales tax revenue since 2001, a lack of tax revenue from tax-exempt Michigan State University, and a drop in property values after the 2009 recession, have created the city’s present financial situation.

By law, all city employee pension plans must be funded, and not providing additional funds would require city officials to make up the difference from other city services. The 2019 and 2020 budget outlines showed that without additional funds the city would need to cut police, fire, and Emergency Medical staff, as well as closing the East Lansing Aquatic Center and Hannah Community Center.  With the income tax approved, the more drastic cuts will likely not be necessary and East Lansing residents will continue to enjoy quality public safety, infrastructure and amenities that help to makes East Lansing one of the best places to live in America.

National and Michigan First Time Homebuyer Programs for 2018

Buyer Information, Finance and Taxes

You don’t have to have perfect credit or a lot of money saved up to buy your first home. The first-time homebuyer programs of 2018 make home ownership an achievable dream for millions of Americans. If you’re ready to buy a home, the Michigan 2018 real estate market looks good for first time homebuyers.

National First Time Homebuyer Programs in 2018

1. FHA Loans

Credit Score: 580
 Down payment: 3.5%
Assistance: Not specified
 Other Requirements: Not specified

FHA Loans are among the most attractive and most popular options for first-time homebuyers. Insured by the Federal Housing Administration, FHA loans give first time homebuyers better rates with lower credit score requirements than many private loans. Credit scores can be as low as 580 and down payments can be as low as 3.5%. FHA loans are commonly used by first time homebuyers, but second time homebuyers can qualify for FHA loans too.

2. USDA Loans

Credit Score: 640
Down payment: 3.5%
Assistance: Not specified
 Other Requirements: Rural area

If you want to find your forever home in the countryside, a USDA loan is the ideal first time homebuyer program in 2018. USDA loans are very similar to FHA loans, except they are backed by the USDA instead of the FHA. While the property doesn’t have to be a farm, USDA loans are generally for properties in rural areas. A 640 credit score will make application easy, though buyers with lower credit scores can apply with additional documentation.

3. VA Loans

Credit Score: 0
 Down payment: 0
 Assistance: Not specified
 Other Requirements: Active or retired service member or spouse

VA loans are also similar to FHA loans, except they are backed by the U.S. Department of Veteran Affairs and they are only for retired or active service members or their surviving spouses. VA loans are particularly appealing because there are no credit score requirements, down payments, or private mortgage insurance needed.

4. HomePath Ready Buyer

Credit Score: Not Specified
 Down payment: 3%
 Assistance: 3%
Other Requirements: Education course, specified HomePath property

Government-sponsored enterprises Fannie Mae and Freddie Mac offer the HomePath Ready Buyer program to help first time homebuyers responsibly and affordably purchase a home. HomePath is unique because it gives several advantages to buyers over investors, and it sells properties that were previously in foreclosure and subsequently purchased by Fannie or Freddie. An online or in-person home buyer education course is required and closing cost assistance up to 3% is available.

5. Good Neighbor Next Door

Credit Score: Not Specified
Down payment: Not Specified
Assistance: 50% of home sale price
 Other Requirements: select occupations, select properties

If you’re a police officer, firefighter, emergency medical responder or teacher, you can get a home in certain areas for half the listed price. Sponsored by HUD, these loans are intended to benefit homebuyers as well as disadvantaged areas. Homebuyers must live in the home at least 36 months and only certain homes are eligible, but this first-time homebuyer program in 2018 offers considerable savings.

Michigan Specific First Time Homebuyer Programs in 2018

1. Michigan State Housing Development Authority (MSHDA) MI Home Loan

Credit Score: 640
Down payment: 1%
 Assistance: up to $7,500
 Other Requirements: below income maximum, Michigan properties only

The MSHDA offers favorable loans with down payment assistance to first time homebuyers statewide. MI Home Loans are FHA, USDA or VA loans with additional benefits from the state. The credit requirements are similar those of the federal government-backed loans, but down payments are much easier. By completing a Homebuyer Education class, buyers can receive an interest-free, payment-free second loan up to $7,500 for the down payment. The loan is only due when the property is sold, transferred or refinanced. There are a few requirements:

  • Homebuyers must contribute at least 1% of home sale price
  • A minimum credit score of 640 is required
  • All adult occupants must co-apply and qualify
  • Household income must be below area maximums (between $64,000 and $105,000 for two people, depending on area)
  • Buyers cannot have owned a home in the last three years

2. Michigan Mortgage Credit Certificate Program

Credit Score: Not Specified Down payment: Not Specified Assistance: 20% of loan interest Other Requirements: Subject to tax code

The mortgage credit certificate (MCC) program is a federal tax credit distributed by select states, including Michigan. This Michigan first time homebuyer program in 2018 can save some homebuyers thousands each year.

