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Renovate or Sell? Why We Bought a New Home

When we bought our first home in 2013 we thought it would be our forever home. We planned on renovating once we were in a better place financially, but 6 years later we found ourselves struggling with the decision to renovate or sell. 

The post Renovate or Sell? Why We Bought a New Home appeared first on Homes.com.

Source: homes.com

Six Suburbs for Generation Z

Are you thinking about buying your first home? If you’re a member of Generation Z, you’re not alone. Check out these six suburbs you should consider before making the big move.

The post Six Suburbs for Generation Z appeared first on Homes.com.

Source: homes.com

Mortgage Rates Drop Even Lower to Start 2021, Hit Fresh Record

As the calendar turned on a new year, interest rates on mortgage loans fell once again to a new all-time low. So reports the Associated Press. The 30-year fi

Source: themortgageleader.com

My House Failed Its First Real Estate Inspection—Here’s What I Did To Get Through Escrow

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When I was buying my first house, everything seemed too good to be true—at least at the start of the process. I found a home within a couple of weeks, the price was fabulously low, it was in a cute lake community with a style I loved, and funding came through quickly and easily. I even received a first-time home buyer’s bonus for tax time. Plus, I didn’t need much of a down payment.

But it turned out too good to be true. My smooth path to homeownership suddenly became rocky when the inspection report came back with a big fat failure on it. I immediately panicked. What did it mean? Was I still able to buy the house? And if I did, was it going to fall apart?

After a few calls with my real estate agent (who, at that point, had become more of a home-buying therapist), I learned that a bad inspection isn’t that rare. In fact, my new home wasn’t in as bad of shape as I initially feared. We were able to make some repairs and, after a second inspection, the house was appraised and the sale was able to go through.

During the process, though, I learned a lot more than I ever expected about home inspections. Whether you’re a first-time or repeat home buyer, here’s my advice for getting the house you want after a shaky home inspection.

Houses don’t really pass or fail

Though my home inspection appeared to be a failure, homes aren’t actually graded on a pass/fail system.

“There is no such thing as a failed inspection,” said Karen Kostiw, an agent with Warburg Realty in New York. “The inspection just points out small and potentially larger issues that you may not be aware of.”

Sure, some houses can sail through the process and others may fare poorly, but it’s not a “You can never buy this” situation if there are problems with the property.

For me, my mortgage hinged on a solid inspection—so the initial results meant I wouldn’t get the loan unless things were fixed. That being said, if I had enough cash on hand or wanted to try a different mortgage lender, I could have continued with the purchase even with a negative inspection report.

So if the house you’re set on buying ends up having issues, don’t panic. You still have options.

Most inspection issues are small

It’s important to remember every home inspection report will come back with something, according to Kate Ziegler, a real estate agent with Arborview Realty in Boston. My inspection report had noted about 40 fixes. But a lot of times, the problems aren’t as bad as you think.

Keep in mind that the inspector’s job is to call out any trouble spot. Also, all issues noted in the report aren’t equal: Some problems flagged by an inspector can wait.

“The inspector will find defects—sometimes many defects—but that does not mean buyers are not purchasing a good home,” Kostiw says. “The small leak might mean a bolt needs to be tightened, or the dishwasher is not working because the waterline was switched off by accident. These are easy fixes. However, when buyers see a laundry list of items, it can seem as if the home is falling down. This is most often not the case.”

Red flags do exist

Ziegler and Kostiw agree that though most repairs are easy fixes, some items should give you pause if you see them on your report.

Structural problems, antique electrical systems, old windows, unexplained water damage, evidence of termites or wood rot, a bad roof, asbestos, mold, radon, and lead paint are all red flags that can show up during a home inspection. If fixing these problems is impossible or way beyond the means your budget, you may want to reconsider your purchase.

“Whether or not inspection items warrant backing out entirely depends quite a bit on any individual buyer’s experience and bandwidth, as well as personal risk tolerances and financial situation,” Ziegler says. “It’s true that houses don’t stay in good repair on their own. They require maintenance and care, just like your houseplants and your sourdough starter!”

Don’t try to fix things yourself

Unless a repair is something truly minor like caulking a bathroom tub or putting a cabinet door back on its hinges, don’t try to fix anything on your own. You could make things worse or even injure yourself. Hire licensed contractors that you’ve vetted to handle any problems. And try not to leave it all up to the seller—they’re not going to be living in the home. You will be.

“Motivations in this case are not aligned,” Ziegler says. “The seller wants to spend as little as possible to meet their contractual obligations, but [a] buyer should be more concerned with the quality of the repair.”

