A History Lesson

One of the most common questions we hear from clients is “Where do you think interest rates are going?”

Virtually all of the experts we follow put rates above 5% going into next year and some see rates approaching 5.5% by the middle of 2019. What’s certain is that there are economic forces at work that are pushing rates higher.

So, how about a little history lesson? How do today’s 30- year mortgage rates compare to this same date in history going all the way back to 1990?

• Today = 4.85%
• 2017 = 3.94%
• 2015 = 3.82%
• 2010 = 4.27%
• 2005 = 5.98%
• 2000 = 7.84%
• 1995 = 7.75%
• 1990 = 10.22%

While today’s rates feel high only because they are higher than 2017, they are quite a bit lower than at many times in history.

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A Beginner’s Guide to Securing a Mortgage Loan

Entering into debt is a concept I grew up diametrically opposed to. I was raised, like many with frugal family members, to understand that anything you couldn’t pay for on the spot was something you couldn’t afford. But as we age we learn the pathway to financial growth requires a commitment beyond what many of us can deliver up front. Building and stabilizing wealth is, for many families, tied to home ownership. To reach that initial threshold, most aspiring homeowners will need to apply for a mortgage loan. That process can be daunting, but the long-term rewards of securing your home are worth it.

Step One – Break down your budget

A major financial decision like this can’t be made lightly. Many experts recommend a 50-20-30 style plan for finances, particularly for first-time homeowners. That means 50% of your budget is committed to core, unavoidable, monthly expenses like rent, groceries, loan payments, utilities, insurance, etc. The 20% segment is savings, placed in reserve towards a general or specific future financial goal. The final 30% (at maximum) is left as a remainder for personal spending, however, is most desired. Once this is set, you’re ready to evaluate the rate at which you can repay your loan and adjust accordingly.

Step Two – Take the time to get it right

It’s exciting to be in a position to purchase your first home, but if you find the right spot and realize the funds aren’t there yet it can be a huge disappointment. That’s what makes seeking pre-approval for a loan a must – particularly if it’s your first time. Having your credit in order, along with all key financial documentation (bank statements, tax returns, debt copies, prior records of significant ownership). If your credit isn’t in a great place, it’s likely worth taking the time to amend it before applying for your mortgage loan. When you earn lower interest rates and more manageable monthly payments you’ll be thankful for your prudence.

Step Three – The bigger the down payment the better

It’s rare that first-time homebuyers have significant cash on hand, but whatever you can muster makes a difference. Typically, the greater a down payment you can muster, the lower your subsequent interest rates will be. For many, there’s only so much that’s tenable as a bulk sum up front, of course. If that fits your situation, seeking a loan insured by the Federal Housing Administration (FHA) can earn you a healthy loan for a down payment of just 3.5% of your home’s total value. To calculate the limitations of your target home’s loan options, you can input your information on the Department of Housing and Urban Development (HUD) website here.

Step Four – Stick to the plan!

After all the effort you’ll go through to secure a mortgage loan, you’ve earned the home it’s helped you purchase. That loan, like any loan, is contingent on your continued monthly payments. It can feel daunting and dispiriting after a time to continually be paying for a home you’re already living in, but maintaining your financial balance is vital. You’ll never be able to predict every expense that comes up but maintaining your budget towards paying off your mortgage loans will set you up to be more financially flexible in the future. Should you ever hope to purchase a second home or other major investments requiring of loans, having a record of consistent mortgage loan payment can help you secure far more favorable interest rates in the future.

A mortgage loan, like any loan, is a major commitment, but entering into homeownership is a massive step towards financial stability and future life-planning. With proper patience and focus, you can get the loan you need at the rate you can afford.

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How Tax Reform Affects Homeowners

 

New tax legislation was signed into law at the end of 2017, and it included some significant changes for homeowners. These changes took effect in 2018 and do not influence your 2017 taxes.  Here’s a brief overview of this year’s tax changes and how they may affect you*.

The amount of mortgage interest you can deduct has decreased.

Under the old law, taxpayers could deduct the interest they paid on a mortgage of up to $1 million. The new law reduces the mortgage interest deduction from $1 million to $750,000. These changes do not affect mortgages taken out before December 15, 2017.

The home equity loan deduction has changed.

The IRS states that, despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled. The Tax Cuts and Jobs Act of 2017, enacted December 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

The property tax deduction is capped at $10,000.

Previously taxpayers could deduct all the state, local and foreign real estate taxes they paid with no cap on the amount. The new law limits the deduction for all state and local taxes – including income, sales, real estate, and personal property taxes – to $10,000.

The casualty loss deduction has been repealed.

Homeowners previously could deduct unreimbursed casualty, disaster and theft losses on their property. That deduction has been repealed, with an exception for losses on property located in a federally declared disaster area.