If you purchase a mortgage credit certificate from an approved Michigan lender, you can deduct up to 20% of your mortgage interest from your federal taxes. Since it’s a tax credit and not a tax deduction, it’s a dollar-for-dollar savings that essentially reduces the interest you pay by 20%. However, since the mortgage credit certificate is a nonrefundable tax credit, if won’t apply if your tax liability is already zero due to other credits. Talk to a tax professional to see if the MCC program is a good option for you.

 

 

Homeowners Take a Hit for the New Tax Plan

Finance and Taxes

The House on November 16th passed a tax reform package that the National Association of REALTORS® calls a tax hike on many middle-class homeowners and says would lower property values for all homeowners. “It’s disappointing to see this legislation move forward, but the real work to shape this debate is just getting started,” NAR President Elizabeth Mendenhall said in a statement.

The bill, called the Tax Cuts and Jobs act, was passed by a vote of 227 to 205 along party lines. It was approved entirely by Republicans—although several members of the party joined Democrats in opposition. The bill, which would increase the federal deficit by $1.5 trillion over 10 years, cuts the top corporate tax rate from 35 percent to 20 percent and, in a move that affects only the wealthiest households, nearly doubles the threshold for the estate tax and then phases it out entirely.

To pay for these and other measures, the bill would institute these changes:

•  Eliminates or curtails most itemized deductions, except those for mortgage interest and charitable contributions. The MID would be limited to mortgages of up to $500,000—half of the current limit—and the property tax deduction would be capped at $10,000.

•  Restricts the exclusion on gains from the sale of a principal residence by requiring households to live in the house for five of the last eight years, instead of two of the last five years. The bill also reduces the benefit for higher-income households. The exemption today applies to proceeds of up to $250,000 for individuals and $500,000 for married couples filing jointly.

•  Nearly doubles the standard deduction to $12,000 for individuals and $24,000 for married couples, but that increase is largely offset by elimination of the personal and dependency exemptions—a change that could hit larger families, as well as those with older children, particularly hard.

The House passage is the first of a multistep process before tax reform legislation can be enacted into law. In the Senate, the tax-writing Finance Committee is already working on its version of tax reform, and the full Senate may vote on the bill the week after Thanksgiving. That bill follows the same structure as the House bill but makes significant changes. Among other things, it makes no direct changes to the mortgage interest deduction, but it eliminates the deduction for all state and local taxes, including property tax. However, as with the House bill, the Senate version would limit the use of both tax incentives for owning a home to only about 5 percent of tax filers. Estimates show that this could lead to a drop in home values of more than 10 percent nationwide, with an even greater drop in high-cost areas.

“Make no mistake, middle-class homeowners will see their home values fall if this proposal moves forward, while large corporations walk away with the bulk of the tax cuts,” Mendenhall said. “American homeowners shouldn’t have to pay for corporate tax cuts with their home equity. It’s a matter of basic fairness; 1.3 million REALTORS® have known since the beginning what America’s 75 million homeowners are just beginning to learn: that homeowners will be the ones paying the tab. REALTORS® will do our part to spread the word as we work with the Senate to address this impending assault on homeownership.”

—Robert Freedman, REALTOR® Magazine

Investing in Residential Real Estate, Is It For You?

Buyer Information, Finance and Taxes

Some of the wealthiest people in the world have become so by investing in residential property. If not wealthy, then comfortable enough to fund a comfortable retirement. There are several approaches a person can take when investing in residential real estate.

Flip It

If you are willing to put in sweat equity and can find a house on the market at a bargain price or considerably below market price, flipping houses may be a good investment strategy for you. Even if you need to hire a contractor, a home purchased at a low price and sold at market value can make a substantial profit.