Work the costs into the sale

At first I worried I would have to pay to fix everything that was wrong with my house. But it’s important to know you can work the cost of repairs—and how long it should take to make them—into the sale.

Say you can’t afford to fix the busted water heater but the seller can. You can raise the offer price by that cost, or you can trade off: The seller fixes one thing, and you fix another. In my case, I only had to add a banister to one stairwell. The sellers were particularly motivated to unload the home so they handled everything else.

Hopefully by the end of this process, every issue will be fixed and you’ll be ready to purchase your home. And you’ll be able to move in with a clear head, knowing everything is really as good as it seems.

The post My House Failed Its First Real Estate Inspection—Here’s What I Did To Get Through Escrow appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Bodnar of MMG: What to Expect Heading Into 2021

Bill Bodnar of The Mortgage Market Guide (MMG) notes that heading into 2021, home loan rates are near the best levels ever. He adds that the charts of MBS sugge

Source: themortgageleader.com

What Is Title Insurance, and How Much Does Title Insurance Cost?

title insurancebarisonal/iStock.com

Buying a home often entails also buying various types of insurance to protect your property, and one type you might need to get is called title insurance.

When you buy a home, you “take title” to it and establish legal ownership. A title insurance policy protects you against the possibility that someone else might have a claim on your home. In essence, it ensures that a homeowner and their lender will be okay in the event that the seller or previous owners didn’t have absolute ownership of the house. (It sounds crazy, but sometimes it turns out that the homeowner is not the only one with rights to a home!)

If you need a mortgage to buy real estate, your lender will likely require you to buy a title policy from a title insurance company. Although it’s a cost home buyers incur, getting a title policy from a title insurance company is critical to establishing peace of mind.

Let’s examine the ins and outs of title insurance, why home buyers need it, how much you can expect to pay, and how you can save on a title insurance policy.

What is title insurance?

Holding a title insurance policy means you and your mortgage lender are protected against any financial loss or title issues due to liens, disputes between prior owners over wills, clerical problems in courthouse documents, or fraudulent claims against the property or forged signatures.

A title search will be performed by your title or settlement company to uncover any issues with your title that could give you legal troubles down the line.

The title company then insures your claim to the property’s title. If anything is missed during the search or there are lawsuits questioning your legal ownership of the property after closing, your title insurance policy will cover the costs of resolving the problem.

Why a title search is required with a mortgage

When getting a mortgage to buy real estate, you’ll find that most lenders will typically require that you get a title search before you close the deal with your escrow company. Basically this would mean you’ll have to hire a title company to search local records on your property. Some of the issues they’re looking for include the following:

  • Disputes between prior owners over wills: If your property was inherited and then sold by the heirs, there could be other heirs contesting the will and claiming ownership of your property.
  • Liens for unpaid property taxes.
  • Liens for contractors who worked on the home but were never paid.
  • Clerical problems in courthouse documents: Believe it or not, a simple typo can lead to title claim problems.
  • Fraudulent claims against the property or forged signatures: For example, if a group of heirs can’t get a holdout to agree to sell the home, it’s possible that someone will forge a signature on a quit claim deed.

While most homeowners will never need to use their title insurance, its existence offers protection against a potentially aggravating—and very expensive—financial loss.

Lender’s title insurance vs. owner’s title insurance

There are two types of title insurance: lender’s and owner’s. Almost every lender will require you to pay for a lender’s title insurance policy. This protects the lender—not you—from incurring any costs if a title dispute pops up after closing.

Owner’s title insurance is usually optional, but it’s highly recommended. Without it, you’ll be left footing the bill for all the costs of resolving a title claim, which could be thousands or even hundreds of thousands of dollars. Even though it can feel like you’re hemorrhaging cash when you’re closing on a house, a title insurance policy is one of those things that can save you money in the long run.

“When you consider the benefits of title insurance and some of the unique aspects of title insurance relative to other kinds of insurance, it is clear why it’s risky and ill-advised to purchase real estate without a title insurance policy,” says Brian Tormey of TitleVest in New York City.

You can purchase basic or enhanced owner’s title insurance, with the enhanced insurance policy offering more coverage for things like mechanic’s liens or boundary disputes.

While your title insurance covers you for things such as mistakes in the legal description of your property or human error, be aware that it will have some exclusions—particularly in cases where violations of building codes occur after you bought your home.

How much does title insurance cost?

The average cost of title insurance is around $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home.