The capital gains exclusion remains unchanged.

Homeowners can continue to exclude up to $500,000 for joint filers or $250,000 for single filers for capital gains when selling their primary residence as long as they have lived in the home for two of the past five years. An earlier proposal would have increased that requirement to five out of the last eight years and phase out the exclusion for high-income households, but it was struck down. Find out more about 2018 tax reform.

How does tax reform affect your plans for buying or selling a home?

The changes in real estate related taxes may change your strategy. Contact your Windermere agent to learn more. If you need help finding an agent, we’re happy to help.

 

*Please consult your tax advisor if you have any questions about how the new tax reform impacts you

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5 Things to Consider if You’re Behind on Your Mortgage

Financial setbacks like the loss of a job or large medical bills can make it tough to make ends meet. If you find yourself behind on your mortgage payments, it helps to be proactive.  It’s also good to know that federal and local agencies, even banks, are working to help those who are behind on their mortgages from going into foreclosure.

If you are behind on your mortgage, here are 5 steps you can take.

1)  Call your lender as soon as possible.

As uncomfortable as that call can be, the problem will not go away by avoiding your lender. If you are having trouble making your payments, the sooner you contact your lender, the more options you will have. Some homeowners postpone communicating with their lender for so long, that foreclosure becomes the only option.  Don’t let that happen to you.

2) Talk to a housing counselor.

The U.S. Department of Housing and Urban Development (HUD) has a list of approved nonprofit housing counselors, who will provide free counseling for homeowners who are behind on their mortgages. They’ll go over options and suggest next steps. Call HUD at 888-995-4673 or visit the HUD site to find a counselor in your area.

3)  See if you can lower your mortgage payment.

You might be able to refinance or do a loan modification to make your monthly payment more affordable. There are a number of programs available depending on your circumstances. A HUD housing counselor or your lender can help you explore your options.

4)  Find out if you qualify for a short sale.

A short sale is an alternative to foreclosure when a homeowner needs to sell and can no longer afford to make mortgage payments. The lender agrees to accept less than the amount owed to pay off a loan, rather than going forward with a lengthy and costly foreclosure process.

Although every homeowner’s situation is unique, the basic criteria for qualifying for a short sale are:

  • You need to sell your home.
  • You owe more on your mortgage than your home is worth.
  • You have a personal financial hardship that will prevent you from making future payments. (Examples of hardship include loss of job, divorce, death of a spouse and medical emergency or illness.)

In most instances, a short sale makes more sense than foreclosure. In general, when you want to obtain a loan to purchase a property in the future, more opportunities will be available to you if you do a short sale. Find out more about how short sales work.

5) See if you qualify for cash incentives tied to a short sale.

Several programs offer cash incentives to homeowners to do a short sale in order to avoid foreclosure.

The federal government’s Home Affordable Foreclosure Alternatives (HAFA) program might provide $3,000 in relocation assistance to homeowners who do short sales.

Lenders, including Chase and Bank of America, have paid significant cash incentives to encourage sellers to do a short sale and avoid foreclosure. In the past few months, we have had homeowners receive checks from their lender at closing in amounts that range up to $35,000. And these large incentives are not restricted to owners of high-end properties. The owner of a short sale property that recently sold for $164,000 received a check for $25,000. The checks are given for relocation assistance and can be used however the homeowner sees fit. There are no restrictions.

It’s important to note that the seller incentive is determined by the investor, so not every lender is paying incentives. However, if you are considering a short sale, it’s a good time to find out if you qualify.

Richard Eastern is a Windermere broker in Bellevue, WA and co-founder of Washington Property Solutions, a short sales negotiating company. Since 2003 he has helped more than 700 homeowners sell their homes. A Bellevue native and a University of Washington grad, Richard is an avid sports fan and a devoted Little League and basketball coach. You can learn more about Richard here or atwww.washortsales.com.

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Rate Recap

The Federal Reserve raised interest rates by 0.25% this week. It was their 3rd rate increase this year.

This has us thinking about mortgage rates.

Today, 30-year mortgage rates are 3.93%.

Let’s put this in context with a little history lesson. Mortgage rates were…

  • 3.90% 6 months ago
  • 4.13% 1 year ago
  • 3.54% 18 months ago
  • 3.32% 5 years ago
  • 5.96% 10 years ago
  • 7.15% 20 years ago

So where are rates headed? Given that the Federal Reserve is expected to raise their rate three to four more times in 2018, we expect mortgage rates to be higher one year from today.

The Mortgage Bankers Association predicts rates to be 4.8% in the 4th quarter of next year. Freddie Mac’s prediction is 4.4%. If these predictions are true, that would mean mortgage rates would be back to where there were 6 to 7 years ago.

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