Flipping a home requires that either you or a contractor make all necessary repairs and upgrades to make the home sellable. You will want this done quickly because once the clock runs out on your short-term construction loan you will need to convert it to another type of loan or extend it, that is unless you paid cash for the property. Getting the job done quickly can give you a fast way to grow a residential real estate investment.

If you know your market and home values of property in the area, the knowledge to repair a home or see that it is done, and a desire to make a tidy profit on your investment, residential real estate may be for you.

Residential Rentals

For long-term, personal wealth, ownership of one, two or ten rental properties can create monthly cash flow that can affect your life today and long into the future. As a retirement strategy, rental properties can be acquired that will either fund your retirement or give you substantial assets that can be sold when you retire to buy and pay for your dream home.

Dealing with rental property is not for the faint of heart. Your personal budget can be affected by a missed rental payment if you have not planned for such eventualities. Managing the process of finding renters, maintaining the property, and planning the budget for the property, as if it were any other small business takes time and dedication.

Getting a call at midnight because a renter has no hot water may be more than you want to deal with and more conventional methods of investment may be more to your taste. That is unless; you are making enough cash flow to hire the services of a property manager. However, if you have the funds to invest in rental real estate and the will to deal with its requirements, then you can begin making a great contribution to your personal assets.

Know what you are buying

No matter what investment real estate you decide to purchase a home inspection will be worth every dollar spent. Costs of unseen issues, such as a leaking basement or roof; furnaces and AC units that are nearly worn out; structural, electrical or plumbing issues will be discovered through an inspection.

All can be costly to repair and may blow your budget out of the water and diminishing your investment. There are many short-term loans available to investors with excellent credit and the means to repay the loan. If you decide on this type of investment, proceed with caution because a bargain is not such a good deal, if it costs you more than it is worth.

Is real estate investment for you?

Knowing what you are getting into and making plans before ever finding a property can help you make a wise investment. If you do not know the area, a Realtor can familiarize you with the neighborhoods in your city and let you know when properties for sale are available.

After considering the pros and cons of residential real estate as an investment, you may find that playing it safe with your 401k is the best option for you. However, if you are willing to do the due diligence, and make a plan for financial freedom in the future, residential real estate investment can pave the way to that realization.

 

What causes mortgage rates to fluctuate?

Finance and Taxes

When purchasing a home, you’re more than likely going to need a mortgage to assist you with the purchase. A main factor that determines the long term financial commitment of your mortgage is the mortgage’s interest rate. Interest rates can fluctuate based on many different external factors. Some fluctuations happen quickly while other times mortgage rates remain more stable over time.

Economic Growth
One major factor in determining mortgage rates is economic growth. The economy will grow and fall based on many different factors including natural disasters, wars and other major events happening throughout the country. During times of economic growth the number of home buyers will typically increase creating a higher demand for mortgages. This will in turn increase mortgage rates. On the other hand if the economy is on the decline, mortgage rates will begin to fall due to reduced demand.

Inflation
Another factor that comes with a growing economy and that can cause mortgage rates to fluctuate is inflation. Inflation happens when prices increase causing the purchasing value of a dollar to drop. This slows the economy. When this happens mortgage rates will rise because fewer people are able to afford to purchase homes.

Housing Market Conditions
A third factor that indirectly causes mortgage rates to fluctuate is the condition of the housing market. When the housing market is in a seller’s market there is a higher demand for mortgages. With fewer homes on the market either being built or re-sold this will cause mortgage rates to rise. On the other hand during a buyer’s market when there is plenty of inventory and less buyer demand, mortgage rates tend to decrease.

The Federal Reserve Board
The Federal Reserve Board is the central bank of the United States and collects economic information to make decisions about how money is allocated. With this economic information the Federal Reserve Board will determine how the money supply needs to fluctuate to stabilize the economy. Although the Federal Reserve Board can not directly change mortgage interest rates, their decisions have a trickle effect. For example if the money supply is increased there is downward pressure put on interest rates, and if the money supply is decreased there is upward pressure on interest rates. This is done in an effort to either stabilize the number of homebuyers by increasing mortgage rates, or spark economic growth by decreasing mortgage rates.