Title insurance premiums can vary from a couple of hundred dollars to a couple of thousand dollars. Some factors that can affect the cost of your premium include the title search, examination, and expected cost of any title defects.

“In general, each policy price is based on the purchase amount of the home or the total amount of the loan,” explains Tormey. “Title insurance is a highly regulated industry, so title insurance policy types and costs will vary from state to state. Each state’s Department of Insurance can provide information on the pricing regulations in their state.”

In some states such as Texas and Florida, title insurance premiums are fixed by the government, so you will pay exactly the same amount no matter what. Other states such as California and New Mexico have unfixed premiums, which means that buyers can shop around. Iowa actually underwrites the insurance itself, resulting in the lowest premiums in the country: $110 for properties costing up to $500,000.

Unlike other types of insurance, a title insurance policy is paid with a single premium during escrow while closing for your mortgage. If you’re buying a real estate resale or refinancing, you may be eligible for a “reissue” rate, which could offer a substantial discount off the regular premium—because the title policy is already in effect, and the title research has already been completed.

Here’s a calculator that can help you figure out the cost for your area and purchase price.

How to save on title insurance

In some states, title insurance premiums are the same no matter who you work with, but in the majority of states, you can save money by shopping around. Even in states with highly regulated title insurance industries, there are ways to save. Here are some ways to lower your title insurance costs.

  • Shop around. If premiums are unregulated in your state, find the company that offers the best deals. Just make sure you’re not sacrificing customer service to save a few dollars: Resolving a title issue can be stressful, and you want a company that will help you through the process. Read reviews and talk to your real estate agent for recommendations.
  • Bundle. Some companies will offer a discount if you bundle your lender’s and owner’s policies.
  • Negotiate add-ons. Even if the premium itself is fixed, there are almost always other fees built into your total premium price. See if there is any wiggle room with those items. They may be optional, or the insurance company might be open to discounting them.
  • Negotiate with the seller. Closing costs are always open to negotiation, and picking up the tab for the title insurance might be worth it to a seller who’s highly motivated to close the deal. But be wary of using this tactic in a competitive market.

 

Michele Lerner contributed to this article.

The post What Is Title Insurance, and How Much Does Title Insurance Cost? appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

2020 Could Be an Unprofitable Year for Rental Properties. Here’s How to Handle the Taxes

beach house Darwin Brandis/Getty Images

Economic fallout from the COVID-19 crisis and civil unrest could cause many rental real estate properties to run up tax losses in 2020 and maybe beyond. This column covers the most important federal income tax questions and answers for rental property owners. Here goes.

What can I write off?

Nothing new here. You can deduct mortgage interest and real estate taxes on rental properties. You can also write off all standard operating expenses that go along with owning rental property: utilities, insurance, repairs and maintenance, care and maintenance of outdoor areas, and so forth.

What about depreciation write-offs?

For many rental property owners, the tax-saving bonus is the fact that you can depreciate the cost of residential buildings over 27.5 years, even while they are (you hope) increasing in value. You can generally depreciate the cost of commercial buildings over 39 years.

Example: You own a small apartment building that cost $1.5 million not including the land. The annual depreciation deduction is $54,545 ($1.5 million/27.5). The deduction can shelter that much annual positive cashflow from income taxes. So, depreciation write-offs are nice tax-savers, especially if you own an expensive property or several properties.

Variation: As stated earlier, commercial buildings must be depreciated over a much-longer 39-year period. Even so, the annual depreciation write-off for a $1.5 million commercial building is $38,462. The deduction can shelter that much annual cash flow from income taxes.

Can I claim 100% first-year bonus depreciation?

Yes, for qualified improvement property (QIP) expenditures on a nonresidential building. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included a retroactive correction to the statutory language of the Tax Cuts and Jobs Act (TCJA). The correction allows much faster depreciation for commercial real estate qualified improvement property (QIP) that’s placed in service in 2018-2022. QIP is defined as an improvement to an interior portion of a nonresidential building that’s placed in service after the building was placed in service. However, QIP doesn’t include any expenditures attributable to: (1) enlarging the building, (2) any elevator or escalator, or (3) the internal structural framework of the building. Thanks to the CARES Act correction, you can write off the entire cost of QIP in Year 1, because it qualifies for 100% first-year bonus depreciation.

Alternatively, you can choose to depreciate QIP over 15 years using the straight-line method. That alternative might make sense if you expect higher tax rates in future years. Discuss your QIP depreciation options with your tax pro.

What else do I need to know about depreciation write-offs?

You ask such good questions. There’s more. The TCJA increased the maximum Section 179 first-year depreciation deduction for qualifying real property expenditures to $1 million, with annual inflation adjustments. The inflation-adjusted maximum for tax years beginning in 2020 is $1.04 million. The Section 179 deduction privilege potentially allows you to deduct the entire cost of qualifying real property expenditures in Year 1. I say potentially, because Section 179 deductions are subject to several limitations. Ask your tax pro for details.

The TCJA also expanded the definition of qualifying property to include expenditures for nonresidential building roofs, HVAC equipment, fire protection and alarm systems, and security systems.

Finally, the TCJA further expanded the definition of qualifying property to include depreciable tangible personal property used predominantly to furnish lodging. Examples of such property include beds, other furniture, and appliances used in the living quarters of an apartment house.

Can I claim the qualified business income (QBI) deduction base on my net rental income?

Maybe. For 2018-2025, the TCJA established a new personal deduction based on qualified business income (QBI) passed through to your personal Form 1040 from a pass-through business entity (meaning a sole proprietorship, LLC treated as a sole proprietorship for tax purposes, partnership, LLC treated as a partnership for tax purposes, or S corporation). The deduction can be up to 20% of QBI, subject to restrictions that kick in at higher income levels. For a while, it was unclear if you could claim QBI deductions based on net rental income passed through to you from one of the aforementioned pass-through entities. The IRS eventually issued taxpayer-friendly guidance that allows QBI deductions in most such cases, but you must follow complicated rules to collect the tax-saving benefit. As your tax pro for details.

What about the passive loss rules?

Ugh. If your rental property throws off tax losses (most properties do, at least during the early years and during years when the economy is suffering — like now), things can get complicated. The so-called passive activity loss (PAL) rules may come into play. Losses from rental properties will usually be classified as passive losses.

In general, the PAL rules only allow you to currently deduct passive losses to the extent you have current passive income from other sources, like positive income from other rental properties or gains from selling them. Passive losses in excess of passive income are suspended until you either have enough passive income or you sell the property that produced the losses. Bottom line: the PAL rules can postpone any tax-saving benefit from rental property losses, sometimes for years. Fortunately, there are several exceptions to the PAL rules that can allow you to deduct rental property losses sooner rather than later. Your tax pro can explain the exceptions and help you plan to become eligible, if possible.

Is that the end of the bad news?

Not exactly. Say you manage to successfully clear the hurdles imposed by the PAL rules for your rental property losses. So far, so good. But the TCJA established another hurdle that you must also clear to currently deduct those losses. For tax years beginning in 2018-2025, you cannot deduct an excess business loss in the current year. An excess business loss is one that exceeds $250,000 or $500,000 for a married joint-filing couple. Any excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carry-forwards. This loss disallowance rule applies after applying the PAL rules. So, if the PAL rules disallow your rental losses, this rule is a nonfactor.

COVID-19 Relief: Thankfully, the CARES Act suspends the excess business loss disallowance rule for losses that arise in tax years beginning in 2018-2020. That’s good news.

What’s the deal with net operation losses (NOLs)?

Say you manage to successfully clear both of the preceding hurdles for your rental property losses. Now we are talking, because you can generally use those losses currently to offset taxable income from other sources. If losses for the year exceed income from other sources, you may have a net operating loss (NOL) for the year.

COVID-19 Relief: The CARES Act allows a five-year carryback privilege for an NOL that arises in a tax year beginning in 2018-2020. So, you can carry an NOL from one of those years back to an earlier year, deduct it, and recover some or all of the federal income tax paid for the carryback year. Because federal income tax rates were generally higher in years before the TCJA took effect, NOLs carried back to those years can be especially beneficial. The TCJA kicked in starting with tax years beginning in 2018.

What if I have positive taxable income?

Eventually your rental property should start throwing off positive taxable income instead of losses, because escalating rents will surpass your deductible expenses. Of course, you must pay income taxes on those profits. But if you piled up suspended passive losses in earlier years, you can now use them to offset your passive profits.

Another nice thing: positive taxable income from rental real estate is not hit with the dreaded self-employment (SE) tax, which applies to most other unincorporated profit-making ventures. The SE tax rate can be up to 15.3%. Something to avoid when possible.

One bad thing: positive passive income from rental real estate owned by a higher-income individual can get socked with the 3.8% net investment income tax (NIIT), and gains from selling properties can also get hit with the NIIT. Ask your tax pro for details.

The bottom line

There you have it: most of what you need to know about the federal income tax issues that can come into play for rental property owners. The economic fallout from the COVID-19 crisis and recent civil unrest increase the odds that rental properties will suffer losses in 2020, but tax relief provisions may soften the blow.

The post 2020 Could Be an Unprofitable Year for Rental Properties. Here’s How to Handle the Taxes appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Why is the Homeownership Rate Soaring?

Homeownership makes many positive social contributions, but the most important may be that it is the predominant way families build wealth. And now, numbers are soaring.

The post Why is the Homeownership Rate Soaring? appeared first on Homes.com.

Source: homes.com

What Is a No-Fee Mortgage?

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When you apply for a mortgage or refinance an existing mortgage, you want to secure the lowest interest rate possible. Any opportunity a borrower can exploit to shave dollars off the cost is a big win.

This explains the allure of no-fee mortgages. These home loans and their promise of doing away with pesky fees always sound appealing—a lack of lender fees or closing costs is sweet music to a borrower’s ears.

However, they come with their own set of pros and cons.

No-fee mortgages have experienced a renaissance given the current economic climate, according to Ralph DiBugnara, president of Home Qualified. “No-fee programs are popular among those looking to refinance … [and] first-time home buyers [have] also increased as far as interest” goes.

Be prepared for a higher interest rate

But nothing is truly free, and this maxim applies to no-fee mortgages as well. They almost always carry a higher interest rate.

“Over time, paying more interest will be significantly more expensive than paying fees upfront,” says DiBugnara. “If no-cost is the offer, the first question that should be asked is, ‘What is my rate if I pay the fees?’”

Randall Yates, CEO of The Lenders Network, breaks down the math.

“Closing costs are typically 2% to 5% of the loan amount,” he explains. “On a $200,000 loan, you can expect to pay approximately $7,500 in lender fees. Let’s say the interest rate is 4%, and a no-fee mortgage has a rate of 4.5%. [By securing a regular loan], you will save over $13,000 over the course of the loan.”

So while you’ll have saved $7,500 in the short term, over the long term you’ll wind up paying more due to a higher interest rate. Weigh it out with your financial situation.

Consider the life of the loan

And before you start calculating the money that you think you might save with a no-fee mortgage, consider your long-term financial strategy.

“No-fee mortgage options should only be used when a short-term loan is absolutely necessary. I don’t think it’s a good strategy for coping with COVID-19-related issues,” says Jack Choros of CPI Inflation Calculator.

A no-fee mortgage may be a smart tactic if you don’t plan to stay in one place for a long time or plan to refinance quickly.

“If I am looking to move in a year or two, or think rates might be lower and I might refinance again, then I want to minimize my costs,” says Matt Hackett, operations manager at EquityNow. But “if I think I am going to be in the loan for 10 years, then I want to pay more upfront for a lower rate.”

What additional fees should you be prepared to pay?

As with any large purchase, whether it’s a car or computer, there’s no flat “this is it” price. Hidden costs always lurk in the fine print.

“Most of the time, the cost for credit reports, recording fees, and flood-service fee are not included in a no-fee promise, but they are minimal,” says DiBugnara. “Also, the appraisal will always be paid by the consumer. They are considered a third-party vendor, and they have to be paid separately.”

“All other costs such as property taxes, home appraisal, homeowners insurance, and private mortgage insurance will all still be paid by the borrower,” adds Yates.

It’s important to ask what additional fees are required, as it varies from lender to lender, and state to state. The last thing you want is a huge surprise.

“Deposits that are required to set up your escrow account, such as flood insurance, homeowners insurance, and property taxes, are normally paid at closing,” says Jerry Elinger, mortgage production manager at Silverton Mortgage in Atlanta. “Most fees, however, will be able to be covered by rolling them into the cost of the loan or paying a higher interest rate.”

When does a no-fee mortgage make sense?

For borrowers who want to save cash right now, but don’t mind paying more over a long time frame, a no-fee mortgage could be the right fit.

“If your plan is long-term, it will almost always make more sense to pay the closing costs and take a lower rate,” says DiBugnara. “If your plan is short-term, then no closing costs and paying more interest over a short period of time will be more cost-effective.”

The post What Is a No-Fee Mortgage? appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

The Pros and Cons of Building vs. Buying as a First-time Homeowner

If you’re torn between buying or building a home, understanding what each option entails will help you make a more informed decision. Here are the pros and cons of each journey.

The post The Pros and Cons of Building vs. Buying as a First-time Homeowner appeared first on Homes.com.

Source: homes.com

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